Broadening the Base

One problem with shifting toward an outpatient-focused strategy, Reeves says, is that such procedures are not as well-reimbursed as inpatient care, and they're vulnerable to physician competition if the services are lucrative.

"Costs are a lot lower on outpatient," he says, "but the danger is that when you get too much outpatient business, you get physicians wanting to compete with you."

All the same, Gordon has beefed up its outpatient imaging offerings, owns and operates a home healthcare company, and will open a new outpatient cardiac catheterization lab in the second quarter. Reeves is concerned that as inpatient volumes continue to decline, the healthcare payment system isn't keeping up to help hospitals with the unprofitable services they feel they must offer or that are otherwise difficult to exit.

"How we do healthcare now is now formed around the payment system. For example, the fact that surgery pays for money-losing services," he says. "I'll be interested in how President Obama's healthcare reform plan changes that."

Best practices going forward will involve focus on quality and keeping people out of the hospital. But without drastic changes in the payment system, hospitals still won't be paid for keeping people healthy, he says.

Some buck the trend
Inpatient healthcare is far from dead, however. Some hospitals are seeing increases in inpatient volumes even in the tight economy. Firelands Regional Medical Center, a two-campus hospital system in Sandusky, OH, opened a new $146.9 million patient tower and cancer center last spring, and has seen a 2.6% year-over-year increase in inpatient admissions from 2007 to 2008, says CFO Daniel Moncher.

"Part of that is an aggressive marketing program for inpatient rehab," he says of a program tailored to funneling in orthopedic and stroke patients from other outlying hospitals. Firelands has also been aggressively recruiting specialist physicians who can help drive volume to the new patient tower, Moncher says, as patients in the Sandusky area are interested in staying close to home for inpatient care rather than having to drive 60-70 miles to Cleveland and its academic medical centers.

"We saw this coming and we made sure we had the physician capital to help our inpatient trends go up," he says. Interestingly, Firelands has experienced a decline in outpatient volume due to physician competition.

Moncher acknowledges a need for expanding the system's outpatient care footprint, but echoes Reeves when he mentions the wild card of physician competition. A cancer center that is part of the new patient tower investment sits largely empty because the local oncology group decided to strike out on its own with an outpatient cancer center. Firelands is working with an academic medical center to rebuild an employed oncology group and help its cancer center volume, but the competition has clearly been a challenge.

"We've been very successful with our wound care center, and we're expanding that to a new hyperbaric oxygen therapy in that center that helps wounds heal quicker," says Moncher. Firelands also continues to invest in its home health business by taking its physical therapy center concept to storefronts in three outlying areas.

"The attitude we take is that ‘regional' is in our name. We are a regional medical center, and we need to build out the regional part."