Abby Burns (00:02): From Advisory Board, we're bringing you a Radio Advisory, your weekly download on how to untangle healthcare's most pressing challenges. I'm Abby Burns. Health systems rely on surgical volumes as a major revenue driver, but as more surgeries and procedures take place outside the hospital, systems aren't necessarily positioned to capture that volume shift. Today, I want to talk about how health systems should be thinking about ambulatory sites of care as part of their growth strategy, and offer clarity on how they can translate this mindset shift into operational reality. To do that, I've brought Advisory Board experts Nick Hula and Sebastian Beckmann. Nick, Sebastian, welcome back to Radio Advisory. Nick Hula (00:45): Thanks for having us. Sebastian Beckmann (00:47): Thanks for having us, Abby. Abby Burns (00:48): So Sebastian, you are our resident numbers expert. Nick, you are actively leading research around this idea of site of care shift, and ambulatory surgery centers specifically, right? Nick Hula (01:01): Right. Correct. Abby Burns (01:03): Okay. So we definitely have the right people in the room to have this conversation, but I have to admit, I'm a little curious about why we are having it now. It feels like we've been talking about this impending site of care shift, and Advisory Board has been keeping a finger on the pulse on it for a really long time. Why are the three of us having this conversation today? Sebastian Beckmann (01:25): I think you can scratch the impending now, and start to talk about accelerating. So we're talking about accelerating site of care shift now. It's happening more quickly, and it's also starting to affect more cross site of care transitions, not just inpatient to hospital, but also that hospital to ASC transition, which is really costly to health systems, and a real savings opportunity for health plans. Abby Burns (01:52): Sebastian, when you say accelerating, can you just flesh that out a little bit? What do we mean by accelerating? Sebastian Beckmann (01:58): Yeah. So we've been tracking to your point, site of care shift for a little while, and there's 15 particular procedures that we've kept an eye on, because we've thought of them as being at high risk for shift out of the hospital setting. And of those 15, 14 have shifted since 2017. Abby Burns (02:16): 14 out of 15? Sebastian Beckmann (02:18): Yes. And of those 14, 11 of them actually saw a quicker shift from 2019 to 2022 than from 2017 to 2019. So you can divide pre and post pandemic there. We already saw outpatient shifts happening before the pandemic, but it's happening a lot faster now. So one example of that is joint replacement moved about 18 percentage points from the inpatient setting to the hospital outpatient setting between 2017 to 2019, and that supercharged since then. It's gone an additional 51 percentage points to that outpatient setting. Abby Burns (02:54): 51%? Sebastian Beckmann (02:56): Yes. Abby Burns (02:56): Okay. That feels meaningfully faster. I want to make sure I'm not oversimplifying when I am defining site of care shift. What I'm hearing is site of care shift is proportion of procedures that take place in a hospital inpatient setting, hips and knee replacements that happen in the hospital. What is that definition missing? Sebastian Beckmann (03:22): I think that's the basic of it. I think what that hides is that there's a lot of variation between sites of care where you can see shift happening. So you can see inpatient to hospital outpatient. So instead of having that to midnight stay, that patient is leaving within 24 hours. And that's most of what you see happening for those big procedures like joint replacement. But you also see transition from the hospital setting to the ambulatory surgery setting, or even from the hospital outpatient setting to the physician office setting, some of those shifts from higher cost settings of care to lower cost settings of care, and particularly to settings of care where other people are getting paid. Abby Burns (03:59): So it is not just the proportion of services that are moving, but it is also the range of different places they're moving to. Nick Hula (04:08): Yeah. So I think we're seeing this also happen at a very market dependent level. We're seeing some markets experience a lot of these shifts at a different pace, different types of shifts than other markets. And it's the same thing for different services too. We just talked about joint replacement, and one great example of a service we are seeing shifts. For some services, we're just not seeing shifts. We're not going to see open heart surgery occur in an ambulatory setting anytime soon. So it's very market dependent, very service dependent as well. Sebastian Beckmann (04:43): But you might see percutaneous coronary interventions. So you might not see open heart surgery, but you'll probably see stenting. Abby Burns (04:50): Okay. So we're getting into some of the different specific procedures that we may or may not see. Pulling back a level, generally what do our listeners need to know when it comes to the breadth or the acuity of services moving to outpatient settings? Nick Hula (05:05): I think that for a lot of services, we have seen really great shift. We talked about joint replacement. There are other things as well in spine, and cardiovascular, and I think that a lot of specialties have moved a little bit more slowly than some may have expected, but I think we could start to see some changes, especially as things happen more and more in say the hospital