Healthcare Systems and Services Practice Walking out of the hospital: The continued rise of ambulatory care and how to take advantage of it

Ambulatory care is one of the fastest-growing and highest-margin segments of the healthcare industry. Analyzing variations in Commercial claims data and doctor surveys shows that significant growth potential remains. While many health systems have benefited from investing ahead of this trend, significant opportunity remains to be captured.

Pooja Kumar and Ramya Parthasarathy

© Huntstock/Getty Images

September 2020 With the continued rise of COVID-19, hospi- Within the broader healthcare arena, while tal capacity across many US states has been hospital care is still the largest segment of the taxed considerably, with inpatient beds at or healthcare market overall, a disproportionate near full occupancy in a number of hard-hit share of growth in the coming years will be in areas.1 This pressure on acute settings has ambulatory settings. This includes both heightened the important role that ambulatory free-standing sites as well as hospital out­ care can and does play in the healthcare land- patient departments. Non-hospital-provider scape by providing an alternative site for nec- segments—everything from diagnostics to essary procedures. pre-, non-, and post-acute services and ­physician offices—could account for almost While COVID-19 has accelerated the interest 65 percent of projected profit pools by 2022, in ambulatory care, this shift began long with an average growth rate of around 2 per- ­before the pandemic for a number of reasons. cent that started in 2019.3 These projected Take ambulatory surgical centers (ASCs) as an growth rates are consistent with employment example: Often more conveniently located forecasts. The healthcare and social assis- than hospitals, ASCs allow patients to be tance sector will generate around 3.4 million ­discharged within 23 hours of care, reducing new jobs through 2028; more than half of their risk of infection and allowing recovery to these new jobs will be in ambulatory care take place in the comfort of their own homes. ­services, while only 350,000 will be in hos­ The ASC is often more intimate than the pitals, according to the US Bureau of Labor ­hospital, giving patients a greater sense of Statistics.4 Employment in outpatient care personalized care and contact with their care centers alone is projected to grow around 35 team. Perhaps most persuasively, costs to percent over the next decade, making it the both patients and payers can be significantly second-fastest-growing industry overall5 less at ASCs, as their entire operating chassis (­including those outside healthcare) behind is often configured at a lower cost base across only home healthcare services. While the staffing, space, and some types of supplies, ­effects of COVID-19 on these healthcare while margins for healthcare providers can workforce trends are still unknown, ambula­ ­often be the same or higher. Indeed market tory care sites are likely to remain a core part research suggests that the ASC market alone of the healthcare employment landscape. is projected to grow at a compound annual growth rate of 6 percent between 2018 and Health systems have recognized the impor- 2023—reaching around $36 billion by 2023.2 tance of ambulatory care. Many institutions have focused on the proliferation of solutions Though ambulatory surgery is not appropriate and technologies supporting ambulatory for all patients (including those with complex care, along with health systems’ increasing comorbidities), its increasing presence is re- focus on extending care along the continuum. flective of a broader healthcare trend. Namely, Importantly, these trends will not dissipate the rise of ambulatory sites reflects how medi- soon, as they are driven by more fundamen- cal care has been shifting out of hospitals and tal, interrelated market changes: into outpatient sites.

1 Chavez N and Holcombe M, “56 Florida hospital ICUs have hit capacity,” CNN, July 7, 2020, cnn.com; Davis O’Brien R, Toy S, and Fan W, “Some hospitals in southern, western U.S. states near capacity amid coronavirus outbreaks,” Wall Street Journal, July 5, 2020, wsj.com; Erman M and Respaut R, “Hard-hit U.S. states ‘surge’ hospital intensive care beds as ICU wards fill up,” Reuters, June 26, 2020, reuters.com. 2 Global ambulatory surgery centers (ASCs) market: Size, trends, & forecasts (2019–2023), Daedal Research, April 2019, daedal-research. com. 3 Khanna G, May R, Patel N, and Vinjamoori N, “The evolution of healthcare-provider profit pools,” August 2019, McKinsey.com. Estimates are applicable under MGI economic scenario A1 from Craven M, Liu L, Wilson M, and Mysore M, “COVID-19: Implications for business,” August 2020, McKinsey.com. 4 Healthcare and social assistance sector refers to NAIC Code 62000. Ambulatory care services refers to NAIC Code 621000. Outpatient care centers refers to NAIC code 621400. See “Employment projections: Industry-occupation matrix data, by industry,” U.S. Bureau of Labor Statistics, last updated on September 4, 2019, bls.gov. 5 “Employment projections: Industries with the fastest growing and most rapidly declining wage and salary employment,” U.S. Bureau of Labor Statistics, last updated on September 4, 2019, bls.gov.

