Historically, hospital and health system leaders considered inpatient care provision their core mission. Resources (e.g., time, capital) and strategies were accordingly focused on advancing inpatient services. Outpatient strategies often served to advance and defend inpatient missions by aiming to increase utilization of primarily inpatient infrastructure or align physicians to secure inpatient volumes.
Forces driving change
Now, converging factors are forcing hospital and health system leaders to elevate ambulatory strategy's importance to equal, if not greater than, that of inpatient services. Three factors are driving increased focus on ambulatory missions.
First, compared to inpatient services, ambulatory services present greater growth opportunities. Despite population aging, per capita utilization of inpatient services remained relatively flat from 2000-2010.[1] Over this timeframe, per capita hospital ambulatory visits grew 14 percent.[2] The utilization divergence partially reflects substitution of outpatient care for inpatient care; this substitution has been technologically enabled and incented by payors.
Second, rapid physician employment has catalyzed ambulatory revenue growth at many hospitals and health systems, forcing leadership to focus on the increasingly important outpatient arena. Traditionally, U.S. ambulatory care occurred in three financially distinct settings: hospitals, physician offices and investor-owned facilities. With a 34 percent [3] increase in hospitals' physician employment from 2000 to 2010 and more than 50 percent [4] of America's physicians practicing in hospital or integrated delivery system employed settings, two of the aforementioned ambulatory care settings — physician offices and hospitals — are quickly financially integrating.
Third, many hospital and health system leaders invest in ambulatory services to achieve lower cost delivery platforms. The current reform environment is shifting the U.S. healthcare competitive para-digm, albeit slowly, from one that rewards volume to one that rewards value (quality and service per cost unit).[5] Because ambulatory settings represent cost effective environments to deliver routine services, many hospital leaders view ambulatory sites as key levers in their quest to create patient value.
Emerging planning considerations
Designing an ambulatory platform to create patient value, versus to protect and drive inpatient admis-sions, however, requires a revised approach to ambulatory planning. Historically, ambulatory and inpatient strategies aimed to aggregate volumes to achieve profitable infrastructure utilization.
Going forward, ambulatory and inpatient strategies must not only aim to aggregate volumes, but also to appropriate volumes. Creating value will require that patients' needs match the cost and resource profile where care is delivered. Success will require that assets are not simply filled, but filled with appropriate patients.
Developing an ambulatory platform to appropriate volumes and create patient value requires hospital and health system leaders to address five new questions in current and future ambulatory planning efforts.
1. Which markets warrant ambulatory presence?
Traditional ambulatory planning often begins with market analysis, designed to identify attractive markets for expansion. Factors incorporated into analytics and planning discussions often include payor mix, projected population growth and aging and hospital market share/competitive positioning.
To create patient value, ambulatory strategic plans cannot solely focus on identifying attractive markets for expansion. Now, ambulatory strategies must also address, "Which markets warrant our ambulatory presence?" Specifically, hospital and health system leaders must understand where opportunities to improve patient service or reduce costs are geographically concentrated. Planning analytics and discussions might aim to provide insight into:
2. How do ambulatory service offerings fit into the care continuum?
Today, the scope of services at many hospital-owned ambulatory sites reflects profitability differentials across services and inpatient priorities. Many hospitals and health systems developed ambulatory platforms by identifying high potential markets and seeding sites in those markets with profitable services and/or services tied to high priority inpatient programs.
While linkages between inpatient and ambulatory offerings will no-doubt continue to remain important, ambulatory plans must now address the broader question, "How do ambulatory services at each site fit into our broader care continuum?"
To create patient value, the anachronistic inpatient service lines must be incorporated into comprehensive, coordinated care continuums with rational, distinct access points. Within a given service line, less resource intensive, higher utilized services should be offered across a multitude of low-cost settings, while resource intensive, infrequently utilized services should be concentrated at a few locations. Moreover, each service line's continuum of services — whether owned or partnered — should extend beyond acute services and include preventive, post-acute and home-based services. Accordingly, ambulatory strategies should clearly delineate cost and resource profiles for each site and linkages (information technology, care and transfer protocols) across the care continuum.
