Health systems have been developing their ambulatory platforms over the last several decades as technology and consumer demand has shifted from the inpatient to outpatient setting. Although the historical approach has successfully grown health system ambulatory revenue faster than inpatient revenue, health systems need to reconsider the approaches to ambulatory strategy.
Until now, ambulatory services have been treated as a low-acuity extension of the inpatient enterprise or a technical extension of the provider enterprise. Both perspectives are detrimental to ambulatory enterprise success. The market does not view ambulatory services as necessarily tied to the inpatient or physician enterprise, as is evidenced by the flow of venture capital and entrepreneurial dollars to non-traditional ambulatory providers. Many will say the consumer benefits from these new market entrants and their increased focus on unmet consumer needs; however, these new entrants also create care fragmentation and discontinuity.
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To safeguard efforts to enhance the coordination of care, health systems should reengineer their ambulatory strategy to meet consumer demands and ensure care continuity.
Health systems must rethink their ambulatory strategy in five areas:
- The role the ambulatory enterprise plays for the system
- The services on which the ambulatory enterprise is focused
- The structures by which the ambulatory enterprise is managed
- The partners with which ambulatory services are developed
- The means by which the ambulatory services are monetized
The Ambulatory Enterprise's Role
Historically, the ambulatory enterprise role has been to "feed" the health system with additional sick patients requiring inpatient services. Driven by rapid employment, ambulatory has acquired a new role of supporting the health system's providers. For future success, ambulatory must take on four new roles.
1. Create new access points
Ambulatory services account for more than 95 percent of total healthcare encounters. As such, health system growth requires many more ambulatory access points. Moreover, these ambulatory access points must be easily accessible throughout the market to meet patient convenience expectations. This generally means ambulatory services must be developed away from the hospital campuses and in communities where people live and work. Health systems that create these neighborhood care points will remain relevant to their current and future patients by offering a more convenient healthcare experience.
2. Reduce the unit cost of care
Reducing the total cost of care requires better care management, coordination and more efficient processes. Low-cost ambulatory locations create these efficient, coordinated care protocols. Lower investment costs, fewer regulations, and reduced complexity mean services in an ambulatory setting can be delivered at a lower unit cost.
3. Connect new patients to the system of care
Ambulatory services require less critical mass than inpatient services and can therefore be used to enter new markets, connecting the health system with new patients and geographies. Often in these new markets, the downstream referrals more than support any start-up costs incurred to enter a new market. However, unlike the historical approach of capturing sick patients to "feed" the inpatient enterprise, connecting an individual to a system of care creates a lifetime relationship value and a population base attached to the specific health system's system of care.
4. Build partnerships
Ambulatory investments can spur new provider partnerships. First, ambulatory services remain upstream of the inpatient services. As such, those that have the ambulatory patients can influence when and how the patient interacts with a downstream system of care. This influence over patient referrals provides strong incentive for other local health systems to partner with the ambulatory service owners. Second and more traditionally, investing through joint ventures can create stronger physician relationships as economic alignment increases.
The new ambulatory enterprise roles, however, will not be successful unless the ambulatory development thrives. This requires reexamining the services upon which the ambulatory enterprise is focused.
Rethinking Ambulatory Products
The belief that the most valuable ambulatory services are those that generate the largest revenue needs to be rethought. In an environment where health systems connect patients to a system of care, and payments move towards rewarding longitudinal patient relationships, creating long-term patient relationships creates large lifetime value.
The growing importance of lifetime value is making first healthcare touch points important to health systems' ambulatory plans. As a person becomes a patient, they are highly impressionable. Numerous studies have shown patients will follow their doctor's advice and referrals. As a result, whoever first touches the healthcare consumer has broad influence over how that person's care will proceed, which health system they will use and, in risk-based models, to which provider the patient will be attributed for payment.
Historically, the first touch typically occurred with a primary care doctor, many of whom are now employed by health systems. Nowadays, healthcare consumers have an increasingly broad range of options meeting their unique timing, acuity and convenience needs. These options include urgent care centers, retail clinics, virtual care portals, hospital-based and free-standing emergency rooms, and the traditional scheduled primary care clinics.