Walking out of the hospital: The continued rise of ambulatory care and how to take advantage of it 1 1. Innovation and technology: Advances in ments and certain hip procedures in the am- clinical approaches and technology, includ- bulatory setting, as well as telemedicine. This ing new developments in anesthesia and incentive structure may change in the wake pain control, as well as minimally invasive of COVID-19, as its impact on value-based surgical procedures, have enabled numer- payment programs remains to be seen. ous procedures (for example, knee replace- 4. Provider opportunity: Shared ownership ments, tonsillectomies) to migrate into the models financially align physicians to ambulatory setting. ­accelerate this shift to outpatient care. As 2. Consumer demand: Consumers, who potential equity owners in these ambulatory ­increasingly care about lower costs, sites, doctors have both the incentive and the ­improved access, and better experience, opportunity to channel their patients to pro- are choosing out-of-hospital medical care. cedures outside the hospital. In addition, as With the rise in narrowed networks and COVID-19 continues to put pressure on acute high-deductible health plans, consumers are sites of care, nearly 40 percent of physicians increasingly cost-conscious in their medical are reporting that they are more likely to refer choices. Though the out-of-pocket savings their patients to non-hospital locations for opportunity varies by plan and procedure, procedures and surgeries.10 studies have shown consistently lower costs Despite growth in this space, our research at ambulatory sites—providing strong incen- ­indicated that wide variation in the use of am­ tives for patients to shift their site of care.6 bulatory or outpatient care exists. This variation For example, BCBS’s Health Report of Amer- represents value to patients in cost and time. It ica estimates that when members elect to also represents value to our healthcare systems have a knee or hip replacement performed in cost and capital invested in bed stock and in an outpatient facility, costs can be 30 to acute facilities that could be redeployed; value 40 percent lower. On average, the price of to payers who typically pay significantly less at an inpatient knee or hip replacement was an ambulatory site than they would for the same $30,000, compared with $19,000 and procedure at an inpatient facility; and value to $22,000 respectively in the outpatient patients, who benefit when they have a better ­setting.7 These underlying consumer pre­ experience and lower out-of-pocket costs. ferences have only been reinforced by ­COVID-19, as consumers have reported We sought to quantify this opportunity and that they are significantly less comfortable ­prioritize where it could be captured—an exer- returning to hospitals or emergency rooms cise which revealed key insights for health in light of the pandemic.8 ­system leaders to consider: First, opportu­ nities to accelerate site of care shifts exist only 3. Payer pressure: The growth of at-risk in targeted pockets (not across encounter ­contracts and value-based care are creat- types)—requiring strategic focus on where to ing new incentives for providers and payers prioritize new investments. Second, to make to find the lowest-cost sites of care. As we the shift to outpatient sites effective, heath ­discussed in “Implications for value-based systems need to engage physicians deeply, via payment programs: Weathering COVID-19,”9 shared equity models or other ways of ensuring these shifting incentives are further aug- they have “skin in the game.” Finally, given the mented by regulatory changes, including influence of consumer preference, health sys- Medicare reimbursement for knee replace-

