Hospital’s Glory Days May Have Passed Us By

Are we entering a new era: the era of hospital de-construction?

My favorite thing to do when visiting one of the medical centers in our health system is to look at the historic pictures in the lobby that chronicle the construction of the hospital.

I don’t think there is a single hospital (not built in the last 10 years) that has ever been built all at once. Hospitals are built incrementally. The original hospital usually looks like an old mansion, or maybe a library, with a horse-drawn ambulance out front. Then little by little, the hospital grows – adding an emergency room, adding inpatient beds. Building a connected professional center. Expanding cancer services with a dedicated hospital wing. Pictures in the hospital lobby often tell the long, glorious story of the hospital’s construction. 

Unfortunately, recent events are beginning to indicate that we are entering a new era: the era of hospital de-construction. Forces are combining that will almost certainly result in the replacement of hospitals as the hubs of healthcare delivery in the United States. Built incrementally, hospitals are being disassembled the same way.

Selfishly, I first noticed that our hospitals were at risk when I saw that our hospital jobs were targeted. Hospitals, most of which operate on that thin dividing line between profit and loss, have long ago identified that supporting a robust revenue cycle organization requires a major investment in the department’s human capital. The desire to reduce labor costs associated with the revenue cycle at first led to outsourcing specific functions such as aged receivables collection, specialty billing (like international patients and workers’ compensation). Outsourcing of self-pay billing and customer services, two of the most valuable services that a hospital provides, from a community relations standpoint, are often the first targets for outsourcing because of costs associated with printing and mailing statements, and maintaining a call center with extended hours.

Medical records coding has also become a primary target for outsourcing. Because medical record coding requires a high level of specific skills and the use of expensive technology, hospitals can find it hard to find enough coding staff and pricey to train, employ, and retain good coders.

The net savings (after agency fees) associated with outsourcing revenue cycle functions is estimated to be about $50,000 per FTE, per year. These savings can be even higher if the outsourcing includes offshoring. Outsource coding agencies, which may hire part-time workers without benefits, or labor from parts of the world where the cost of living is substantially lower, can often promise that they will code more charts, more accurately – for less money.

I’ve recommended to my kids, my neighbor’s kids, and anyone else who will listen that if they were going to plan a hospital career, they should only consider hands-on, patient-care careers. (My daughter, who otherwise rarely listens to my advice, is now a doctor of physical therapy working at a hospital in Hawaii.) 

But time and profit motives are apparently making this advice seem short-sighted. Insurance payers, citing the spiraling cost of healthcare (while many of these payors are announcing record profits with each successive quarter), have decreased inpatient volumes by denying inpatient admissions for virtually every service.

After decreasing admissions and inpatient days, these insurance payers (such as Blue Cross Blue Shield, UnitedHealthcare, and Aetna) are using aggressive “steerage” tactics, through narrow networks and “site of care” authorizations, to move outpatient services out of hospital environments.

In its 2021 Outpatient Prospective Payment System (OPPS) Final Rule, the Centers for Medicare & Medicaid Services (CMS) announced that it will eliminate the Inpatient-Only List of approximately 1,700 procedures over a three-year period starting in 2021. This will allow services that, because of their complexity, could previously only be done in a hospital inpatient setting to be done in either a hospital inpatient setting, hospital outpatient setting, or even in a free-standing ambulatory surgical setting.

For-profit insurance companies have taken the lead from CMS, and, as always, they’ve taken it up a notch. If CMS announces that it will penalize hospitals for experiencing higher-than-average 30-day readmission rates, the insurance companies immediately announce that they will “follow CMS’s lead” and stop paying for any readmission that occurs within 30 days of another inpatient stay.

Now, patients who thought that they could go to their local hospital or to an academic medical center for complicated or very serious healthcare issues can find that they cannot get authorization for these services from their insurance companies. Hospitals, which have contracts with these insurance companies for these outpatient services, now find that they must pass another layer of authorization, the “site of care” authorization before they can provide many outpatient services. The physician seeking authorization for radiology services, outpatient non-invasive diagnostic procedures, or simple surgeries must justify why the services need to be provided in a hospital setting instead of a doctor’s office or an independent (for-profit) ambulatory center.

Last week, UnitedHealthcare announced that it plans to move 55 percent of all outpatient surgeries and radiology procedures out of hospitals by 2030. Adding insult to this injury, UnitedHealthcare has announced a policy that will decrease or deny payments for patients who they consider non-emergency, regardless of the fact that hospitals are required by the Emergency Medical Treatment and Labor Act (EMTALA) to provide care to all patients who come to their emergency rooms.

It is true that hospital services are more expensive than care delivered in a doctor’s office or an ambulatory center. The biggest reason for this is the costs of treating the seriously sick and injured patients that hospitals serve in their emergency rooms, ICUs, and neonatal intensive care units. Since no payer (especially government payers, Medicare and Medicaid) pays anywhere near the cost of providing care to these patients, hospitals cover the costs incurred by the very sick by making a little margin on patients who are receiving more routine care. 

If you redirect these low-acuity patients and the margins that they provide, the hospital equation doesn’t balance. When payers refuse to pay hospitals for diagnostic services and non-life-threatening services, and don’t exponentially increase payments for high-acuity services and procedures, the hospitals will face financial collapse. It seems simple and inevitable.

Now, I have been working in and around hospitals for a couple of decades. I hope that I will not see the day when they lock the doors and turn off the lights at my hospital. But those of you who are much younger than me might want to start considering a career move to ambulatory care. It certainly seems that ambulatory care centers will be a much more secure place to be in the future.

But then again, I read an article recently indicating that the new CVS health hubs plan to do sleep studies. And Walmart is determining if it’s feasible to open radiology services in their stores, as well as primary care clinics, labs, and dental services.

Oh well, there’s always my career Plan C, which is based on finding landscaping work and buying lottery tickets.

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Stanley Nachimson, MS

Stanley Nachimson, MS is principal of Nachimson Advisors, a health IT consulting firm dedicated to finding innovative uses for health information technology and encouraging its adoption. The firm serves a number of clients, including WEDI, EHNAC, the Cooperative Exchange, the Association of American Medical Colleges, and No World Borders. Stanley is focusing on assisting health care providers and plans with their ICD-10 implementation and is the director of the NCHICA-WEDI Timeline Initiative. He serves on the Board of Advisors for QualEDIx Corporation. Stanley served for over 30 years in the US Department of Health and Human Services in a variety of statistical, management, and health technology positions. His last ten years prior to his 2007 retirement were spent in developing HIPAA policy, regulations, and implementation planning and monitoring, beginning CMS’s work on Personal Health Records and serving as the CMS liaison with several industry organizations, including WEDI and HITSP. He brings a wealth of experience and information regarding the use of standards and technology in the health care industry.

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