J.P. Morgan Healthcare Conference: Revenue Shifts to Outpatient

Healthcare leaders tell Wall Street investors to look at two trends for revenue growth: in the expansion of outpatient care and in clinical integration leading to value-based care.

The annual invitation-only J.P. Morgan Healthcare Conference in San Francisco is where Wall Street meets healthcare to talk business. This year's themes ranged from preparing for the newly insured to continuing the expansion of clinically integrated networks.

For the fourth year, the conference featured big, competitive not-for-profit systems such as Geisinger Health System, Intermountain Healthcare, and The Cleveland Clinic and academic institutions such as Rush University Medical Center.

In 30-minute sessions this week, executives from not-for-profit systems often took the opportunity to thank investors for buying their debt, or in some cases, invited them to buy more. At the not-for-profit sessions, there was no Q&A period, while sessions featuring presentations by for-profit systems such as Humana and Tenet Healthcare were followed by 30 minutes of intense investor grilling.

Investors want to know what's fueling growth. At Chicago-based Advocate Health Care, the answer is non-acute care, said executive vice president Lee B. Sacks MD. "Clinical integration has allowed us to advance in value-based care," he said. "With local leadership and local focus, yet doing things as a system, we've had incredible success."

Sacks says that within 30 to 60 days, Advocate expects to announce "a future clinically integrated entity—not just another PHO [physician-hospital organization], but a hospital that's not owned or managed by Advocate [and] that wants to clinically integrate. It will enhance our geographic coverage, and we anticipate that it will make us more attractive to payers, employers, and to individuals who are purchasing insurance through the exchanges."

A Shift to Outpatient Revenue
In hotly competitive New York City, NYU Hospitals Center chief financial officer Michael Burke made numerous references to "a little challenge called [Hurricane] Sandy" and how the NYU Langone Medical Center has endured during the rebuilding of its emergency department. The ED has been closed since the October 2012 storm and is due to reopen in April.

"I would challenge anybody to take any big academic medical center and survive for 16 months without an emergency room and see how they do," Burke said. "We made a profit despite that."

At the same time, NYU Hospitals Center shifted from a mix of 60 percent inpatient revenues and 40 percent outpatient revenues in 2010, to a mix of 51 percent outpatient and 49 percent inpatient in 2013. "We've achieved that by expanding the amount of clinical space we have dedicated to outpatient care," Burke said.

The Langone emergency department rebuilding project was greatly assisted in December by billionaire financier Ronald O. Perlman, who pledged $50 million to the effort.

Meanwhile, Langone created an urgent care center, which now sees a volume of patients that rivals its old emergency department patient volume. "We might not get as many 911 ambulance calls as we did in the past, but we're making do and we're adapting until the emergency room is completely reconstructed," Burke says.

"Manhattan is probably the most hyper-competitive healthcare environment in the country," he says. "There are a lot of hospitals and a lot of medical groups [and] physician groups within Manhattan. As far as our clinical care delivery, shifting to outpatient has been a large focus of ours, and it really helped us get through Sandy."

HCA Holds Steady
Over in the for-profit portion of the JP Morgan conference, HCA, the largest non-governmental hospital system in the U.S. as measured in revenue, EBITDA, and market capitalization, gave a steady-as-she-goes presentation that seemed to reflect little of the turmoil smaller systems are currently facing.

In the past two years, HCA added 900 new beds, and has achieved 22 straight quarters of growth, says Milton Johnson, president and CEO of HCA.

"We've achieved this performance in a tough growth environment," Johnson told investors.

"While we are developing strategies to take full advantage of the newly insured, we are also continuing to build on the strategies that have enabled our strong performance over the past few years," he said. "We see healthcare reform as a net positive for HCA. Some of HCA's most important markets are in states with the highest level of uninsured. This is certainly true in Florida and Texas, which between them represent about 50 percent of HCA's revenue, and when enrollments finally do begin to pick up, we expect to get a lift from reform."

HCA has a good starting point in payer networks as a means to accessing these newly-insured exchange members. "It's worth pointing out that we're just in the first inning with respect to healthcare reform," Johnson says. "No doubt the recent early implementation issues raise the level of uncertainty in the short term, but we remain optimistic that we will see positive impact over the long term."