In recent years, we’ve witnessed a significant migration of procedures from traditional inpatient settings to outpatient facilities, such as Ambulatory Surgery Centers (ASCs) and Hospital Outpatient Departments (HOPDs). This trend, driven by a combination of patient preference, payer demands, and technological advances, shows no signs of slowing down. In fact, a recent report from Advisory Board estimates that the cumulative shift in value adds up to a whopping $50 billion. As procedures shift to outpatient settings, patients often see shorter wait times, more personalized care, and lower costs while payers are attracted to the significant savings these settings offer.
For instance, procedures like total knee replacements, once strictly performed in hospitals, are now frequently done in ASCs. Why? Because it’s vastly more affordable for patients and payers. According to the Ambulatory Surgery Center Association, migrating these low-acuity procedures from hospitals to outpatient facilities like ASCs is estimated to save an astonishing 59%. For patients, that translates to an average savings of almost $700 per procedure.
As a result, the outpatient and ASC markets have grown rapidly. The ASC industry, in particular, is expected to reach a value as high as $57 billion by 2031, largely due to the decanting of procedures to the outpatient setting. The shift is also closely aligned with the healthcare sector’s broader shift toward value-based care principles, as payers incentivize care delivery in lower-cost settings without compromising outcomes. By moving procedures to ASCs and HOPDs, health systems can reduce overall spending while maintaining or even improving patient satisfaction and recovery times.
While this trend has fueled growth for outpatient facilities, it presents a unique challenge for hospitals and health systems. So, how can these organizations remain viable, competitive, and even thrive in this evolving landscape? There’s no single solution. However, many systems and hospitals will find themselves focusing on one or several key strategies:
- Specialization: Focusing on the cases that won’t be shifting to outpatient anytime soon
- Refinement: Eliminating waste and improving operations in preparation for potential site-of-care-related revenue declines
- Adoption: Taking charge of the situation and becoming a player in the outpatient market
Let’s take a deeper dive into those strategies.
1. Specialization: The Key to Sustaining Revenue
The types of cases migrating to outpatient facilities are typically lower acuity and less resource-intensive. For example, cataract surgeries, arthroscopic knee repairs, and endoscopies have primarily shifted to ASCs where they can be performed efficiently at a fraction of the cost. These procedures are often more affordable in outpatient settings due to reduced overhead, as outpatient facilities operate with fewer administrative staff, have lower facility maintenance costs, and don’t require 24/7 services. As a natural byproduct of their focus on limited procedures, these outpatient facilities tend to have significantly more streamlined processes. This allows for (although it doesn’t guarantee) faster patient throughput, more efficient scheduling, and reduced equipment costs.
However, hospitals still hold a competitive edge, and that comes from more complex, high-acuity cases. Specialized surgeries such as open heart surgeries, complex spinal fusions, and organ transplants require advanced surgical expertise, sophisticated equipment, and the support of a highly skilled multidisciplinary team. These elements are not easily—or affordably—replicated in outpatient facilities. Hospitals can maintain a strong revenue cycle and position themselves as centers of specialized excellence by niching down on these complex procedures.
2. Improving Operations and Eliminating Waste
The fundamental reason the site-of-care shift threatens traditional health systems and hospitals is that although surgery is just a fraction of what they do, it has an enormously outsized impact on revenue. ORs produce roughly 70% of a hospital’s revenue and just 40% of its expenses.
To adjust to the site-of-care shift, healthcare organizations should improve their operations to increase those margins. In addition to the site-of-care shift, the healthcare sector is entering a new paradigm of technological empowerment. Organizations have been collecting data for decades.
Now, tools are emerging that will put that data to use in ways that were previously out of reach. Healthcare organizations that can harness these tools may be capable of enhancing efficiency, reducing costs, and improving patient outcomes. Consider the following:
- AI-Powered Predictive Analytics: Hospitals can leverage predictive analytics to optimize staffing, manage supply chains, and accurately forecast patient demand.
- Automation: Healthcare organizations now have the technology to automate costly administrative tasks like billing, claims processing, and appointment scheduling.
- Telehealth and Virtual Patient Monitoring: These technologies, still in their early days, enable hospitals to extend care beyond their walls and work more efficiently within them. From telesitters and administrative services to more rigorous health evaluations and monitoring chronic conditions, telehealth and virtual care offer the potential for healthcare organizations to scale their operations without compromising care quality.
