Outpatient services growth: Ambulatory physicians should be given greater independence

By Bill Fera, Principal, Deloitte Consulting

Historically, the overwhelming majority of health systems have focused their attention (and resources) on inpatient services. This strategy made perfect sense given health care’s procedurally oriented fee-for-service model. Any financial shortcomings on the ambulatory side of the business typically were justified and offset by the ability to direct higher volumes of patients to high-margin services on the inpatient side.

As payers—especially Medicare—have led the move to value-based care models. Many health systems have augmented their physician networks by buying physician practices to help ensure success in these contract vehicles. At the same time, health systems have been seeing lower payments for inpatient services. As a result, the side of the business that has historically buffered shortcomings on the ambulatory side is changing. Not only are inpatient reimbursements becoming more challenging, but care volumes have been pivoting significantly to outpatient settings.

Hospitals see shift from inpatient to outpatient

Aggregate hospital revenue from outpatient services grew from 30 percent in 1995 to 47 percent in 2016, according to our new report on the growth of outpatient care. Some of this change has been driven by patient preferences along with clinical and technological advances such as minimally invasive surgical procedures and new anesthesia techniques that reduce complications and allow patients to return home sooner.

Growth in value-based care is also helping to drive more care to outpatient settings. Financial incentives for hospitals have likely played a role as well. Evolving payment strategies used by commercial health plans and government payers encourage services that take place in lower-cost care settings, including outpatient facilities.^1,2

New buyers can create new challenges

As health systems confront new financial pressures, more physician practices are being scooped by outside groups. Some health plans are buying primary care groups, while private equity firms are concentrating on specialty care. These organizations are able to take over a group’s business operations and deal with administrative functions and mandatory reporting, which can give doctors more time to practice medicine. This dynamic is making it even more important that health systems find the right strategic partnership with their physician networks.

Four things to consider when building hospital-physician partnerships

Partnering with physician groups and other outpatient providers (e.g., ambulatory surgery centers, busy outpatient clinics, and retail centers) could help health systems expand their outpatient services and develop their infrastructure to succeed under value-based care payment models. Here are four things to consider when forging a hospital-physician partnership:

1.   Physician-owned practices might be more productive: Doctors who work for physician-owned practices might be more productive in some areas when compared to physicians who are employed directly by a hospital. When physicians own the business, there is a direct financial impact for every care gap closed to every emergency room visit avoided. These physicians also tend to have a deeper understanding of the business side of health care.

2.   Physicians prefer independence: Less than half of US physicians—47 percent—own their practices. While physician consolidation is nothing new, this time, in addition to wanting to improve outcomes, health systems are focusing greater attention on reducing costs. Health systems should rethink how they work with physicians. Nearly 70 percent of all physicians, and 75 percent of independents, would prefer to be part of a clinical network versus direct employment, according to Deloitte’s 2016 Survey of US Physicians.

3.   Clinically integrated networks (CINs) could create strong bonds: New and stronger partnerships are likely to emerge through CINs. Health systems that have close relationships with physician networks might be well positioned to take advantage of the value-based care model. Health systems that are able to extend their IT infrastructure to physician groups, can help ensure their regulatory compliance, and conduct analytics for them can help ensure CINs are able to operate successful as independent entities.

4.   CINs can help generate cost savings: A health system’s operating expenses per physician have been shown to be significantly lower when managing a CIN compared with managing employed physicians. The 2014 Medical Group Management Association Cost Survey reports that median operating expenses for a health system in the employed physician model range from $320,000 to $450,000 per physician, depending on specialty, whereas recent Deloitte Consulting experiences indicate operating expenses for a CIN can range from $30,000 to $50,000 per physician, depending on the scope of services offered to participants.

As more medical services flow into the outpatient setting, the relationship between ambulatory physicians and health systems is becoming critically important. Strong hospital-physician partnerships could create market advantages for hospitals, which could result in greater independence for physicians. We are starting to see creative relationships and partnerships between health systems and physician groups that are different from the more formal employment or ownership models. These models look more like true partnerships and can potentially restore practice ownership back to physicians.

Hospital systems should consider creating an inventory of physicians who might be interested in revisiting practice ownership. Partnership and joint-venture models could be used to fuel physician activation and truly align partnerships that are essential for patient-centered care. At the same time, health plans should continue to think of novel products and contracting models that could encourage physicians to remain independent.

Endnotes

¹Mark E. Grub et al, “The Kaufman Hall Point of View: Decline in Utilization Rates Signals a Change in the Inpatient Business Model” , April 2013,
²The health America Report : How consumers are saving with the shift to outpatient care” , February 2016, https://www.bcbs.com/the-health-of-america/reports/how-consumers-are-saving-the-shift-outpatient-care

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