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Coming to Terms With Care Migration

Michael Abrams, MA, is the co-founder and managing partner of Numerof & Associates, a firm that helps businesses across the healthcare industry define and implement strategies for winning in dynamic markets. He has more than 25 years of expertise working helping clients navigate an evolving healthcare landscape, across hospital systems, payers, and Fortune 500 pharmaceutical, device, and diagnostics companies. He has co-authored several books and has been featured in leading business journals and news outlets.
The migration of care from inpatient (IP) to outpatient (OP) and ambulatory surgery center (ASC) settings is revolutionizing healthcare delivery. Beginning with cataract and cosmetic surgery more than a decade ago, the list of ASC procedures has grown to include endoscopy, colonoscopy, anterior cruciate ligament and shoulder repairs, sinus and cataract surgery, and most recently total knee arthroplasty.

Several factors have enabled this evolution, including: the growing sophistication of surgical tools and techniques; new pain management and diagnostic techniques; a boom in the development of OP care delivery options; consumer demand for convenience and access; and changing perspectives on site-specific reimbursement.

This transition is good news for consumers and employers as it promises to lower costs, improve access and convenience, and, if done right, deliver better outcomes. For hospitals, this shift means that many high-volume, profitable services are likely to go to other players, continuing a long-term trend.

Hospitals have been experiencing declining inpatient admissions over the last 20 years1. Between 2006 and 2016, IP revenue for community hospitals declined from 62% to 52% of total revenue. During the same period, OP revenue increased from 38% to 48% of total revenue2. Care migration is an irreversible trend, not a temporary headwind.

Providers who are still concentrated in acute care will need to diversify across the care continuum to address revenue erosion. This will be particularly difficult for large consolidated systems that remain tethered to their legacy business. Below, we take a closer look at some key steps health systems can take to sustain and grow their business in light of care migration.

Diversifying across the continuum of care: Keys to success

Before an organization can determine how to diversify its business model across the care continuum, management should address 3 critical questions:
  1. What are the unmet needs of the market area? While most hospitals currently conduct a mandated community needs assessment, these are often pro forma efforts that are not used for planning purposes. These efforts must be made sufficiently robust to inform future business decisions and identify opportunities to capture revenue. Such an assessment may provide a clear case for an unmet need or a neglected population segment that can be profitably served.
  2. What is the competitive landscape in the market area? Identifying competitors and understanding the services they offer will provide keen insights into service gaps across the continuum of care and opportunities for differentiation. Understanding the competitive landscape may help determine the future of repurposed infrastructure for ancillary services like physical therapy, wellness centers, pain management, or behavioral therapy. Alternatively, disposing of underutilized space and a smaller local footprint can be complemented through joint ventures or partnerships with community ASCs or commercial clinics.
  3. What are the core strengths of your organization? Understanding the core capabilities and strategic objectives of the organization will help to determine the potential lines of business the organization wants to be in. For example, a provider well known for oncology treatment may extend that core strength by investing in additional outpatient components like nutritional counseling related to chemotherapy.
Addressing these questions will position providers to participate in care migration by offering services that align with patients’ needs and capture revenue that can grow their business.

Develop integrated processes for triage and referral

Providers that expand their service offerings across the care continuum increase the number of touchpoints for patients, and the likelihood of patient retention. In order to use lower intensity points of care effectively, providers must develop evidence-based guidelines for triage. Likewise, referral mechanisms for connecting patients with complementary services must be developed. Both must be monitored to assess appropriateness of triage and referral, and to evaluate patient response.

For example, while a provider may refer a patient to an ASC for knee replacement, during triage the patient can be referred to pain management and physical therapy offerings from the provider. The result is multiple points of patient engagement while also referring the patient to the least costly site for their surgical procedure.

Monetizing the care delivery model

Taking these steps will allow providers to go to market with a care model that addresses patients’ unmet needs, creates competitive differentiation, and ensures convenient access to appropriate sites of care. The next step is to secure contracts with payers and employers that will leverage those efforts.

To ensure premium contracts from payers and employers, providers need to standardize care paths by managing variation in outcomes. Using cost and outcome data, providers will have a way to monitor and improve processes for care delivery, cost, and quality management. More importantly, this will allow providers to determine what financial and quality targets they can profitably meet and how much risk they can accept in negotiating future contracts.

References:

1. Chapter 3: Utilization and Volume. In: American Hospital Association. TrendWatch Chartbook. American Heart Association; 2018:27-34. https://www.aha.org/guidesreports/2018-05-23-trendwatch-chartbook-2018-chapter-3-utilization-and-volume. Accessed May 30, 2019.

2. Chapter 4: Trends in Hospital Financing. In: American Hospital Association. TrendWatch Chartbook. American Heart Association; 2018:38. https://www.aha.org/guidesreports/2018-05-23-trendwatch-chartbook-2018-chapter-4-trends-hospital-financing. Accessed may 30, 2019.

 
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