How Hospitals Are Shifting Resources Post-ACA

Health care reform has caused a seismic shift in the U.S. health care landscape. The aftershocks continue to be far reaching—toppling long-standing paradigms and causing hospitals to reevaluate how they currently operate.

With the implementation of the Affordable Care Act in 2010 (“ACA”), the existing methods of revenue generation for hospitals were directly impacted due to reduced reimbursement levels on Medicaid and Medicare payors going forward. Concurrently, the ACA assigned incentives and corresponding penalties to health care providers to drive higher quality care and cost savings, which directly affects existing providers.

ACA Impacts 

The intent of the law is to better align patient care with a holistic approach to treatment, ultimately resulting in lower overall health care costs; a significant component of this is preventative medicine. With the introduction of the ACA, a fee-for-value model will eventually replace the fee-for-service model. Physicians will no longer be incentivized to perform more procedures to generate revenue. Instead, the fee-for-value model will compensate based on outcomes, thereby incentivizing a greater effort on using preventative and holistic therapies. It also will promote the real-time exchange of information through the use of electronic health records to lower health care costs and improve clinical decision making.

According to a study published by a health information network in May 2013, “82% of health plans surveyed consider the ACA a “major priority.” Nearly 60% of respondents forecast that more than half of their business will be supported by value-based payment models in the next five years. And, of those, 60% are at least midway through implementation.

Traditionally, hospitals have charged for extended stays and testing, been reasonably reimbursed, then spread that revenue over high fixed costs attributed to their equipment and infrastructure. As the health care industry adapts to the new requirements, providers are assessing their current operations and profit margins, and adjusting their services accordingly. As a result, hospitals are accelerating the change from an inpatient to an outpatient model.

Transition from Inpatient to Outpatient Services

Driven by decreased levels of reimbursement and smaller profitability margins for health care providers, hospital boards will be providing greater scrutiny over capital projects going forward. Advanced technology will continue to be an investment for most hospitals as well as the reuse of space previously allocated for lower acuity patients in the hospital. This repurposing is targeting increased outpatient service offerings where the majority of revenue is currently being generated. 

Hospitals across the country have experienced declines in inpatient admissions since 2009, driven by the slow U.S. economic rebound, continued rise of high-deductible insurances plans, less use of beds overall, advances in technology and medicine, birth rate decline and the implementation of the ACA. Most industry experts, including analysts at Standard and Poor’s and Moody’s Investor Services, predict a continuing falling off of inpatient volumes. Health care consulting firm Sg2 in its 2013 outlook predicted a 3% decline in inpatient admissions over the next five years and a 17% increase in outpatient services, where hospitals currently generate more than half of their revenue.

This shift to outpatient services has been most evident across rural hospitals as shown in the chart. The higher outpatient revenue for rural hospitals is driven by the fact that many act as the sole site for patient care in the community and market demand dictates the need to offer those additional services. 

Outpatient as a Percent of Total Gross Revenue

Hospitals are beginning to assess how to best use their respective facility’s space as a result of changing market and regulatory demands. As technology has advanced and more equipment has come into the market along with electronic medical records and corresponding need for computer access, some of this space is being used to accommodate that technology. With the implementation of the ACA, patient satisfaction also has become an indicator of provider performance and an important aspect of value-based health care. As patients begin to have more of a say about their care provider, hospitals will continue to adapt. An example of how this feedback plays out is an increased demand for observation units in hospitals affiliated with emergency room traffic; these units accommodate a 23-hour stay. Within the inpatient space, shared rooms are being renovated into private rooms to meet patient preferences.

Outsourcing is trending as acute care hospitals seek ways to align with physicians to achieve cost-effective and quality care delivery, which accountable care organizations are already set up to do. Areas where outsourcing has increased substantially include information technology and clinical services like anesthesia, emergency department staffing, dialysis services, diagnostic imaging and hospitalist staffing.

"Each of these services extends the ability of the hospital to provide full service without having to attract [or] retain a full complement of specialty physicians in a particular community,” said Augustus Crocker, executive vice president and general manager of The Greeley Company, in Becker’s Hospital Review. This allows hospitals to be less reliant on a long-term physician-patient relationship.
Current Capital Project Trends

In response to the current marketplace, hospitals are expected to direct lower-cost care through increased outpatient services. According to Charles Michelson of Saltz Michelson Architects, from the South Florida Hospital News and Healthcare Report, “We’re seeing more outpatient types of facilities doing a variety of testing and treatment to keep expenses down; the cost to the consumer is not as high as doing the same work inside a hospital. More health care providers are planning to create facilities outside the hospital now that patient care is moving back into the community where space is less expensive. Hospitals will serve as places for very serious medical treatments only, saving money for the medical system and the patients receiving treatment.”

In order to maintain competitiveness and revenue generation, hospitals are continuing to be cognizant of the aging demographic as well and tackling capital projects that tailor to that demographic, such as orthopedics, oncology and mental health for dementia. Hospitals also are focusing on the implementation of the latest technology in order to have greater patient data access and the ability to share information for educational purposes and holistic treatment. According to a report by MarketsandMarkets, the U.S. health care IT outsourcing market is expected to grow by 42.8% in the next five years.

All of these features align with the improvement of a holistic treatment approach for patient care. According to the aforementioned health information study, “90% of health plans agree that automating the exchange of ‘new’ information required under value-based payments is critical to success, with 85% saying the highest value will come from real-time exchange, though less than half have real-time capabilities.” 

A Midwest Hospital Builds For Better Patient Experience Sauk Prairie Healthcare

Sauk Prairie Healthcare is a 36-bed community hospital in Prairie du Sac, Wis. Hospital leadership decided to replace its aging facility, originally built in 1956, on a new site that would include more space for outpatient services and be flexible to accommodate changing demographics and future growth. Enhancing patient experience and focusing on holistic care both influenced the project design.

After input from stakeholders, including physicians, staff, volunteers and the community, the newly opened hospital still has the same number of beds, but with larger patient rooms, operating rooms, and labor and delivery rooms. To further enhance the patient experience, it was designed with emphasis on patient privacy and dignity. Examples of this are separate public and patient corridors in the surgical services area as well as labor and delivery being located in a secluded and secure area of the new hospital. Additionally, natural light and access to nature was a design feature carried throughout the building to create a healing environment, including a meditation room and walking trails on the campus.

Maintaining Focus on ACA Changes

As evidenced, it is essential for hospitals to remain competitive in the marketplace and to maintain and improve profitability by adapting to the changing health care landscape driven, in part, by the implementation of the Affordable Care Act. A hospital’s decision to align itself with the intended goals of the ACA and purpose its facilities accordingly, if needed, will give it a head start on competitors in the marketplace and better position it for the road ahead.

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