Healthcare leaders recognize that expansion of ambulatory and outpatient care networks can improve patient access, relationships, and revenue.
This article first appeared in the December 2015 issue of HealthLeaders magazine.
The number of factors driving ambulatory and outpatient care expansion seems to grow larger every day. Ironically, activities supporting both fee-for-service and value-based care models, normally moving in somewhat different directions, appear to coexist in a beneficial way in ambulatory and outpatient care.
According to the 2015 HealthLeaders Media Ambulatory and Outpatient Care Survey, two of the top three factors driving ambulatory and outpatient care strategy—expanding market share (50%) and increasing revenue (48%)—are mainstays of a fee-for-service model. On the other hand, more respondents cite improving quality and outcomes (52%) as a top driver, and tied for fourth position are population health management (43%) and responding to consumer-driven trends (43%), factors reflective of a value-based care model.
The reasons behind ambulatory and outpatient care expansion may originate from different strategic points of view, but the tactics and objectives have much in common.
"Whether you're in population health or whether you're in fee-for-service, it makes sense to try to create a broader network that can reach more people and have your organization achieve significant outcomes in less capital-intensive ways than by just building hospitals, which are among the most risked investment strategies because of the opportunity cost, the amount of capital that goes into them," says Scott Nordlund, executive vice president for growth, strategy, and innovation at Trinity Health, a Livonia, Michigan–based nonprofit with facilities in 21 states and 2014 total revenue of $13.5 billion. "Ambulatory/outpatient networks are great vehicles for reaching out to consumers."
While the most-mentioned survey results highlight the dual nature of the strategies driving ambulatory and outpatient care expansion, the results cited less often tell an interesting story as well.
Only 12% of respondents mention protecting market share as one of the top three factors driving strategy, indicating that most providers are in a proactive rather than reactive mode. This is consistent with the results from another question, where 84% of respondents say that the industry shift to ambulatory/outpatient care represents an opportunity (and not a threat).
Many providers are diligently laying the groundwork for what is coming—without a strong ambulatory network in place, the transition to value-based care will be difficult—and while some aren't focusing on risk right now, they soon will be.
"The movement toward point-of-service provision of care has taken on new importance."
"As we're moving more to share in the premium products and risk-based products, we obviously want to get people care earlier and do it at the least costly, most convenient site of care," says Mark Newton, president and CEO of Swedish Covenant Hospital, a Chicago-based 312-licensed-bed nonprofit teaching hospital with net patient revenue for 2015 of $286 million. "And so things which traditionally we would do on the inpatient side, the focus now is on doing these things on the outpatient side.
"Previously, our consumer model was you come to an acute provider and we then move you to 10 different points of service," Newton says. "As we are shifting our mode of delivery, there's a very strong belief now with the price-elastic consumer that we need to bring the services to the consumer, as opposed to the consumer to the services. And so the movement toward point-of-service provision of care has taken on new importance."
Andrew Racine, MD, PhD
Andrew Racine, MD, PhD, is senior vice president and chief medical officer at Montefiore Health System, a New York City–based organization that reported $3.6 billion in net revenue in 2014. He is also professor of clinical pediatrics at the Albert Einstein College of Medicine. Building a viable primary care network is an important aspect of the transition to population health, he says, but it is just one of the many factors driving the ambulatory/outpatient expansion.
"There has been an increased focus on population health, and that's a euphemism for a bunch of different things. But part of it is the notion coming out of the primary care community that the fundamental responsibility of a healthcare system is to identify people at risk for certain conditions and to try to prevent those conditions from manifesting. So how do you go about keeping people healthy? That, by definition, is the responsibility of the primary care enterprise," Racine says.
"And so, in a system in which rewards are beginning to be established for keeping people healthy, for maintaining lower costs and all of that, the primary care practitioner becomes the anchor by which all of those things take place," he says. "So there are a lot of different things moving through the healthcare sector that are pointing it in the exact same direction, but for a bunch of different reasons."
The top tactics respondents use to expand their ambulatory/outpatient network indicate that the industry is looking closely at physician organizations. The top responses cited are to partner with physician organizations (51%), acquire or establish physician organizations (48%), and partner with community-based organizations (46%).
While it may be tempting to interpret the survey results for physician organizations through a population health lens—and there is certainly some validity to that point of view—Nordlund cautions that ambulatory/outpatient expansion is being driven by many different factors.
