Why one hospital system is cutting while bulking up
Advocate Health Care, the largest hospital network in Illinois, has invested about $700 million in the last five years on an outpatient binge. That includes nearly a dozen clinics set to open through 2018.
It may seem odd that Advocate is spending big while also cutting $200 million from its $5.6 billion budget. (The system also plans to hire 100 doctors across metro Chicago this year.) The bet, however, is that adding cheaper-to-run outpatient sites will woo more patients. More patients equals growth.
Here's why Advocate wants and needs to bulk up: Insurers are increasingly paying hospitals for the quality rather than the amount of care they provide. More than half of the Downers Grove-based hospital system's roughly 1.5 million patients are covered by insurers that reward care providers for focusing on prevention and hitting certain quality measures. In other words, Advocate makes money when its doctors manage patients well. But in some cases, the system is on the hook if it spends too much on patients.
So why bring on more? To spread the financial risk of taking on the sickest ones while trying to prevent healthy ones from getting ill in the first place.
Advocate's outpatient spending spree stretches from the affluent North Side to the impoverished South Side. That means investing in poor areas where it would appear that the 12-hospital system wouldn't see a financial gain.
"The reality is that, believe it or not, there aren't that many good-paying insurers anymore anyways," says Scott Powder, Advocate's chief strategy officer. "More and more people have incredibly high deductibles and are essentially paying out of pocket for increasingly large amounts of health care before insurance kicks in."
The outpatient arena not only can bring in more people who will become routine lifelong patients, but doctors offices and imaging centers, for example, are typically cheaper than a glitzy new hospital wing or tower. Plus, insurers and doctors alike want patients to avoid pricey hospital stays and emergency room visits as much as they can.
Chicago hospitals used to be behind peers in other major metro areas in preparing for the giant shift in the way insurers reimburse them. But consolidation has ramped up here, and Blue Cross & Blue Shield of Illinois, the dominant insurer by far in the state, is using its muscle to shift the market toward cost-effective outcomes, says Cindy Lee, a San Francisco-based director at consultancy Chartis Group.
Advocate's competitors have sped up efforts to adapt, too. Loyola University Health System, a Maywood-based academic system with two hospitals, has forged about 70 affiliations. They range from managing services at hospitals to developing outpatient hubs with others, like the campus expansion underway with southwest suburban Palos Community Hospital.
Rush, a three-hospital academic hub anchored by Rush University Medical Center on the Near West Side, is in the midst of an outpatient boom. A year ago, the system opened a clinic in River North. Next up, large clinics in the burgeoning South Loop and suburban Oak Brook, and by 2021, a massive complex on the Rush hospital campus.
At Advocate, which tried to scale quickly by merging with NorthShore University HealthSystem (they called off their merger in March), the blueprint involves opening 11 outpatient sites through 2018. New locations include a $28.4 million, 42,000-square-foot clinic at a former Sports Authority in Lakeview, where more than 30 physicians will staff over 50 exam rooms. On the South Side, Advocate is investing $5 million to open an 11,000-square-foot clinic staffed with three physicians in Imani Village. The venture in Chicago's Cottage Grove Heights neighborhood aims to include housing, retail and a sports complex.
Advocate now has about 300 outpatient locations, including 56 clinics the network took over from Walgreens last year. Since then, Advocate has treated more than 300,000 patients; more than 60% of those are new to the system.
The 100 new physicians would join Advocate's network of roughly 5,000 doctors. Overall, Advocate has spent at least $2.3 billion over the past five years on capital projects in inpatient and outpatient areas and expects spending to climb 15% this year compared to 2016. "We are big believers in the value of scale," says Powder, the strategy chief.
How do you bulk up while making cuts, too? For starters, have one person lead two hospitals. That's happening at Advocate.
"Why one hospital system is cutting while bulking up" originally appeared in Crain's Chicago Business.
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