Clinical innovation, patient preferences, and financial incentives are tilting the balance in favor of outpatient settings for hospital services. Aggregate hospital revenue from outpatient services grew from 30 percent in 1995 to 47 percent in 2016.¹ Some of this change is driven by patient preference and clinical and technological advances such as minimally invasive surgical procedures and new anesthesia techniques that reduce complications and allow patients to return home sooner.

Financial incentives have likely played a role as well. Health plans and government program payment policies support providing services in lower-cost care settings, including outpatient facilities.² Health systems have also been acquiring or partnering with physicians and physician practices, further driving up the volume of services³ performed in outpatient settings.⁴










Moreover, these payers also are often using shared-savings, bundles, and other arrangements that tie payment amounts to cost and quality performance. One reason for the growth in outpatient care might be health systems' strategies to perform well under these arrangements by reducing inpatient care by shifting patients to outpatient settings. To gain greater insight into the factors driving growth in outpatient services and decline in inpatient care, the Deloitte Center for Health Solutions conducted descriptive and regression analyses using Medicare claims data between 2012 and 2015. Three key findings emerged:

• Hospitals with greater revenues from quality and value contracts provided more outpatient services than other hospitals. Hospitals that derive a large part of their revenue from quality and value contracts had 21 percent more Medicare outpatient visits and 13 percent higher outpatient revenue between 2012 and 2015 (even after controlling for hospital characteristics), compared with hospitals that did not report revenue from such contracts.
• The association between having these contracts and higher outpatient services was even more pronounced for certain therapeutic areas. The relationship was strongest for major diagnostic categories (MDCs) with higher rates of physician-hospital affiliation and technological change. Outpatient revenue was 18 percent higher for diseases of the circulatory system⁵ and 13 percent higher for diseases of the musculoskeletal system⁶ among hospitals with large incentives.
• All hospitals saw declines in inpatient revenues, but hospitals with greater revenues from quality and value contracts did not see steeper declines than other hospitals. The lack of a relationship between quality and value contracts and inpatient care may be because health systems are not yet at sufficient risk to actively manage population health to reduce inpatient care more aggressively.

Given the shift from inpatient to outpatient care, health systems will want to consider building effective strategies to grow capacity and infrastructure for outpatient services. These strategies generally have three components:

• Human and physical capital. Expanding outpatient services may call for additional physical and human capital (or their re-configuration) and workflow and operational improvements. Building physician relationships and networks through partnerships or affiliations (including with nontraditional health care entities such as retail health clinics) can help build capacity and attract patients.
• Virtual care/technology. Investing in virtual care/technology capabilities could expand outpatient services while also helping hospitals bend the cost curve and boost revenue.
• Case management/analytics. Health systems can work with physicians to use analytics and with patients to decide on which care setting is the most effective, safe, and efficient.

Read more about growth in outpatient care.


Footnotes

1. Deloitte analyses based on data from AHA annual survey, Medicare Cost Reports (via Truven Health Analytics). View in article
2. Alex Kacik, "For the first time ever, less than half of physicians are independent," Modern Healthcare, May 31, 2017. View in article
3. Mark E. Grube, Kenneth Kaufman, and Robert W. York, “Decline in utilization rates signals a change in the inpatient business model,” Kaufman Hall Point of View, April 2013; Dustin L. Richter and David R. Diduch, “Cost comparison of outpatient versus inpatient unicompartmental knee arthroplasty,” Orthopaedic Journal of Sports Medicine 5, no. 3 (2017): DOI: 10.1177/2325967117694352; The Health of America, “How consumers are saving with the shift to outpatient care,” February 2016. View in article
4. MedPac, “Chapter 3: Hospital inpatient and outpatient services,” Report to the Congress: Medicare Payment Policy, March 2017; Aaron N. Winn, Nancu L. Keating, and Justin G. Trogdon, “Spending by commercial insurers on chemotherapy based on site of care, 2004-2014,” JAMA Oncology 4, no. 4 (2018): pp. 580–81, DOI:10.1001/jamaoncol.2017.5544. View in article
5. MDC 05 titled "diseases and disorders of the circulatory system" comprises diagnosis codes for cardiovascular procedures. View in article
6. MDC 08 titled "diseases and disorders of the musculoskeletal system" comprises diagnostic codes for joints, knee, hip, femur, and other connective tissue procedures. View in article

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