Ambulatory Revenues Grow as Inpatient Volumes Shrink

The shift away from post-acute hospital-based procedures to ambulatory services, which lack high-cost infrastructures, is "the future of healthcare," according to one health system executive. Keys to revenue growth include economies of scale and joint ventures with physician groups and hospitals.

Ambulatory surgery centers will continue to record volume growth as hospital inpatient surgery volumes continue to shrink, a report from Moody's Investors Service shows.

Moody's senior analyst and vice president Ron Neysmith said in a new study this month that the lower costs for outpatient procedures in ambulatory settings are driving the transition away from hospital-centric care.

"Ambulatory service centers provide care without the high-cost infrastructures associated with hospitals," Neysmith said in prepared remarks. "More procedures can be done safely on an outpatient basis and outpatient facilities are reimbursed on average 57% of the hospital rate for similar procedures, so insurance payors, including Medicare, have increasingly been directing patients to lower-cost settings."

As a result, ambulatory service centers' same-store revenues have been growing in the low- to mid-single digits since 2007 while same-hospital inpatient surgeries have been flat (measured at a 0.22% annual decline) in the same period.

Rob Shelton, director of marketing and communications at SSM Health Care, says the St. Louis–based health system is part of the industry-wide transition into the outpatient setting for several service lines, including imaging, pain management, ambulatory surgery, and urgent care.

"The system is forcing us to move to an ambulatory environment. Medicare and other payers don't want to pay for inpatient stays. For the first time in SSM's history the scales have tipped and more of our business is actually on the outpatient side than on the inpatient side," Shelton says. SSM operates 18 hospitals and 150 outpatient sites across four states.

The shift towards outpatient settings may have been accelerated by the recession, which brought with it higher unemployment and reduced the number of insured people in the marketplace, the Moody's report says. At the same time, elective procedures have dropped owing to the economic uncertainty and because insurance plans have raised copays, deductibles, and other out-of-pocket expenses for patients.

SSM views the shift as "the future of healthcare: services delivered in more of an outpatient ambulatory setting and meeting the needs of our patients," Shelton says. '"When you look at it from a revenue perspective and a volume perspective, we are actually seeing more, and that is across the board on outpatient, and that includes a wealth of different services."

Shelton says SSM is not interested in opening another hospital in the St. Louis market. "We really have shifted focus to the outpatient side," he says. "Hospitals of course have larger overhead. An ambulatory network can have less overhead and give us more penetration into the market. We continue to look at where we need to be in our market across the St. Louis region, whether that is placing physician offices or urgent care centers, imaging centers, rehab centers, pain care centers, any number of things that are performed on an outpatient business."

Moody's Neysmith said the top financial performers among ambulatory service centers will be those that concentrate on higher revenue treatments such as orthopedics and pain management. At the same time, growth in ambulatory service centers could be tempered by reductions in reimbursements, the shift toward bundled payments and value-based care, and the continued acquisition of surgery centers by hospitals. Even with those caveats, Neysmith says ambulatory surgery centers are well positioned to take advantage of an aging population.

"In a highly fragmented market, the larger players with economies of scale and joint ventures with physician groups and hospitals will benefit from patient referrals," he said.