outpatient department level. That could accelerate in the future shifts down towards ASC as physicians get more comfortable with performing with fewer resources in a shorter time period. That could shift altogether out of the hospital, and that may have larger impacts for health systems from a financial and a strategic perspective. Abby Burns (05:52): So I'm wondering. Sebastian, you started off telling us about the massive shift that we saw in joint replacement, right? You said 51% change over the last 2 to 3 years. What can we learn from what's happened with orthopedics that might be instructive for other service lines? Sebastian Beckmann (06:09): I think there's a couple different perspectives on that question, and one that I've been obsessed with recently is the health plan perspective, because I think there's something that health plans should learn from this, which is it is possible to shift really expensive stuff out of the hospital even when it never seemed likely before, and you can do it pretty quickly. The reason I say that is joint replacement health plans did not play a big role to my understanding in driving that 51% change. That was about a regulatory change. It was about hospitals don't actually lose a lot of money when you go to the hospital outpatient setting from inpatient, because even though you're taking less reimbursement, your costs are a lot lower too. The physicians were already interested in this, and there was about 10 years on of clinical data backing this up, and then you had a pandemic that gave you an operational reason to get patients out of the hospital as quickly as possible. Abby Burns (07:04): Okay. Sebastian Beckmann (07:04): But the result is health plans accidentally saved millions and millions of dollars. Abby Burns (07:09): Accidentally saved? Sebastian Beckmann (07:10): Right. Right. By doing nothing, they saved tons of money, which was great for them, and now they know they can do it. So if you're a health plan leader, why not use this proactively? If you're looking at what you can save in cardiovascular care, what does this example tell you? And I'm not saying that things are going to move as quickly in cardiac as they did in orthopedics. There's a lot of fundamental differences in the market like the physicians aren't as independent. You actually have to build cath labs outpatient if you want to stent patients in the ASC setting. Abby Burns (07:41): Okay. Sebastian Beckmann (07:42): But there's ways that you can encourage physicians to do that, and design benefits to encourage physicians to do that, that could help spark that change. Abby Burns (07:50): Okay. So that is the health plan perspective. What about the health system perspective? Nick Hula (07:56): Yeah. Well, from a health system perspective, they've wanted to preserve inpatient volumes for really as long as they possibly can. They usually get a higher reimbursement in that setting, and in a fee for service environment, they just make more money if a surgery occurs in that setting. Now, there are obviously exceptions to all of that, but for the most part, health systems want to wait, hold off on shifting surgeries to other settings until they're absolutely forced to. But like we were just saying, we are seeing these site of care shifts happen, whether the health system gets on that train or not. Site of care shifts are accelerating. That's where the train is heading. And we're not just talking about super low acuity stuff like eye surgery, cataract surgery anymore. We're talking about things like ortho, cardiovascular, neuro, spine. We're talking about things that are really core to the hospital, that have really broad reaching strategic impacts, broad reaching financial impacts, and if health systems aren't paying attention to investing in those areas, and really moving in the direction the train is heading for those, they're going to miss out really altogether. Abby Burns (09:17): Do you have any examples of times where you've seen that happen? Nick Hula (09:21): Yeah. Absolutely. In our research, we spoke with one health system who they actually resisted shifting ortho cases to outpatient settings altogether. They resisted that for as long as they possibly could, and what happened was a local independent physician groups, they all banded together to build an ortho ASC. So now for the health system, they're not getting any of those physicians to do outpatient surgeries in a hospital at all. They're all bringing their outpatient cases to the ASC setting. So they've been almost completely cut out of the outpatient ortho market, all because they were trying to resist site of care shifts as long as possible, as opposed to really viewing it as a strategic enabler, or an opportunity to be a market leader for that service. Sebastian Beckmann (10:12): Yeah. So it's this example where they didn't want to take a haircut, and they lost the revenue altogether. Nick Hula (10:19): Right. Abby Burns (10:21): So what I'm hearing is basically there's a market opportunity here for health systems, and it has something of a ticking clock, which doesn't fit all that well with the way health systems have traditionally approached site of care shift strategy. How should they be thinking about it instead? Nick Hula (10:41): Yeah. So health systems can't view site of care shifts as some necessary evil anymore that they have to avoid at cost. They can't really wait around until they're forced to move things anymore. I like to think about it as going on offense. You can think about it as more just thinking