Hospitals might once have been the treatment hub for all of a communities’ aches, pains, and surgical procedures — but that central status is becoming hazier by the day. In the last few years, increasing pressure to make health services more affordable, accessible, and effective has prompted many healthcare organizations to decompress their campuses and move towards a more outpatient-centric model. This shift stands to change wholly — and is already changing — the way patients, providers, and payers alike engage with care delivery.
Let’s consider the change in action.
Imagine a hypothetical patient. He has a failing hip, and his doctor has told him in no uncertain terms that it needs to be replaced. In a hospital-centric model, the patient might have traveled to his community hospital for the consult, stayed for the surgery, and returned for rehabilitation services. His experience would consist primarily of inpatient care — and his bill, given current averages, would be around $40,000.
Now, put that same patient within an outpatient context. Instead of traveling to the nearest hospital for the procedure, he might head to a standalone surgery center for the consult and operation, then visit another outpatient office for his rehabilitative care. His treatment is less centralized for sure — but according to current outpatient estimates, his bill will only come to $22,000-$25,000 total.
The cost savings inherent in an outpatient model are too significant to overlook. In hospitals, higher reimbursement rates are typically applied to compensate for the cost of maintaining 24-hour emergency care services and specialty equipment. Standalone surgeries don’t have the same expense overheads and can thus afford to charge less for certain procedures.
The lower-cost options these facilities provide — as well as an added degree of convenience — has been one of the driving reasons behind the shift from the previous, hospital-centric norm. Payers appreciate the lower costs, yes — but they also value the increased patient satisfaction that comes with not having to deal with a hospital’s bureaucratic inefficiencies. Employers and insurance networks gravitate towards outpatient centers as a means of limiting coverage costs; starting June of 2017, even Medicare began covering — and indirectly encouraging their enrollees to go to — outpatient centers for knee replacements and some hip surgeries. Provider organizations, for their part, can also appreciate the flexibility that a technology-enabled ambulatory office offers.
This wave of popularity has had a tangible impact. According to a recent report produced by the commercial real estate firm CBRE, the number of outpatient facilities in the United States leaped from 26,900 in 2005 to over 40,600 in 2016. Medical office deals have been on the rise in quickly-growing cities such as Atlanta, Dallas, and Houston; as of mid-2018, the vacancy rate for medically-oriented commercial real estate had dropped to a mere 8.4% overall.
Of course, these standalone treatment centers can’t support most of the procedures that hospitals handle. As of now, most ancillary care facilities only outsource a hospital’s urgent care offerings, knee- or hip-replacement surgeries, rehabilitative care, or wellness support services.
Even that much outsourcing, however, might seem counterintuitive at first thought. Surgeries and implants are major sources of revenue for hospitals; by moving those procedures to satellite locations that offer lower-cost services, hospitals lose out on potential revenue. However, that loss is counterbalanced by the potential for growth and savings in other places. When a hospital decompresses its main campus, it has the opportunity to invest in lower-cost, care settings that will have a lower expense overhead and offer higher profit margins.
That said, most of the hospitals that benefit from this sort of growth are already large organizations that have a considerable pool of resources to draw on during the expansion processes. A provider organization needs to be able to shoulder the costs that come along with establishing mergers, acquisitions, or partnerships — otherwise, the siphoning of patients to third-party outpatient facilities will severely undercut a hospital’s earning potential in a given community.
Hospitals might have been — and in many cases, still are — central hubs for medical procedures in a community. However, market trends indicate that the future of healthcare delivery will likely be more outpatient-centric as more procedures shift to more cost-effective and convenient satellite locations. This shift poses both a new growth opportunity for large provider organizations and a challenge to smaller ones, but only time will tell what impact the model’s evolution will have on payers, providers, and institutions in the long run.