6 Richter DL and Diduch DR, “Cost comparison of outpatient versus inpatient unicompartmental knee arthroplasty,” Orthopaedic Journal of Sports Medicine, 2017, Volume 5, Number 3, 2325967117694352. 7 Blue Cross Blue Shield, The Health of America Report, “Planned knee and hip replacement surgeries are on the rise in the U.S.,” BCBS, January 23, 2019, bcbs.com. 8 McKinsey Healthcare COVID-19 Consumer Insights (April 25–27). 9 Bruch J, Kumar A, and Moss C, “Implications for value-based payment programs: Weathering COVID-19,” June 2020, McKinsey.com. 10 Cordina J, Malani R, Medford-Davis L, and Vinjamoori N, “Physicians examine options in a post-COVID-19 era,” June 2020, McKinsey.com.

Walking out of the hospital: The continued rise of ambulatory care and how to take advantage of it 2 2020 White Paper - Layers of COVID impact Understanding the layers of COVID-19’s potential impact on healthcare Exhibit 1 of 8

Exhibit 1 While most care is exclusively ambulatory or inpatient, nearly 30% of spend ($132 billion) has meaningful variation in site of care choice.

Mixed 2,483 primary encounter codes Almost all ambulatory/ Almost all inpatient 10.1 million outpatient 676 primary encounter codes total volume 2,898 primary encounter codes 5.6 million total volume $132 billion value 600 million total volume $55 billion value $302 billion value

tem leaders should keep a close pulse on how and other care, the claims were grouped together ­COVID-19 is shaping consumer sentiment into 615 million encounters for ambulatory and around service types across markets. inpatient care that represented $490 billion in cost. Each encounter was then given a priority Understanding variation procedure to enable comparisons to be made. Of the 615 million encounters, roughly 10 percent Despite the growth in ambulatory care sites were coded as primarily surgical, 13 percent as since 2000, as well as health systems’ recent primarily medical, and the remaining roughly 77 heightened focus on extending into the com- percent spanned office appointments, prevent­ munity, the opportunity to expand services in ative care, and emergency department visits. such settings remains vast. Our research into The tool supports comparisons of variations three questions shows the scope of the op­ across many dimensions, including by specialty, portunity for health systems and the overall geography, patient age, and patient risk. healthcare ecosystem through accelerated ­migration of appropriate cases to ambulatory Despite this valuable view into a significant sites. Specifically, our analysis asks: ­proportion of the spend in the United States, we should note that the Commercial segment — What does the current variation across sites represents a subset of the population with of care tell us about the value at stake? ­lower comorbidities and complications; there- — What are the potential sources of this fore, it implies a higher potential to move to an variation?­ ambulatory setting. — What could be the opportunity from Quantifying variation today ­reducing this variation? We first analyzed the current scale of variation We created a tool that analyzed a database of between sites of care. By our estimates, $60 Commercial claims from across the United ­billion of encounters take place almost exclu­ States in 2016. This database represented 1.4 sively in an inpatient setting, while $300 billion billion national medical claims and more than of encounters take place almost exclusively in $620 billion in cost.11 After excluding post-acute an ambulatory care setting (Exhibit 1), where

11 Truven MarketScan Commercial claims for 2016 were used for analysis (Truven Health Analytics LLC, an IBM Company). Individual CPT codes were bundled into encounters by first grouping claims in the same care setting on contiguous days to account for split physician and facility billing in outpatient settings and inpatient stays over multiple nights. To define the encounter type, we determined the primary service provided by CPT by first filtering out commonly bundled and supportive services using CMS OPPS status codes, then prioritizing AAPC chapter codes linked to surgery and medical procedures, and in instances when there were multiple (or no codes) in these chapters, choosing the highest value reimbursement code. Volumes were corrected for convenience sampling present in the claims data set using membership weights provided by Truven. Certain data used in this study were supplied by International Business Machines Corporation. Any analysis, interpretation, or conclusion based on these data is solely that of the authors and not International Business Machines Corporation.

