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Redefining Cardio

Elyas Bakhtiari, for HealthLeaders Magazine, April 9, 2009
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The cardiovascular service line remains a dependable revenue generator for many hospitals across the country. But a shifting market full of new options for patients means organizations must find ways to differentiate themselves to keep it that way.

Hospitals and health systems tend to lean heavily on a handful of service lines that bring in enough revenue to offset losses in other areas, and that is especially true in difficult times. That means strengthening cardiovascular service lines—a core revenue generator that often accounts for a sizable chunk of top-line income and bottom-line profits—may be the key to survival and growth for many organizations as operating budgets are strained in an economy struggling to break out of recession.

Cardiovascular programs aren't recession-proof and are being hit by capital crunches and other financial maladies. But overall the outlook remains positive: Spending on cardiovascular diseases tops $300 billion annually, in part because nearly one in three Americans has one or more types of cardiovascular disease, and heart disease remains the No. 1 killer of both men and women.

Senior leaders see cardio as the service line with the greatest potential for revenue growth in the next three years, according to the HealthLeaders Media Industry Survey 2009. But it will be a different kind of growth—more targeted and competitive—than the boom in investment seen in recent years.

The race to build facilities for invasive cardiology and capitalize on a growing field in recent years has saturated some markets. The emphasis is now not just on expansion, but differentiation. Scientific and technological innovations, combined with economic forces, are pushing heart and vascular services to outpatient settings and reshaping the landscape. The market is shifting toward minimally invasive procedures, at least when it comes to some of the more basic diagnostic services. This segment of the market sees considerable competition between physicians and hospitals, and it will be the future of cardiovascular care as minimally invasive alternatives are offered for even the most complex inpatient procedures.

"The whole idea of even doing bypass surgery the old way where you crack somebody's chest open, that's going to go away. They're making small incisions to do bypass surgery with robotics. That's an evolution that will continue to advance," says Victoria Hollingsworth, administrative director for ancillary services for Beaumont Hospital, a 1,061-bed major academic and referral center with level-one trauma status in Michigan.

The shifting market has given patients more options in the form of specialty hospitals, heart and vascular institutes, and physician offices, but that means existing programs risk losing market share. And to top it all off, reimbursement cuts have decreased profits for many inpatient procedures, shifting hospitals' strategic priorities.

Margin erosion is a serious problem, and past performance does not guarantee future results. Cardiovascular providers have to redefine their value for both patients and physicians—before the competition beats them to it.

Key No. 1: Diversify and subspecialize
Most service line managers have two goals: weather the current economic storm, and at the same time position the service line for future growth. In both cases, success depends heavily on the array of services offered.

For the time being, the real money is still made on the inpatient side—reimbursement is higher for cardiac surgical procedures, and that's where most hospitals bring in serious revenue. But hospitals can't bank on that lasting. The volume of outpatient procedures has been steadily growing, and even some inpatient procedures have recently been reclassified as outpatient (leading to a substantial reimbursement drop). Better medical management and stent procedures have also cut into surgical volumes.

The best way to both prepare for the future and maximize today's profit potential is to offer a diverse range of services that taps into both markets.

"It's similar to diversifying your economic portfolio," says Maureen Clancy, vice president of the heart and vascular service line at Washington Hospital Center, a 926-licensed-bed private hospital in the nation's capital. "When you have the ability to shift from one product line to another or to absorb and not have to start up a new program when the market starts to swing one direction, you're in great shape."

Subspecialization not only offers stability in the near term, it helps distinguish an organization from competitors. Most hospitals can offer services like cardiac catheterization, stress testing, and nuclear medicine, and in some cases so can physician practices. Fairly common procedures may make up the bulk of any given facility's procedures. But with so many competitors with the same offerings, the real differentiators are the more specialized, emerging services like specialized valvular disease, electrophysiology, and interventional valve replacement.

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