Related read: Overcome the Challenges of Hiring a Healthcare CIO
Technology presents an enormous opportunity for the entire industry. However, the fundamentals still have massive room for improvement. Health systems and hospitals—whether they’re facing drops in revenue due to site-of-care migrations or not—should focus on improving their:
- Recruitment and Retention: As of 2023, nearly 20% of new nurses quit within a year, according to the American Nurses Association. Considering that the cost of a nurse’s turnover can be as high as $67,500, healthcare organizations simply can’t afford their staff rosters to be revolving doors.
Hospitals can reduce workforce costs by optimizing staffing levels, ensuring clinicians operate at the top of their license, and not just building but investing in a culture that reflects the organization’s values and that clinicians can take pride in. For example, investing in training programs that truly engage and support first-year clinicians can assure that they have the skills and confidence to carry on beyond their first year. Additionally, implementing programs allowing nurse practitioners and physician assistants to handle routine care frees up physicians for more specialized tasks. - Billing and Collections Processes: According to Waystar, nearly four out of every five providers cannot collect a bill greater than $1,000 in a month. The tight margins hospitals operate with translate to a profound lack of flexibility. Investing the time and resources to significantly improve billing workflows, claims management, and patient communication can substantially impact an organization’s revenue.
And while organizations are focused on collecting from patients who are increasingly responsible for their treatment costs, they shouldn’t forget to revisit their payer contracts. Absorbing increased costs while contracts get antiquated is unsustainable. Healthcare organizations facing the site-of-care shift should ensure payers pay their fair share. - Reducing Length of Stay (LOS): According to the Kaiser Family Foundation, an organization’s average expense from a single day of inpatient care is roughly $3,205. If a hospital has one patient staying a day longer than necessary each day of the year, it would accrue over $1 million in costs. Length of stay encapsulates the many challenges facing healthcare organizations that aren’t problematic when isolated but are draining when projected over the long run. And, like recruiting and retention of staff, length of stay is a very real, long-term challenge.
Evidence supports using techniques like discharge planning, multidisciplinary care, and telehealth to reduce stay durations. By introducing or enhancing these techniques, healthcare organizations can improve bed utilization rates, increase patient volumes, and massively reduce an organization’s total episodic costs.
Related read: See how an interim perioperative leader reduced no-shows and cancellations while increasing OR cases by specialty surgeons.
Healthcare organizations at risk of losing revenue to outpatient shifts shouldn’t take it lying down. At the same rate, some organizations may have few other options. By prioritizing improvements to their broader operations, they may be able to mitigate losses or utilize the savings from these initiatives to invest in specialization.
3. Taking Control and Leaning into the Site-of-Care Shift
If you can’t beat them, join them. For hospitals and health systems facing a significant loss of cases to outpatient facilities, the best strategy may be to lean in. Establishing their own outpatient clinics or converting their HOPDs to ASCs could enable them to retain a portion of the migrating revenue while maintaining control over patient care.
Plus, by segmenting cases more effectively, hospitals can maximize the use of their ORs. Shifting lower acuity cases to outpatient facilities frees up inpatient resources for higher-margin procedures, improving both cost-effectiveness and quality of care. This approach allows organizations to retain a competitive edge in a market increasingly dominated by outpatient facilities. It works for health systems, payers, and patients.
It’s a win-win-win.
The Bottom Line: Take Action
The migration of cases from hospitals to outpatient facilities is not just a trend. It’s a fundamental shift reshaping the healthcare landscape across all markets. Health systems and hospitals must invest time and resources into making strategic decisions—or their decisions will be made for them by circumstance.
Hospitals can maintain a competitive edge by focusing on specialization, streamlining operations, and embracing the site-of-care shift.
About Kirby Bates Associates
At Kirby Bates Associates, we understand that having expert executive search partners is crucial for success in the healthcare industry. Just as you wouldn’t trust a general surgeon to perform neurosurgery, you shouldn’t rely on non-specialized recruiters to fill healthcare executive roles.
As the recognized leader in healthcare executive search, Kirby Bates Associates helps you find mission-margin focused healthcare executives who can lead you through industry-defining changes like the site-of-care shift.
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