Walking out of the hospital: The continued rise of ambulatory care and how to take advantage of it 3 “exclusively” is defined as encounter codes where must therefore be tightly targeted as they proac- more than 95 percent of care takes place in one tively seek to shift sites of care. Specifically, pro- setting.12 This means 27 percent of spend repre- viders should look to focus on (1) “low-hanging sents encounters that have meaningful variations fruit,” where 65 to 95 percent of encounters are in site of care choices. These “mixed” encounter already in outpatient settings, and (2) “leading codes represent bundles where a notable volume procedures,” where 5 to 35 percent of encoun- of activity takes place in an ambulatory setting ters are already in outpatient settings, suggest- and suggests that the approach, technology, and ing a slow, sub-scale migration out of acute sites. clinical protocols exist to support care in these Drivers of variation settings. Across the analysis, an average cost There are expected reasons why similar encoun- saving of $21,000 for the same encounter code ters may be provided in different sites of care, bundle took place in an ambulatory setting in- ranging from the preferences of the referring stead of an inpatient setting.13 Given this varia- physician to the clinical risk for a given patient. tion, disseminating practices that support more For example, a higher-risk patient with multiple patients in ambulatory care could be of value to chronic conditions or with complex anesthesia cost-conscious patients, providers, and payers. needs will need the increased clinical backup We had a strong ongoing hypothesis that lots of available in an acute setting. However, other variation would exist across the spectrum, but ­reasons are linked with variations in practice. the data show that the vast majority of encounter ­Below, we present descriptive statistics on codes are concentrated at either end of the three potential drivers of variation in sites of care: 2020 White Paper - Layers of COVID impact spectrum (Exhibit 2), suggesting that providers (1) specialty, (2) patient risk, and (3) geography. Understanding the layers of COVID-19’s potential impact on healthcare Exhibit 2 of 8 12 Encounters were categorized by service location using type of bill and place of service codes (in some cases CPT and revenue codes were also used). 13 Cost difference represents the difference between inpatient and outpatient costs for the same bundle, averaged across all bundles.

Exhibit 2 Where meaningful ambulatory/outpatient volume exists, providers can be persuaded to shift sites of care. Encounters by share of ambulatory/outpatient care

IP only Mixed OP only

Number of unique encounter codes

676 807 451 1,225 2,898

Total value of encounters, $ billion

55.4 2.5 22.0 61.1 302.3 (12%) (1%) (5%) (14%) (68%)

Total volume of encounters, million

5.6 2.6 0.9 6.9 600.5

Leading procedures Low-hanging fruit

2.6 1.8 1.6 1.0 0.4 0.4 0.5 0.6 0.4 0.2 0.1 0.1 0.2 0.1 0.1 0.1 0 0.2 5–34% 35–64% 65–94%

IP, inpatient; OP, outpatient.

Walking out of the hospital: The continued rise of ambulatory care and how to take advantage of it 4 2020 White Paper - Layers of COVID impact Understanding the layers of COVID-19’s potential impact on healthcare Exhibit 3 of 8

Exhibit 3 Across the major surgical specialties, 50–65% of encounters (~$91 billion in value) show variation in site of care choice.

Exclusively inpatient Mixed Exclusively ambulatory/outpatient 100% = Total value $ billion

Surgical procedures on 4 66 31 15.6 the respiratory system¹

Surgical procedures on 25 65 10 26.3 the cardiovascular system

Surgical procedures on the 4 56 40 52.7 musculoskeletal system

Surgical procedures on 2 53 45 48.0 the digestive system

Surgical procedures on 12 49 40 19.8 the nervous system¹

¹ Figures may not sum to 100%, because of rounding.

