An eye on growth in outpatient hospital services

Health Care Current | August 21, 2018

This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies, and provides updates and insights on policy, regulatory, and legislative changes.

My Take

An eye on growth in outpatient hospital services

By Steve Burrill, vice chairman, US health care providers leader, Deloitte LLP

It has been centuries—reportedly dating back to the fifth century—since the first cataract removal. As far back as the mid-1700s, patients went under the knife to remove lenses that had become hard and opaque, leaving them with restored but limited, and mostly unfocused, vision after the surgery. During those years, cataract surgeries were saved for only the most advanced cases, and some patients didn’t survive.1 During the procedure, sandbags typically were used to immobilize the patient’s head. After the surgery, patients had to stay in a facility where they could be monitored as they healed.

Fast-forward to today: This once dangerous and seldom-recommended surgery is performed about 2 million times per year in the US. Cataract surgery is believed to actually lower the risk of mortality in patients by 40 percent (though the exact reasons why are unclear).2 This surgery has become so commonplace that patients can usually go home within 15-30 minutes of having the procedure.3

The evolution of cataract surgery—aside from changing the lives of millions of patients—is a testament to one of the major trends we see in health care: A growing number of surgical procedures are being performed in outpatient settings. Aggregate hospital revenue from outpatient services grew from 30 percent in 1995 to 47 percent in 2016.4

Some of this trend is likely due to technology advances (e.g., minimally-invasive surgical procedures and new anesthesia techniques) and consumer choice (wouldn’t you want to avoid an overnight stay if you could?). Moreover, financial incentives have likely played a role as well. For years, many health plans have been shifting toward paying for services performed in lower-cost care settings, including outpatient facilities.5, 6

Other incentives, such as paying for value, might also be driving this trend. This is what we wanted to explore in our latest report, Growth in outpatient care: The role of quality and value incentives. Are some health systems developing strategies to perform well under value-based care arrangements by reducing inpatient care and shifting more patients to outpatient settings? To answer that question, the Deloitte Center for Health Solutions conducted descriptive and regression analyses using Medicare claims data from 2012 to 2015.

We found hospitals that had greater revenue from quality and value contracts provided more outpatient services, in comparison to other hospitals. Hospitals that generated revenue from these contracts had 21 percent more Medicare outpatient visits and 13 percent higher outpatient revenue (even after controlling for characteristics such as the hospital’s size, location, and ownership) compared to hospitals that did not report revenue from such contracts.

The data also suggest this trend is more pronounced for certain types of procedures. For example, in diagnostic areas that have higher rates of physician-hospital affiliation and technological change, the relationship between quality and value incentives and outpatient growth was greatest.

But what about inpatient services? Did hospitals shift away from the inpatient setting as they increased services that could be performed in the outpatient setting? Is this shift happening faster in hospitals that have quality and value incentives? The answer is yes and no, according to the data.

Between 2012 and 2015, all hospitals in our analysis saw declines in inpatient revenues. The decline happened at the same rate, regardless of whether hospitals had quality and value incentives. A number of factors could explain why we didn’t see fewer inpatient services at hospitals with more incentives. The sample size of hospitals with incentives might have been too small to see a measurable difference. But, another explanation could be that hospitals are early into their population health strategies and started by building outpatient capacity, rather than aggressively decreasing inpatient care.

Many hospitals and health systems are moving more procedures from the inpatient to the outpatient settings to diversify revenue and prepare for new payment models. Health systems might want to invest in human and physical capital of their own, as well as develop new relationships with organizations that have alternative care settings (e.g., ambulatory care centers, retail clinics). Technology upgrades to help organizations manage operations and patient care more efficiently should also underpin any organizational transformation.

While the future of inpatient services at hospitals might be a bit blurry, we have a clear vision that outpatient settings are continuing to grow in popularity—at least in the short term.

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In the news

White House hosts Blue Button 2.0 conference

On August 13, the White House hosted a conference for health IT developers who are seeking to incorporate Medicare claims data into mobile applications for clinicians and patients. Blue Button 2.0, an application programming interface (API), is a key component of the US Centers for Medicare and Medicaid Services (CMS) and the White House’s joint “MyHealthEData” initiative. It allows Medicare beneficiaries to connect their health information to third-party apps and computer programs, and download their own claims data.