"I don't think this is only about population health," he says. "These trends have been going on well before we started talking about population health. They may have accelerated a little bit, but I think the acceleration is due to the fact that expanding in the ambulatory/outpatient area and ultimately expanding access points is a no-regret strategy.
"It's a lot like developing physician networks and physician alignment strategies: It doesn't matter whether it's population health or fee-for-service behind it. These are just smart things for a healthcare organization to be looking at," says Nordlund. "Technology is a big driver of the acceleration as well. The equipment is getting more sophisticated and it's safer to do procedures in alternative settings, and so all of that mushrooms into more opportunities to operate in a more consumer-centric fashion."
Responses for outpatient tactics such as acquiring urgent care clinics (35%) or convenient care clinics (28%) fall in the middle tier, indicating that providers may be shifting resources to other areas. Regarding outpatient clinics, respondents show a preference for acquiring or starting their own versus forming a partnership with existing operations, with responses for partnering with urgent care clinics (19%) and convenient care clinics (15%) placing them in the bottom tier of tactics.
Survey responses suggest further evidence of the trend for convenient and urgent care clinics. Thirty-six percent of respondents say they currently participate in convenient care clinics through ownership or partnership, and another 15% say they plan to in three years; still, nearly half (45%) have no intention of pursuing that tactic. Likewise, 56% of respondents say they currently participate in urgent care clinics through ownership or partnership, and another 13% say they plan to in three years; 30% say they will not adopt that approach.
While a sizeable share have no plans to develop such clinics, actual participation rates in clinics are fairly high, reflecting a provider strategy of meeting the care needs of consumers where and when consumers want it.
"Our strategy is one that is focused on building relationships with the consumer," says Newton. "And our definition of market share is the number of lives with whom we have a relationship. It's not the number of patient days in a bed, as a definition of traditional market share.
"So we have moved off of the traditional definition of market share to relationship share, and we're going to eventually evolve to dollar-spend share," Newton says. "If that's starting to sound familiar in terms of other growing industries and transforming industries, it's meant to be exactly that."
The ambulatory/outpatient care areas offering the greatest financial contribution are specialty care (26%), surgery centers (24%), and primary care (19%). Specialty care and surgery centers provide the greatest contribution because they serve patients with higher acuity levels than the other ambulatory/outpatient settings, which results in higher reimbursements. Note that primary care, imaging centers, and physical therapy, because of lower average reimbursements, require higher patient volumes in order to generate the same contribution as specialty care and surgery centers.
Looking out three years, the top three areas making the greatest contribution remain the same, but the order is different. Notably, primary care (31%) has the highest response, followed by specialty care (24%) and surgery centers (20%). While most areas actually decline slightly within three years, primary care climbs 12 percentage points, and office-based surgery increases from 1% now to 3% in three years.
"We have moved off of the traditional definition of market share to relationship share, and we're going to eventually evolve to dollar-spend share."
"I don't think that people are expanding surgery centers and imaging centers that rapidly anymore," says Newton. "I think the trend is starting to dampen down, and there are a lot of reasons for it related to the changing structure of the physician community. I think some of it is the fact that you've got alternative investments and other opportunities, and also challenges with the deployment of scarce capital. And I think it's a matter of who's also controlling the premium dollar, because if you control the premium dollar, you can buy capacity on the spot market. So why build it if you can control the premium dollar?"
Net patient revenue and investment
The ratio of net patient revenue from inpatient acute care (47%) versus ambulatory/outpatient care (53%) is relatively even, although the results vary based on factors such as size or the organization's status as a for-profit or nonprofit. For example, the ratio among small organizations, by net patient revenue (58% outpatient versus 42% inpatient), is much greater on the outpatient side than among medium (48% versus 52%) and large (45% versus 55%) organizations. For-profit organizations also rely more on outpatient revenue (60% versus 40%) than nonprofit organizations (50% versus 50%).
The outlook for net patient revenue from outpatient care is an optimistic one, with 54% saying the revenue will increase by 10% or more within the next three years, and only 2% saying that it will decline. Interestingly, the organizations that had lower inpatient acute care revenue than ambulatory/outpatient care revenue are the most aggressive in their projections for the future. For example, a greater share of large (64%) and medium (60%) organizations than small organizations (45%) expect ambulatory/outpatient care net patient revenue will increase 10% or more, and more nonprofit organizations (57%) than for-profit organizations (46%) expect this.