Specialty: It is not surprising that some spe- tients based on three levels of clinical risk: cialties show different mixes of exclusively in­ healthy (low risk), moderate chronic (moderate patient and exclusively ambulatory care, based risk), or severe chronic (high risk).15 Across all en- in part on the technological advances that have counters, high-acuity patients were in exclusively ­allowed for minimally invasive procedures, as ambulatory settings for only 43 percent of cases, well as new techniques in anesthesia and pain whereas low-acuity patients were in this care control. For example, while cardiovascular ­setting for 75 percent of cases. More interestingly, ­surgeries still have nearly a quarter of encounter the data showed that for select procedures, such codes in the exclusively inpatient setting, less as gallbladder removals or spinal fusions, some than 5 percent­ of musculoskeletal and gastro­ high-risk patients received care in an ambulatory intestinal (GI) procedures take place in hospitals setting. Lower-risk patients almost always re- (Exhibit 3). Additionally, all five specialties below ceived care in an ambulatory setting (Exhibit 4). show a significant­ share (50 to 65 percent) of Geography: In addition to variation across and ­encounters in the mixed category—meaning they within specialties, we examined geographic vari- occur in both ambulatory and inpatient settings. ation in the volume of ambulatory care provision Mixed encounter codes within these specialties by dividing the United States into four regions— alone account for around $91 billion in value— Northeast, North Central, South, and West—and nearly 70 percent of the total value at stake.14 focusing on surgical procedures that currently take Patient risk: Unsurprisingly, patients with higher place in both ambulatory and inpatient settings.­ 16 risk profiles are more likely to have care in an Overall, the Northeast offers less ambulatory­ ­inpatient setting, due to the (potential) need for care than the rest of the country, with around 58 complex anesthesia or increased clinical backup. percent of such volume in ambulatory settings In the data below, we distinguish between pa- compared with 64 to 67 percent across the rest

14 If we revise the approach to define “exclusively ambulatory” as greater than 90 percent and “exclusively inpatient” as less than 10 percent, these specialties still show a meaningful share (40 to 60 percent) of encounters in the mixed category, which account for around $65 billion in value. 15 We ran the 3M Clinical Risk Grouper (CRG) on Truven data and classified them into Low, Medium, and High risk based on the health status group. Low included groups 0–3 (Healthy/Non-User—Concurrent; Healthy/Non-User—Prospective; Significant Acute—Current and Prospective; Single Minor Chronic). Medium included groups 4–6 (Multiple Minor Chronic; Single Dominant or Moderate Chronic; Dominant or Moderate Chronic Pair). High included groups 7–9 (Dominant Moderate/Chronic Triplets; Malignancy Under Active Treatment; Catastrophic). 16 We excluded any procedure that is exclusively (or greater than 95 percent) ambulatory or inpatient.

Walking out of the hospital: The continued rise of ambulatory care and how to take advantage of it 5 2020 White Paper - Layers of COVID impact Understanding the layers of COVID-19’s potential impact on healthcare Exhibit 4 of 8

Exhibit 4 Patient risk prole is strongly correlated with site of care choice, with stark variation even within select procedures.

Inpatient Mixed Ambulatory/outpatient 100% = Total value $ billion

Low 13 12 75 178

Medium 9 33 58 233

High 14 43 43 79

100% = 100% = Total value Total value Laparoscopic gallbladder removal $ million Spinal fusion $ million

Low 13 87 3,267 Low 19 81 405

Medium 37 63 1,556 Medium 61 39 2,189

High 64 36 123 High 82 18 253

of the country (Exhibit 5). This difference is not greatest disruption on hospitals. Each physi- only consistent, but often even pronounced cian was told what share of a common proce- within specific subspecialties, such as mus­ dural technology (CPT) code’s activity was in culoskeletal and digestive systems (Exhibit 6). an inpatient setting today. They were then While geography itself is not a causal driver of asked to estimate the percentage of activity variation, it does highlight the potential role they believed would exist in ten years’ time. that market conditions play in hastening the Each code was surveyed at least 75 times to shift in sites of care, including at ASCs. give strong statistical confidence. The CPT codes surveyed represented 15 Understanding future ­million encounters across inpatient and opportunities ­ambulatory settings. Today, 10 percent of Analysis of existing clinical practice patterns this activity takes place in an ambulatory shows clear, targeted opportunities for ambu- setting (compared with a 64 percent average latory growth. Further innovations in clinical for all encounters in these specialties). With- practice will create new opportunities to pro- in ten years, care delivered in an ambulatory vide additional care in ambulatory settings. setting is expected to grow to 32 percent Prior to the onset of COVID-19, we surveyed of the total activity. This increase represents 150 cardiology and 150 orthopedic physicians an average growth of 12 percent per annum, on their expectations of where they think with meaningful differences across spe- ­opportunities exist to make targeted moves cialties. More specifically, orthopedics is over the next decade. ­expected to see higher growth from a lower base, from 5 percent ambulatory activity We prioritized procedures where at least 60 ­today to 26 percent in a decade, while cardi- percent of care was conducted in inpatient ology is expected to grow from 16 percent settings today, because we wanted to identify today to 40 percent in a decade (Exhibit 7). where ambulatory innovation could have the