This expo marks the administration’s first Blue Button 2.0 event. According to the White House, about 150 people signed up to attend the conference where discussion topics included interoperability, data standards, and app design. During the event, representatives from several technology companies—including Inc., Google LLC, IBM, Microsoft Corp.,, Inc., and Oracle Corp., as well as the Information Technology Industry Council (ITI)—affirmed their commitment to improving data interoperability.

To date, 600 developers have signed up to build applications that can use the Blue Button 2.0 interface to access more than four years of Medicare claims data—including Parts B and D. CMS announced the launch of Blue Button 2.0 in March at the Healthcare Information and Management Systems Society’s (HIMSS) annual conference. The initiative is part of the administration’s effort to help improve patient outcomes by leveraging technology and increasing patient access to health data.

CMS streamlines Medicaid review process, reduces approval time

On August 16, CMS announced it has significantly reduced the time it takes to review and approve state plan amendments (SPAs) and 1915 waivers from states. These are applications states use to change aspects of their Medicaid programs. Late last year, the agency issued a bulletin announcing its efforts to improve this process. CMS has taken the following four key actions: 

  • Holding a call with states within 15 days of receipt of each submission to review the request—and any critical timelines—to shorten the review process
  • Providing states with new tools to help them develop complete submissions
  • Implementing a strategy to reduce a significant backlog of state requests
  • Expanding the use of MACPro, a web-based system for processing requests

CMS says its collaborative efforts with states led to a 23 percent decrease in the median approval time for Medicaid SPAs from calendar year (CY) 2016 and the first quarter of 2018. Additionally, 84 percent of these SPAs were approved within the first 90-day review period in the first quarter of 2018—a 20 percent increase from CY 2016. During the same period, median approval times for home and community based services (HCBS) waivers decreased by 7 percent, and renewal approval times decreased by 38 percent. Amendment approval time for long-term care services decreased by 44 percent, according to the agency.

(Source: CMS, “CMS Streamlines Medicaid Review Process, Achieves Significant Reduction in Approval Times,” August 16, 2018)

New Mexico CO-OP asks court to strike down 2017 risk-adjustment rule

New Mexico Health Connections has asked a federal judge to strike down CMS’s July 24 interim final rule that clarifies the formula used to calculate risk-adjustment payments for the 2017 plan year in the individual market. In its interim final rule, CMS said the risk-adjustment program will be budget neutral for the 2017 plan year, and payments will be based on the statewide premium. In a suit filed August 13, Health Connections contends that CMS failed to follow the Administrative Procedures Act, as the agency did not hold a notice and comment period before issuing the rule. Health Connections is a Consumer Operated and Oriented Plan (CO-OP)—a small, not-for-profit health plan created under the Affordable Care Act (ACA). CO-OPs and other small health plans have complained that the use of statewide average premiums favors larger and more established health plans.


  • In February 2018, the US District Court of New Mexico determined that CMS’s formula for determining risk-adjustment payments (from 2014 to 2018) was arbitrary and capricious. In doing so, the court vacated the associated rules and said CMS must provide further explanation regarding its decision to use a statewide average premium as the basis of the risk-adjustment formula.
  • Four months later, CMS announced it would halt payments for 2017 as the agency waited for the court to reconsider the case. The agency was told that the judge might not issue a ruling until after Labor Day, around the time CMS usually sends invoices for risk-adjustment collections.
  • In July, a month after halting the payments for 2017, CMS published the interim final rule to explain the rationale behind the payment methodology and to reinstate the process for 2017 collections and distributions. 
  • On August 8, CMS issued a proposed rule on risk-adjustment payments for the 2018 plan year in the individual market (see the August 14, 2018 Health Care Current). The agency will accept comments on this proposed rule until September 7.

Ohio Medicaid program ends contracts with PBMs due to ‘spread pricing’

On August 14, Ohio’s Department of Medicaid announced it will end the state’s contracts with pharmacy benefit managers (PBMs). The state says the PBMs bill taxpayers more than they pay the pharmacists who fill prescriptions for Medicaid beneficiaries—a practice known as “spread pricing.” The state’s five Medicaid managed care plans will move toward a more transparent pass-through pricing model, starting January 1, 2019.

Two days after this announcement, Ohio’s Auditor of State released a report analyzing pharmacy payment data and transparency issues in the state’s Medicaid program. According to the report, from April 2017 to March 2018, PBMs billed Ohio taxpayers $233.7 million more for prescription drugs than they paid pharmacies to fill those prescriptions—an 8.8 percent difference. The report, commissioned by the Ohio General Assembly, also noted that PBM fees should range between 90 cents and $1.90 per prescription, yet the state’s PBMs billed Ohio an average of $5.50 to $6.50 per script.