3. What is the clinical integration approach with physicians?
Because many hospitals and health systems provide care in partnership with independent, private practice physicians, economic relationship models (e.g., physician joint ventures, clinical co-management agreements) frequently underpin ambulatory strategies. These tools were often initiated to attract physicians to practice at hospital-owned ambulatory sites.
In all settings, hospital-physician relationships must move beyond finances alone toward clinical integration. Advocate Physician Partners, for example, defines clinical integration as, "a structured collaboration between [physicians] and [hospitals] on an active and ongoing program designed to improve the quality and efficiency of healthcare . . . ." Regardless of the financial model and structure used, we recognize five building blocks to clinical integration: 1) shared leadership, 2) provider (physician and hospital) networks, 3) care and service delivery models, 4) information technology and connectivity and 5) standardized clinical performance.
Going forward, hospitals' ambulatory strategies must answer, "How will we clinically integrate with physicians practicing in our ambulatory platform?" and include tactics addressing each clinical integration building block.
4. How will care be standardized across the ambulatory platform?
Realizing clinical integration benefits often requires standardizing (reducing variation/poor performance and waste) clinical care. Conventional operational tenets imbedded in ambulatory plans focus on maximizing efficiency and utilization. Ambulatory strategies should now further address the approach to standardizing care.
At a minimum, ambulatory strategies should outline processes and tools to identify, develop, test, implement, measure and refine care and patient service protocols. Doing so requires hospitals and health systems to build continuous improvement cultures and capabilities, as well as the requisite information technology infrastructure to collect, mine and meaningfully summarize patient opinions and outcome data.
5. How will our payor relationships enable patient value creation?
Most hospitals and health systems still operate within payor relationships that principally reward volume growth in lieu of value creation. In this environment, creating an ambulatory platform that maximizes patient value financially undermines its sponsor. Some of our clients have successfully implemented strategies to improve quality and reduce waste (e.g., reducing readmissions) and lost millions of dollars in the process because their payor relationships were not reconsidered along with their strategies.
Thus, hospital-payor relationships must evolve in parallel to hospitals' repurposing their ambulatory platforms to create value. Adversarial, zero-sum-game relationships must transform to symbiotic partnerships that equitably distribute returns from quality and efficiency gains among payors, providers and patients.
Conclusions
The transition from volume-based to value-based competition appears to be underway in earnest. While the legislative trajectory may change, stakeholders (patients, physicians, providers and payors) universally acknowledge that the current system is unsustainable. Continued reform seems likely. Ambulatory and inpatient strategies are capital intensive, and therefore, have long implementation horizons. As such, hospital leaders must craft and execute ambulatory strategies that address the immediate financial imperative for volume growth while repositioning their systems to create and deliver patient value.
Thomas Dixon, Jason Lineen and John McHugh are senior leaders in Navigant's health system strategy practice. Together, they have almost thirty years of experience advising hospital and health system leaders on issues related to enterprise strategy, ambulatory and service line planning, capital deployment and merg-ers/affiliations.
Footnotes:
[1] Trendwatch Chartbook. American Hospital Association. 2012. and NCI Analysis
[2]Trendwatch Chartbook. American Hospital Association. 2012. and NCI Analysis
[3] Lowes, Robert. “Number of Physicians Employed by Hospitals Snowballing.” Medscape Medical News. 24 Jan. 2012.
[4] Lockwood, Charles J. “Industrialization of Medicine: Coming Soon to a Practice Like Yours.” Contemporary OBGYN. 1 Jul. 2011.
[5] Webster, Frederick Jr. Market Driven Management: How to Define, Develop and Deliver Customer Value. John Wiley & Sons. 2002.