Walking out of the hospital: The continued rise of ambulatory care and how to take advantage of it 6 These growth rate projections are driven latory volume to 59 percent, from 38 by significant expected change in certain ­percent, over the same period. Though high-volume procedures. For example, in not captured in this survey, there are likely orthopedics, total knee replacements to be other procedures beyond cardiology ­consisted of 1.6 million encounters but saw and orthopedics where significant innova- an estimated change in ambulatory volume tion and changes in the site of care could to2020 30 percent, White Paperfrom 2 -percent, Layers overof COVID the impact be captured, as well as greater interest nextUnderstanding ten years. In cardiology,the layers catheterof COVID-19’s potentialfrom impact physicians on healthcare in the wake of COVID-19 placement,Exhibit 5 of which 8 had 1.2 million encoun- to shift procedure volume away from the ters, saw an estimated change in ambu­ hospital setting.

Exhibit 5 Scale of ambulatory care varies across the country, with the slowest uptake in the Northeast.

Ambulatory care, % of surgical procedures¹

64%

58% 67%

2020 White Paper - Layers of COVID impact Understanding the layers of COVID-19’s potential impact on66% healthcare Exhibit 6 of 8 ¹ Includes only procedures that currently take place in both inpatient and ambulatory/outpatient settings; excludes any procedure that is exclusively (or >95%) ambulatory or inpatient.

Exhibit 6 Regional variation in the prevalence of ambulatory care exists even within specic specialties.

Digestive system Musculoskeletal system

Ambulatory: 40% 75%

Walking out of the hospital: The continued rise of ambulatory care and how to take advantage of it 7 Understanding the value of from building out their ambulatory pres- abulatory care expansion ence in targeted service lines (for exam- ple, orthopedics, cardiology, GI). Under Significant value can be realized from ex- value-based contracts such as capitation panding access to ambulatory care, particu- or global budgeting, with reimbursement larly for patients and payers who are focused linked to outcome cost and quality rather on costs. Patients prefer faster access, than volume, health systems will benefit shorter stays, and lower costs. Payers from shifting to lower-cost sites of care, ­typically pay significantly less for the same promoting retention of savings. ­procedure than they would at an inpatient facility. Payers can incentivize ambulatory — Defend against competition: If compe­ care options through levers such as patient titive ambulatory care centers are open- education, co-payments, network design, ing and taking market share, establishing deductibles and plan design, reimbursement an owned option provides some defense rates, and an approvals process that illumi- for health systems. This strategy may be nates the benefits of ambulatory options. particularly important in retaining phy­ sician loyalty, where the health system Based on our research, physicians often may be able to offer a shared-equity ­report preferring ambulatory care opera- model, in order to retain higher-value, tions, because they can see patients in complex inpatient cases. more service-oriented settings. Moreover, ambulatory sites can provide physicians — Build or strengthen presence in stra­ with access to shared-equity ownership tegic markets: Ambulatory care can offer models. While shifts to ambulatory care are improved access for patients and physi- more complicated for hospitals and health cians without the need to invest signifi- systems, embracing these trends may help: cant capital in—and, depending on state 2020 White Paper - Layers of COVID impact licensing and regulations, approvals — Realize savings from moving proce- Understanding the layers of COVID-19’s potential impactfor—a on new healthcare acute hospital. However, most dures to lower-cost sites: Whether in Exhibit 7 of 8 payer contracts still pay hospitals and value-based or fee-for-service contracts, health systems based on the fee-for-​ health systems can benefit financially

Exhibit 7 Practicing physicians anticipate that ambulatory activity will grow 12% per annum over the next decade.

