The Growth Channel

2 lessons from 10 years of outpatient shift data

by Haley Wiesman and Lauren Lawton

As the outpatient shift continues to unfold, many system leaders—worried about revenue erosion, excess inpatient capacity, and unnecessary costs—are investing in rapid ambulatory expansion. But based on our research, that process can make leaders susceptible to three missteps:

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  1. Wrong service—leaders struggle to anticipate which services will shift and how fast
  2. Wrong timing—leaders risk investing too early, eroding profits or investing too late and missing opportunity; and
  3. Wrong place—leaders invest in one site, but services don't shift as quickly or move instead to other sites of care.

To address these challenges, we set out on a research agenda to test the most common assumptions about outpatient shift. Looking at Medicare volumes by site of care from 2005-2016, we identified four interesting trends and highlighted two points from our research below to help you make smarter outpatient investments. 

1. You have time to prepare. Outpatient shift typically happens slower than expected.

Current assumption: Once a procedure is removed from CMS' inpatient only list, it will immediately shift to the hospital outpatient department (HOPD) and erode inpatient margins. Once a procedure is approved for the ambulatory surgery center (ASC) setting, it will drastically shift again.

What we found: Outpatient shift actually happens much more slowly and gradually than that, particularly for procedures shifting from the inpatient or HOPD settings to the ASC setting. Take partial knee arthroplasty (PKA), for example, which was removed from the inpatient only list in 2002 and approved for the ASC setting in 2008. Five years after it was approved for the HOPD setting, only 8% of all PKA cases were being performed in the HOPD. Similarly, five years after PKA became ASC-eligible, just 8% of cases shifted to the ASC setting. Based on this case and many similar ones, we know that new CMS rules do not automatically trigger significant shifts in site of care.

By knowing when outpatient shift is likely to occur, planners can avoid investing too early in an outpatient strategy that would erode inpatient profits. On the flip side, planners can prepare to build an outpatient network at the right time to secure a competitive edge before it's too late.

2. You cannot assume a standard outpatient shift trajectory.

Current assumption: As procedures shift to outpatient settings, they will follow a set trajectory, moving from inpatient, to HOPD, to ASC, and finally to the physician office setting.

What we found: Although this is true for the majority of procedures we looked at in our research, some procedures did not shift further than HOPD, even when they became ASC-approved. Other procedures—such as peripheral interventions, shown below—skipped a site of care, shifting from the outpatient setting to the physician office setting, bypassing the in-between step at the ASC.

By understanding the range of potential shift trajectories and the reasons a procedure may follow one trajectory over another, planners can better anticipate the magnitude of potential revenue loss, since reimbursement rates vary significantly across sites of care.

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