Don't Overlook Facilities' Role in Meeting Health Reform's Imperatives
Forces driving change
Now, converging factors are forcing hospital and health system leaders to elevate ambulatory strategy's importance to equal, if not greater than, that of inpatient services. Three factors are driving increased focus on ambulatory missions.
First, compared to inpatient services, ambulatory services present greater growth opportunities. Despite population aging, per capita utilization of inpatient services remained relatively flat from 2000-2010.[1] Over this timeframe, per capita hospital ambulatory visits grew 14 percent.[2] The utilization divergence partially reflects substitution of outpatient care for inpatient care; this substitution has been technologically enabled and incented by payors.
Second, rapid physician employment has catalyzed ambulatory revenue growth at many hospitals and health systems, forcing leadership to focus on the increasingly important outpatient arena. Traditionally, U.S. ambulatory care occurred in three financially distinct settings: hospitals, physician offices and investor-owned facilities. With a 34 percent [3] increase in hospitals' physician employment from 2000 to 2010 and more than 50 percent [4] of America's physicians practicing in hospital or integrated delivery system employed settings, two of the aforementioned ambulatory care settings — physician offices and hospitals — are quickly financially integrating.
Third, many hospital and health system leaders invest in ambulatory services to achieve lower cost delivery platforms. The current reform environment is shifting the U.S. healthcare competitive para-digm, albeit slowly, from one that rewards volume to one that rewards value (quality and service per cost unit).[5] Because ambulatory settings represent cost effective environments to deliver routine services, many hospital leaders view ambulatory sites as key levers in their quest to create patient value.
Emerging planning considerations
Designing an ambulatory platform to create patient value, versus to protect and drive inpatient admis-sions, however, requires a revised approach to ambulatory planning. Historically, ambulatory and inpatient strategies aimed to aggregate volumes to achieve profitable infrastructure utilization.
Going forward, ambulatory and inpatient strategies must not only aim to aggregate volumes, but also to appropriate volumes. Creating value will require that patients' needs match the cost and resource profile where care is delivered. Success will require that assets are not simply filled, but filled with appropriate patients.
Developing an ambulatory platform to appropriate volumes and create patient value requires hospital and health system leaders to address five new questions in current and future ambulatory planning efforts.
1. Which markets warrant ambulatory presence?
Traditional ambulatory planning often begins with market analysis, designed to identify attractive markets for expansion. Factors incorporated into analytics and planning discussions often include payor mix, projected population growth and aging and hospital market share/competitive positioning.
To create patient value, ambulatory strategic plans cannot solely focus on identifying attractive markets for expansion. Now, ambulatory strategies must also address, "Which markets warrant our ambulatory presence?" Specifically, hospital and health system leaders must understand where opportunities to improve patient service or reduce costs are geographically concentrated. Planning analytics and discussions might aim to provide insight into:
- Patient origin of and services used by emergency department outpatients, identifying potential cost reduction opportunities to redirect patients to lower cost ambulatory settings;
- Access and patient origin for hospital-based clinics, identifying potential opportunities to improve service and potentially reduce costs by adding capacities closer to patients’ homes; and
- Patient origin and service line of diagnostic and procedural patients treated on hospital campuses, identifying potential opportunities to improve service and potentially reduce costs by treating these patients off campus.
2. How do ambulatory service offerings fit into the care continuum?
Today, the scope of services at many hospital-owned ambulatory sites reflects profitability differentials across services and inpatient priorities. Many hospitals and health systems developed ambulatory platforms by identifying high potential markets and seeding sites in those markets with profitable services and/or services tied to high priority inpatient programs.
While linkages between inpatient and ambulatory offerings will no-doubt continue to remain important, ambulatory plans must now address the broader question, "How do ambulatory services at each site fit into our broader care continuum?"
