The new normal?

Three years ago, Henry Ford Health System began to overhaul how its doctors and nurses care for patients outside the Detroit-based system's six hospitals. Now it must face the economic strains of its own success, as fewer patients turn up to fill hospital beds.

Since January, the number of patients admitted to Henry Ford hospitals has declined 6%, compared with a 2.5% inpatient decline overall in Southeast Michigan; Medicare patients who returned to the hospital within 30 days after discharge fell 19% during the same period. A boom in births has offset fewer patients who need cardiac, pulmonary or kidney care—but only partially.

“We think it's beginning to have an effect,” Dr. William Conway, Henry Ford's executive vice president and chief quality officer, said of the system's broad strategy to prevent hospitalizations. “These things really are working.”

But Henry Ford's drop in inpatient admissions is part of a national trend, and only some of it is thought to be because of care delivery reforms. Hospitals across the country continue to report flat or even declining inpatient growth, a trend that began with the Great Recession, but one that has continued into the economy's sputtering recovery. That slowdown has contributed to record-low growth in U.S. health spending—3.9% in 2009, 2010 and 2011. On the other hand, it has dragged down earnings for laboratory and medical-device companies that supply the healthcare provider sector.

The trends are likely to continue, say analysts and hospital executives, because of the slow U.S. economic rebound; the continued rise of high-deductible insurance plans that constrain medical use; the growth in the number of patients who are held for observation instead of being admitted; and the reforms of payment and delivery models to better coordinate care, improve outcomes and lower costs. The drop in admissions is also related to the U.S. healthcare system's success stories, such as treating heart patients effectively without hospitalization.

“We feel that flat volume is, in fact, the new normal,” said Martin Arrick, a managing director for Standard & Poor's who oversees the rating's agency review of not-for-profit healthcare.

Not all service lines have been affected equally, and some medical specialties are showing more resiliency than others as healthcare undergoes a fundamental shift in where and how patients access services.

Hospitals that will do well are those that tap into the demand from the growing number of older Americans, as well as for specialty service lines such as orthopedics and oncology. Systems in regions where population growth is booming—such as the Sun Belt—also are defying the trend, as are those that are growing through market share grabs.

Payers are reducing volume at some facilities and increasing it at others by creating narrow provider networks, which direct patients to hospitals and medical groups showing high marks on measures of quality and cost-effectiveness. “Now it's much more (about) building your marketplace,” said Bill Woodson, senior vice president of the Center for Strategic Planning at healthcare consulting firm Sg2, based in Skokie, Ill.

In its 2013 outlook, Sg2 predicts a 3% decline in inpatient admissions over the next five years, with growth coming from oncology, women's health and orthopedics. “Where you see tremendous weakness is things like cardiovascular services,” said Steve Lefar, the firm's president and CEO. “The general medicine cases are not generating significant income.”

Earnings reports from publicly traded systems show the extent to which many systems are struggling with falling inpatient volume—with chains such as Health Management Associates and Community Health Systems, which have a nonurban focus, reporting same-facility, year-over-year volume declines almost consistently since the fourth quarter of 2010.

On an earnings call to discuss its second-quarter results, Community Chairman, President and CEO Wayne Smith attributed his system's 5.7% decrease in same-facility admissions to factors including less demand for obstetrics and gynecology services as well as lower admissions for cardiology services, primarily due to lower-acuity patients.

Lefar said this is at least partly a good-news story. “Healthcare is improving greatly,” he said. “We're admitting people who truly need to be admitted.” As more care shifts from inpatient to ambulatory settings, Sg2 projects 17% growth in outpatient services, where hospitals already generate more than half of their revenue.

Yet there are also signs that much of that shift has already occurred, and there are other factors that account for emptier beds and clinics. One of those factors is pushback from payers.

On its second-quarter earnings call, Intuitive Surgical, maker of the da Vinci robotic surgery system, said payers have been advising “conservative medical management” before authorizing a hysterectomy. The devicemaker reported slower-than-expected sales and slashed its earnings guidance.

