In addition to the lower cost of providing services associated with outpatient facilities, they also can provide convenient access for patients. Traffic and parking were among the factors that Saint John's considered for its multispecialty, outpatient surgery center, which was designed for easy access for patients for same-day surgery with various specialties such as ophthalmology, podiatry, general surgery, and gynecology.
"The inevitable march of medicine means migrating toward outpatient as we get better at what we are doing now," says Howard Davis, MD, chief medical officer for Saint John's. He acknowledges that the pace of growth may slow down in some outpatient procedures, but he adds, "The health system has to be more than a hospital and look beyond its four walls."
Indeed, outpatient care is a dominant part of the healthcare landscape, the result, in part, of Medicare payment "differentials" that favor hospital-based programs, as opposed to physician-owned freestanding centers, according to the Medicare Payment Advisory Commission report to Congress on Medicare payment policies, issued in March 2011. Under Medicare's calculations, "the combined fees for visits of hospital-based practices are often more than 50% more than rates paid to freestanding practices," MedPAC states. Physician-run freestanding centers "may reorganize as hospital outpatient centers in part to recover higher reimbursements."
MedPAC reports continued growth of outpatient centers owned by hospitals. From 2004 to 2009, the volume of Medicare outpatient services for fee-for-service beneficiaries increased 23%. In 2009, patient visits to higher-paid outpatient-based practices owned by hospitals grew by 9%, while visits to lower-paid freestanding centers owned by physicians grew by less than 1%.
Saint John's outpatient plans certainly reflect the nationwide outpatient growth pattern. Mark Payares, PT, DPT CSCS, a physical therapist and program manager, was hired in 2011 to initiate an outpatient physical therapy and wellness program, which had been dormant at the hospital since 2000. The hospital leadership believed it needed to make a significant effort in that area to compete, and the wellness center will be on the hospital campus, Payares says.
"We have been without an outpatient therapy department since the earthquake in the early 2000s," he says. "The hospital shut it down. The only physical services until earlier this year was inpatient. Outpatient therapy can be profitable. It adds to the continuity of care, especially for areas like total joint or chronic pain."
Payares says he is constantly aware of the competition: He lives near the orthopedic center in Santa Monica.
Failure and success
When the JPS Health Network bought a new 30-bed inpatient hospital in Arlington, TX, in 2005, health system officials believed the boutique facility would meet the community's needs for years to come.
The idea of the JPS Diagnostic and Surgery Hospital in Arlington was to attract more insured patients to the hospital, which had focused on low-income patients. Within a few years, it was clear that plan was not working. The hospital administration didn't need a calculator to pinpoint its fiscal problem: The average daily census for the facility's 30 inpatient beds stood at one.
"For the patients we sought to serve in that area, there was not much of an inpatient need," says Chris Dougherty, senior vice president for community health for JPS Health Network, which includes 537-licensed-bed John Peter Smith Hospital in Fort Worth, TX, and dozens of outpatient sites in the county.