Ambulatory Inpatient

Cardiology, CPT codes Musculoskeletal (MSK) medicine, CPT codes

Surveyed CPT codes Surveyed CPT codes More than 60% More than 60% inpatient volume today inpatient volume today

100% = 107 million 6 million 6 million 100% = 71 million 8 million 8 million 5 16 26 40 56 69 95 84 74 60 44 31

All cardiology activity Today In 10 years All MSK activity Today In 10 years

CPT, current procedural terminology.

Walking out of the hospital: The continued rise of ambulatory care and how to take advantage of it 8 ­service model. Significant revenue for Health systems can do much more to take hospitals and health systems would be advantage of the opportunity in this space. lost—for example, ASCs are typically Five critical actions will increase the likeli- ­reimbursed at about 60 percent of what hood of success: a hospital would be paid for the same 1. Create strong alignment ­procedure.17 Surgical cases are usually with surgeons for ASCs very profitable, and typically help to sub- To start, health systems can focus on sidize the hospital’s other less-profitable ­creating strong alignment with surgeons. departments. Despite the potential re­ There are many examples of hospitals/­ venue loss from shifting procedures to health systems over-investing in the outpatient sites, ASCs with operational physical assets of the ASC ( for example dis­cipline and strategic positioning typi- location, layout, finishes, equipment) and cally enjoy nearly two times the margins under-investing in relationships with of acute sites, which can bolster the ­surgeons. Partnerships between health ­bottom line for health systems.18 systems and physicians that include — Enhance physician alignment: If health shared equity can enable shared decision systems are strategic about the locations making on investments and cost manage- where they partner or build new ambu­ ment. Such arrangements can improve latory sites, they can quickly become the financial performance while maintaining, preferred locations for physicians who if not improving, clinical quality. have to split their days between ambula- At a minimum, health systems will likely tory and acute settings for patients with need a core group of surgeons to be different needs, especially if the health ­involved in the governance of the ASC. system is able to partner with independ- Health systems should want these ent physician investors to open new sites. ­surgeons to be true partners in operating Competitive pressure, potentially heightened and championing the ASC. Integrated and by the growth of value-based contracting, motivated surgeons are force multipliers. could increasingly tip the balance for health They are the most effective way to recruit systems toward expanding their ambulatory other surgeons, and a strong ally in nego- care offers. Investments by large provider tiating with suppliers. At their worst, mis- groups are clear evidence of this. An analysis aligned surgeons can create a strong of local circumstances, pressures, and oppor­ headwind for an ASC. tunities also will determine a tipping point. 2. Identify strong operational talent, especially­ in ambulatory Opportunities for health systems leadership positions Health systems’ actual preparations are not After creating strong alignment with equal to the opportunity available. Our survey surgeons, health systems should identi- of 300 physicians found only 40 percent­ of fy strong operational talent to manage providers making meaningful preparations the ambulatory site. Major leadership (that is, three or more levers across the roles include the administrator, the eight19 available in the survey). The most ­director of nursing, and the medical common levers were building new facilities, ­director. It may be worthwhile to con­ updating clinical guidelines, offering patient sider partnering with a professional education, and changing physician incentives management company. This partnership (Exhibit 8). can take the form of a management

17 Using Truven Commercial/Medicare limited data sets data and based on reimbursement difference between ASC and hospital outpatient department for top 20 common procedure codes. 18 Using Truven Commercial/Medicare 2019 data sets. 19 Includes “other.”

Walking out of the hospital: The continued rise of ambulatory care and how to take advantage of it 9 2020 White Paper - Layers of COVID impact Understanding the layers of COVID-19’s potential impact on healthcare Exhibit 8 of 8

Exhibit 8 Only 40% of providers are pursuing three or more levers to prepare for the shift to ambulatory care.