Hospitals clearly are seeing continued strain from a slow and uneven economic recovery. The pain of the downturn lingers for many Americans. Households have seen real wages drop. The jobless rate has inched lower, but was still historically high at 7.4% in July.

For example, Moody's Investors Service analysts said this year that a weak economy was an ongoing damper on surgeries and hospital admissions at three-hospital Baptist Health, headquartered in Montgomery, Ala.

North of Sacramento, Calif., the largely agricultural and retail job market that provides a living for patients of Rideout

Regional Medical Center has not rebounded from the recession. The Marysville, Calif., hospital may pay more to borrow because falling volume for hospital admissions and outpatient surgery dragged down Rideout's credit rating from Moody's.

Struggling households across Ohio have left hospitals owned by Cincinnati-based Catholic Health Partners with more patients unable to pay when they seek care—and they are seeking care less often as a result, Moody's notes. A spokesman for CHP declined an interview request.

Meanwhile, financial strain from medical bills has grown more common, and a growing number of adults report they don't go to the doctor or pharmacy to avoid the cost.

While nearly 1 in 4 working-age adults said they struggled to pay medical bills before the recession, the figure has grown to 30%, a biennial Commonwealth Fund survey found last year. The same poll found that an estimated 53 million adults did not visit a physician at all in 2012.

At the same time, health insurance increasingly does less to protect patients from the expense of getting sick. Households that held onto insurance through the recession are paying more for their medical care, as premiums, deductibles, coinsurance and copayments grow under both employer-sponsored and individual coverage. Even under the healthcare reform law's expanded coverage and insurance reforms, patient cost-sharing will continue to be high.

While healthcare providers and suppliers need to be conscious of these economywide factors, they also should recognize that volume can appear to be decreasing when it's actually just dispersed over a greater number of facilities, as hospitals compete to open profitable service lines. Some lower-volume hospitals, hoping to compete with their tertiary-care counterparts, have opened specialized units for certain high-margin, high-visibility specialties, which they “see as an investment in their viability,” said Karl Kronebusch, an associate professor at the Baruch College School of Public Affairs.

Even high-volume academic medical centers—which have reported stronger volume growth than many community hospitals—have been under pressure to expand outside their regional markets to bring new patients into their networks and boost inpatient volume. Academic center partnerships with a deeper-pocketed chain—such as Durham, N.C.-based Duke University Health System with publicly traded LifePoint Hospitals and the Cleveland Clinic with publicly traded Community Health Systems—are increasingly common.

“In a lot of markets, they're still seen as the destination location, (but) that's expected to change,” Sg2's Lefar said. “I think every academic medical center is deeply worried about that.”

The Cleveland Clinic Health System's flagship hospital is among the academic medical centers that have seen rapid growth among patients who transferred to its hospitals for intensive care, which helped to boost the system's overall growth in hospital stays, said Dr. Robert Wyllie, the system's chief medical operations officer.

So far this year, hospital admissions have increased 2% across the Cleveland Clinic system, compared with 0.5% last year, he said. Of the 1,200 to 1,400 transfer patients who visit the flagship hospital campus, about 70% are patients from other hospitals or health systems, not from Cleveland Clinic's outlying hospitals, he said. Of those, about 40% are in need of intensive care.

Helping Cleveland Clinic's transfer volume are contracts with retail giants Lowe's and Wal-Mart Stores to provide certain services—such as heart, neurological or orthopedic procedures—to their employees across the country. The system has seven such deals with employers.

But that growth is not expected to last, Wyllie said. The Cleveland Clinic is projecting flat or declining growth in coming years as the result of efforts to better manage care outside the hospital for patients with chronic disease.

As more ailing and aging baby boomers seek medical care, efforts to prevent and manage disease will grow more important. “Look at the burden of the cost of that care,” Wyllie said. “We have to start to bend that curve. The best way is to try to keep people healthy in the first place.”

But health systems will have to figure out how to survive the economic costs of their own successes in keeping their patient populations healthy while they await a transformed payment system that rewards them for those efforts.

Follow Beth Kutscher on Twitter: @MHbkutscher

Follow Melanie Evans on Twitter: @MHmevans