Given respondents' expectations for net patient revenue growth in ambulatory/outpatient care, it is not surprising they indicate that in three years their capital budget investment ratio will favor ambulatory/outpatient care expansion (63%) over inpatient acute care expansion (37%) by a wide margin. Also, as one would expect, outpatient versus inpatient expansion investment is greater among physician organizations (81% versus 19%) than among health systems (59% versus 41%) and hospitals (58% versus 42%).
Organizations are dedicating more of their capital budget investment to ambulatory/outpatient care than inpatient acute care. Part of this is because improvements in inpatient acute care require more capital than outpatient improvements, and organizations may see better return on investment in ambulatory/outpatient care settings. However, larger organizations, by net patient revenue, are dedicating proportionally less (53% outpatient, 47% inpatient) compared to medium (59%, 41%) and small (68%, 32%), an indication that they have larger inpatient infrastructures to maintain.
Sounding a familiar theme, respondents also indicate that facility expansion investment plans over the next three years heavily favor ambulatory/outpatient care (55% give it a No. 1 rank) over acute care surgery or operating room (18%), general acute care (16%), and emergency department (11%). The same holds true for expansion of care services over the next three years: Responses are led by ambulatory/outpatient care (63% give it a No. 1 rank), followed by acute care surgery or operating room (15%), general acute care (11%), and emergency department (11%).
The responses for facility expansion and care services expansion go hand-in-hand; providers are focused on increasing both access to care as well as the range of services provided in those access points.
Threat versus opportunity
While most respondents (84%) see the shift to ambulatory/outpatient care as an opportunity, they also are clear about where they expect competitive threats to come from in this segment. Twenty-one percent expect that retail medicine (e.g., pharmacies, big-box stores) will present the greatest competitive threat to their organization within three years, followed closely by physician organizations (20%). In the second tier of potential threats are convenient care clinics (13%), on-campus services from hospitals (11%), surgery centers (10%), and urgent care clinics (10%).
While providers may feel threatened by retail medicine because of its wide and growing accessibility, customer convenience, and low prices, an organization's relationship with such facilities need not be adversarial. In fact, many providers have entered into partnership agreements with players such as CVS and Walmart, and, for the most part, these relationships are mutually beneficial.
Nordlund says both parties benefit, but in different ways. "Typically, retail clinics have strategic affiliations that may not be financial, but involve things like data sharing so providers can manage a population better. It may involve opportunities where the clinic has somebody come in who does not have a primary care physician, or somebody new to the neighborhood, and then you have a type of preferred relationship where you can get them connected with a PCP. And if an inpatient hospitalization is required and you have that relationship, at least that's top of mind.
"Partnerships with retail organizations also serve as an extended network where you're trying to manage a population, and that population goes to a multitude of different spots for care," Nordlund says. "How do you best design information flow so that you can capture the behaviors of patients, so that you can intervene appropriately to make sure that they are following treatment regimens that you want them to do to keep them healthy? And also, those organizations may have things like 340B programs, and discounts for drugs and other programs of value." The 340B Drug Pricing Program is a federal program that requires drug manufacturers to provide outpatient drugs to eligible healthcare organizations or covered entities at significantly reduced prices.
Nordlund points out that retail organizations have different motivations for entering into a partnership than providers do, and they are not focused solely on providing healthcare. "I think from their perspective they're looking on this as a purely business relationship that has the ability to generate pull-through business for the pharmacy."
Racine says that while retail clinics can be competitors with some primary care organizations, they also play an important role in helping to manage the health of a population. "I will tell you without equivocation that some primary care practitioners view these retail clinics as direct competitors. However, I think for large integrated systems like Montefiore, this is really an opportunity to collaborate with organizations that can help us. Believe me, there's enough work out there for everybody.
"To the extent that you can have a partnership with a pharmacy like CVS—one that can help you make sure that the counseling for patients who are on chronic medications is both timely and effective, that can help you monitor whether or not someone is filling their prescriptions, and that can feed that information back to your IT platform and into your medical record—these things can only help how you monitor and take care of patients," Racine says. "And so partnering with a retail clinic that can help you with medication management is really a no-brainer."
Nordlund summarizes his views on ambulatory/outpatient care expansion this way: "When you think of the kinds of things you can do that are no-regret strategies whether you are in a fee-for-service or a population health environment, building out a network and building up more access points that can create more relationships is a great strategy. Unfortunately, Trinity Health is not the only one that understands that. So it's a competitive space."