What, if anything, is your institution doing to prepare How many of these actions for a shift to outpatient sites of care? is your institution taking? % (n = 303) % Number of actions taken Building outpatient by respondent’s institution 41 facilities/capacity among the options at left

Updating clinical guidelines, 29 40 pathways, and processes

O­ering patient education 31 23

Changing physician 30 incentives 19 Analyzing options to 26 nance facilities

Partnering with organizations 12 that have existing facilities 24 9 Changing sta‡ng mix toward 22 outpatient facilities

No action being taken 12 4 2 1 Other 1 0 1 2 3 4 5 6 7

agreement, or shared equity in the site ­relationships with physicians and with the management company. ­surgeons. This volume, in addition to the existing funding and infrastructure In addition, health systems should take around billing, collecting, and regulatory advantage of the staffing models pos­ requirements, may be an asset when sible at such sites. For example, unlike negotiating with payers and suppliers. traditional hospital operating rooms, In addition, physicians may prefer to which often rely on floating nurses to avoid administrative, operational, or support surgical procedures, ASCs vendor complexities. A hospital/health can reap the operational gains20 from system could consider highlighting its having surgeons work with a single set ability to take on these tasks, freeing of dedicated nurses and physicians’ as- doctors to focus on patient care. Finally, sistants for their blocks. a hospital may be able to have capital at 3. Understand what value the a scale needed to build and furnish the hospital/health system brings site with specialized equipment. This to an ambulatory partnership level of funding is usually too risky for A hospital/health system should ag­ a small group of surgeons to comfort­ gregate the volume through existing ably pursue.

20 Barro JR, Huckman RS, and Kessler DP, “The effects of cardiac specialty hospitals on the cost and quality of medical care,” Journal of Health Economics, 2006, Volume 25, Number 4, pp. 702–21.

Walking out of the hospital: The continued rise of ambulatory care and how to take advantage of it 10 4. Transform operations to ing strategy is shifting at a granular support expansion of ­level. In some markets, the opportunity ambulatory care services for this shift may represent “win-wins” Processes, systems, policies, and staff between payers and health systems in culture will transform to support expan- lowering the overall cost of care while sion of ambulatory care services. This maintaining or growing margins for support can include raising awareness healthcare providers, but operational for patients; redesigning clinical path- discipline will be the foundation of this ways to support clinicians as they de- strategy coming to fruition. cide when to offer safe, evidence-based alternatives to inpatient stays; ensuring risk-mitigation protocols, such as inpa- The US healthcare system could create tient transfers plans; providing training ­significant value by reducing variation in for staff on high-quality care outside the sites of care. This value will grow signifi- hospital setting; adjusting workforce cantly over the next ten years as procedures plans and rosters for changing opera- that take place only in an inpatient setting tions; reviewing metrics and reporting today are moved safely and effectively to to address unwarranted variation; and ambulatory care settings. Patients, physi- building a culture that promotes collab- cians, and payers all support these trends, oration across different sites of care. and an increasing number of hospitals/ health systems have announced they plan 5. Ensure contracting strategy to benefit as well. matches the planned shifts in site of care Hospitals and health systems should As systems are proactive about plan- ­position themselves on the same side as ning shifts in sites of care that maximize patients, payers, and physicians. Those patient experience and expectations, who reach this goal will be able to shape they should ensure that their contract- the future, not be shaped by it.

Pooja Kumar, MD, ([email protected]) is a partner in McKinsey’s Boston office and Ramya Parthasarathy ([email protected]) is a consultant in the Silicon Valley office.

The authors would like to acknowledge James Biggin-Lamming, Ian Berke, Nithya Vinjamoori, and Ankit Jain for their contributions to this article.

This article was edited by Elizabeth Newman, an executive editor in the Chicago office.

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Walking out of the hospital: The continued rise of ambulatory care and how to take advantage of it 11