Where specialty services are a part of ambulatory care, health systems must also reevaluate how they are deployed. Multidisciplinary care is increasingly important for population health quality care. Efficient multidisciplinary care requires scale. As such, health systems must reassess developing small specialty ambulatory services in multiple locations and instead consolidate services into large multidisciplinary ambulatory destination centers. These ambulatory destination centers are not defined by their size (a large medical office building might have the same amount of space), but by the multidisciplinary ambulatory diagnostic and treatment operations they bring together in efficient scale off the hospital campuses.
Health systems must rethink their ambulatory enterprises' focus on high-acuity, single-specialty procedural services and instead consider who controls their future patients' first healthcare touch points and how they will develop efficient multidisciplinary centers in markets distant from their hospitals.
Rethinking Ambulatory Organizational Structures
It has long been understood that ambulatory services require some separation from the hospital operating model to be successful. Yet many health systems are struggling to find the right leadership structures for their ambulatory enterprise. Without clear precedence, no bench of up-and-coming ambulatory leaders exists. Health systems wanting to drive the ambulatory agenda must change their ambulatory enterprise's structure and attract leaders with new skills.
As the ambulatory enterprise comes to the forefront of healthcare delivery, the organizational structures must evolve to provide some autonomy to each health system division to serve the consumer's needs. However, with independence comes responsibility for the ambulatory enterprise to stand on its own financially and integrate care with the rest of the system.
New ambulatory organizational structures require new leaders for the ambulatory enterprise. As long as the ambulatory enterprise is seen as a stepping stone for aspiring hospital CEOs, the ambulatory enterprise will not receive the long-term leadership focus it needs. Health systems must therefore reconsider who is leading their ambulatory enterprise. The leader must bring a long-term ambulatory focus and key capabilities:
- An understanding of the retail health-consumer
- A desire to create standardized, predictable and repeatable processes
- A passion for lean operations
As these new structures and ambulatory-focused leaders are developed, the types of partnerships needed to implement a successful ambulatory strategy also must be revisited.
Rethinking the Ambulatory Partners
Traditionally, health systems have looked to specialty physicians as partners when developing ambulatory sites. Numerous examples exist of joint ventures with radiologists for imaging centers, surgeons for surgery centers, cardiologists for cardio-diagnostic centers, etc. Absent full-scale employment, these joint ventures will remain important. However, as healthcare consumers' influence grows and reimbursement models shift, the ambulatory enterprise needs new capabilities and thus different partners to succeed.
As the ambulatory enterprise role changes, the new capabilities that are needed include:
- Ability to segment populations by clinical and preferred time, access point and desired disease management approach
- Strong understanding of consumerism, consumer purchase patterns and retail traffic patterns
- New technology to allow asynchronous virtual primary care
- Expertise in unscheduled, on-demand service delivery
- Knowledge of the consumer definitions of convenience and service
- CRM and ongoing relationship management capabilities
- Downstream continuity and future care coordination/scheduling tools
As with other industries, many of these capabilities are tied to accessing, analyzing and managing information flow. Ambulatory partnerships must consider the new capabilities a potential partner brings, recognizing these capabilities are often found outside the traditional healthcare providers.
Rethinking Ambulatory Financial Returns
As the ambulatory enterprise grows and non-traditional partnerships are formed, ambulatory services can no longer be seen as a loss-leader feeding a profitable inpatient enterprise and instead, stand on their own financially. The transition becomes increasingly difficult when provider-based billing declines and ambulatory services are priced on the open market.
Three steps are required to rethink the ambulatory financial model:
- Live on outpatient rather than hospital-based pricing. Health systems should not leave money on the table, but instead recognize the hospital-based pricing arbitrage is rapidly coming to an end.
- Design the management model around the ambulatory enterprise rather than overlaying an inpatient management model and overhead structure.
- Use the right management financial metrics. The ambulatory enterprise must invest in and manage its capability investments as thoroughly as its fixed infrastructure investments.
Summary
Growing the ambulatory enterprise is critical to the long-term success of health systems. To successfully grow the enterprise, health system leaders must constantly reassess their old approaches and adapt their models to the market demands.
Kate Lovrien is Principal at Health System Advisors and Luke C. Peterson is Vice President of Innovation at Urgent Care Partners. They can be contacted at Kate.Lovrien@HealthSystemAdvisors.com or Luke.Peterson@UrgentCarePartners.com.
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