(Source: Auditor of State of Ohio, “Ohio’s Medicaid Managed Care Pharmacy Services Auditor of State Report,” August 16, 2018)

Admissions for inpatient services can result in out-of-network claims

Inpatient admissions often include at least one claim from an out-of-network provider, even when enrollees seek care at an in-network facility, according to a Kaiser Family Foundation analysis of out-of-network claims among large employer health plans.

The analysis illustrates the financial exposure enrollees can face from out-of-network providers. Such claims can be major contributors to personal medical debt. The analysis found that 18 percent of inpatient admissions include a claim from an out-of-network provider or clinician. Even within an in-network facility, slightly more than 15 percent of inpatient admissions resulted in a claim from an out-of-network provider. Certain types of admissions (e.g., emergency room visits and psychological or substance abuse services) are more likely than others to include an out-of-network claim.

The analysis notes that enrollees who receive claims from out-of-network providers might have had limited control in their provider selection. Patients who are admitted to the emergency room typically are not in a position to ask if a provider is in their health plan’s network. Moreover, out-of-network claims for psychological or substance abuse services might reflect the limited availability of services within a health plan’s network, the analysis concludes.

Some states have adopted laws that protect certain insured patients from receiving out-of-network claims when they access inpatient care.

(Source: Kaiser Family Foundation, “An analysis of out-of-network claims in large employer health plans,” August 13, 2018)

HHS awards $125 million to community health centers for quality improvement

On August 15, the US Department of Health and Human Services (HHS) announced it will award $125 million in Quality Improvement grants to 1,352 community health centers throughout the US. The health centers will use the funding to continue efforts to improve the quality and efficiency of health services they provide to their communities. The grants, which are provided by the Health Resources and Services Administration (HRSA), are to be used to promote improvements in the following categories: 

  • Expanding access to comprehensive care
  • Improving care quality and outcomes
  • Increasing comprehensive care delivery in a cost-effective way
  • Addressing health disparities
  • Advancing the use of health information technology
  • Delivering patient-centered care

Community health centers that exceed national clinical quality benchmarks receive special designation as National Quality Leaders, and the top 30 percent of centers that achieve the best overall clinical performance are designated as Health Center Quality Leaders. According to HRSA, more than 27 million people—approximately 1 in 12 US residents—relied on a HRSA-supported health center in 2017.

(Source: US Department of Health and Human Services, “HHS awards $125 million to support community health center quality improvement,” August 15, 2018)

Breaking Boundaries

Microbots could replace some surgeries, pills

Microbots are tiny automated machines programmed to perform specific tasks. They are so tiny—as small as a cell—that they can be injected into the body to do tasks such as clearing out plaque from arteries, performing tissue biopsies, or delivering targeted treatment to tumors. Because of their size and precision, these microbots could provide less-invasive treatments than a typical surgery, or deliver medication in a much more targeted way than a pill.

Scientists have been working on developing these tiny robots for three decades, but recent advancements in engineering have led to a surge in research. To date, animal testing has shown positive results. Researchers have tested microbots propelled by hydrogen microbubbles in live mice to treat gastric bacterial infections.

To prepare for the use of microbots in humans, researchers have many challenges to overcome. Inside the human body, the microbots must be able to move through wet areas and traverse through air pockets in the stomach, intestines, and lungs. Researchers are exploring different designs so the tiny robots could move through all terrains, much like an all-terrain tire or a monster truck. Early studies show potential for a tumbling motion to work. The next phase is getting these tiny tumbling robots to be versatile, safe, and cost-effective enough to transform medication delivery.

What the future could hold

Scientists are looking to microbes and insects for inspiration to perfect the all-terrain robots. Future goals include developing smart microbots that could have computing and decision-making power. In the near-term, however, microbots might deliver targeted medication that could lead to less-invasive treatments for patients who have cancer and other health conditions. As miniaturization technology advances, researchers envision tiny robots swimming through blood vessels, repairing cells, and delivering medication as they go. This could likely mean fewer surgeries, invasive procedures, or side effects.

(Source: David J. Cappelleri, Chenghao Bi, Maria Guix Noguera, “Tumbling microrobots for future medicine,” American Scientist, July/August 2018)

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