To create patient value, the anachronistic inpatient service lines must be incorporated into comprehensive, coordinated care continuums with rational, distinct access points. Within a given service line, less resource intensive, higher utilized services should be offered across a multitude of low-cost settings, while resource intensive, infrequently utilized services should be concentrated at a few locations. Moreover, each service line's continuum of services — whether owned or partnered — should extend beyond acute services and include preventive, post-acute and home-based services. Accordingly, ambulatory strategies should clearly delineate cost and resource profiles for each site and linkages (information technology, care and transfer protocols) across the care continuum.
3. What is the clinical integration approach with physicians?
Because many hospitals and health systems provide care in partnership with independent, private practice physicians, economic relationship models (e.g., physician joint ventures, clinical co-management agreements) frequently underpin ambulatory strategies. These tools were often initiated to attract physicians to practice at hospital-owned ambulatory sites.
In all settings, hospital-physician relationships must move beyond finances alone toward clinical integration. Advocate Physician Partners, for example, defines clinical integration as, "a structured collaboration between [physicians] and [hospitals] on an active and ongoing program designed to improve the quality and efficiency of healthcare . . . ." Regardless of the financial model and structure used, we recognize five building blocks to clinical integration: 1) shared leadership, 2) provider (physician and hospital) networks, 3) care and service delivery models, 4) information technology and connectivity and 5) standardized clinical performance.
Going forward, hospitals' ambulatory strategies must answer, "How will we clinically integrate with physicians practicing in our ambulatory platform?" and include tactics addressing each clinical integration building block.
4. How will care be standardized across the ambulatory platform?
Realizing clinical integration benefits often requires standardizing (reducing variation/poor performance and waste) clinical care. Conventional operational tenets imbedded in ambulatory plans focus on maximizing efficiency and utilization. Ambulatory strategies should now further address the approach to standardizing care.
At a minimum, ambulatory strategies should outline processes and tools to identify, develop, test, implement, measure and refine care and patient service protocols. Doing so requires hospitals and health systems to build continuous improvement cultures and capabilities, as well as the requisite information technology infrastructure to collect, mine and meaningfully summarize patient opinions and outcome data.
5. How will our payor relationships enable patient value creation?
Most hospitals and health systems still operate within payor relationships that principally reward volume growth in lieu of value creation. In this environment, creating an ambulatory platform that maximizes patient value financially undermines its sponsor. Some of our clients have successfully implemented strategies to improve quality and reduce waste (e.g., reducing readmissions) and lost millions of dollars in the process because their payor relationships were not reconsidered along with their strategies.
Thus, hospital-payor relationships must evolve in parallel to hospitals' repurposing their ambulatory platforms to create value. Adversarial, zero-sum-game relationships must transform to symbiotic partnerships that equitably distribute returns from quality and efficiency gains among payors, providers and patients.
Conclusions
The transition from volume-based to value-based competition appears to be underway in earnest. While the legislative trajectory may change, stakeholders (patients, physicians, providers and payors) universally acknowledge that the current system is unsustainable. Continued reform seems likely. Ambulatory and inpatient strategies are capital intensive, and therefore, have long implementation horizons. As such, hospital leaders must craft and execute ambulatory strategies that address the immediate financial imperative for volume growth while repositioning their systems to create and deliver patient value.
Thomas Dixon, Jason Lineen and John McHugh are senior leaders in Navigant's health system strategy practice. Together, they have almost thirty years of experience advising hospital and health system leaders on issues related to enterprise strategy, ambulatory and service line planning, capital deployment and merg-ers/affiliations.
Footnotes:
[1] Trendwatch Chartbook. American Hospital Association. 2012. and NCI Analysis
[2]Trendwatch Chartbook. American Hospital Association. 2012. and NCI Analysis
[3] Lowes, Robert. “Number of Physicians Employed by Hospitals Snowballing.” Medscape Medical News. 24 Jan. 2012.
[4] Lockwood, Charles J. “Industrialization of Medicine: Coming Soon to a Practice Like Yours.” Contemporary OBGYN. 1 Jul. 2011.
[5] Webster, Frederick Jr. Market Driven Management: How to Define, Develop and Deliver Customer Value. John Wiley & Sons. 2002.
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