about it as an opportunity instead, really adjusting your mindset to see ambulatory as a key part of your growth strategy. So I often encourage a lot of health systems to really identify, what are those services, or what are those areas that they cannot afford to lose at? Identify, what are those areas where you want to solidify yourself as the market leader for that service? Sebastian Beckmann (11:29): Yeah. And by the way, I think that's a really important message because it drives home that this matters not just for health systems in markets where they're seeing shift active. It matters for every single hospital. Most hospitals and health systems could benefit from an ambulatory strategy, and it'll help you accomplish things that you couldn't do without one. Abby Burns (11:49): So if we're saying health systems need to change their posture towards site of care shift from, "This is something I'm forced to do," to, "This can help me achieve my goals," what are some of those specific goals they should be using this to try and achieve? And the reason I ask the question is, moving services, procedures, surgeries to take place in outpatient settings is going to cannibalize some highly coveted surgical volumes that hospitals might rely on to maintain their margins. So what are the potential strategic opportunities that can be gained from making what could be a pretty painful decision? Nick Hula (12:32): Well, service line growth is of course a big one like I just mentioned. Do you want to improve your spine program, for example? Well, ambulatory needs to be a part of that equation if you want to have any influence over the outpatient spine market, but there are others too. Do you have market expansion as a major one of your goals? After you're expanding into a new geographic market, you don't always need to build out a new hospital. Maybe establishing an ambulatory site of care is a great first step to building brand. (13:05): Another really big one that I see is improving access to care. I see a really big opportunity in this for rural areas actually. Right now, there are very few, at least from an ASC perspective, there are very few ASCs in rural areas, and I know a lot of health systems are closing down a lot of rural hospitals at probably at an alarming rate. But in some instances, it might make sense to instead of closing down those sites altogether, to instead convert some of those sites into, maybe it's a freestanding ED, but maybe it's also an ASC. You might not make that much money on that ASC, but it might have a really lower cost structure than operating a hospital, and you might be losing a lot less while at the same time maintaining access to a lot of key services for that area, retaining employees, repurposing all the capital assets that you might have, being able to at least get some benefit out of that to achieve those access related goals. Sebastian Beckmann (14:10): I like that point about a care network a lot, a network of facilities delivering the right care in the right place. One of the things that we've heard in the last year is big city medical centers with large rural areas around them are taking in transfers of patients from facilities markets that can't handle them anymore, and then they've got nowhere to discharge those patients, because there's also no post-acute infrastructure. So even though generally I try to push us away from thinking about this as decanting volumes to save on hospital capacity, that is still a really important part of the strategy. Abby Burns (14:46): It's intentional decanting. It's strategic decanting is what I'm hearing from you. (16:23): So health systems should approach site of care shift strategically, rather than solely reactively? You mentioned though at the beginning of our conversation, this shift looks different across different services, and across, like you said, Nick, different markets. So I'm assuming whatever strategy health systems pursue need to be both service and market dependent. Yes? Nick Hula (16:45): Yeah. Absolutely. Abby Burns (16:46): So let's talk about both of those, and let's start with the services. And just for some context here, two weeks ago, we talked with Vidal and Larry on Radio Advisory about how for most health systems, the path to growth is actually by focusing on a narrower set of services than they might have done in the past. Right? They told us hospitals need to shrink in order to grow. When we're talking about being more strategic around your site of care shift strategy, my mind is going to a similar place. So my question is, how should organizations decide which services they should prioritize shifting to outpatient, or should they be doing this for all services? Sebastian Beckmann (17:24): I think there's broadly four things that will determine how fast something can move. So the first is the physician landscape. So how independent are the physicians in this service, in this market? Do they own their own ASCs? In other words, is there a financial incentive to go outpatient? To what extent are they beholden to the hospital for all of the care that they provide, versus just going there for procedures? Abby Burns (17:54): Sebastian, do any specialties in particular come top of mind for you when thinking about how consolidated is a given specialty? Sebastian Beckmann (18:02): Yeah. I spent a lot of time doing ortho and cardiovascular research. So all my examples live in those two service lines for which I apologize, but I think they're actually useful contrasts here. So orthopedic surgeons tend to be very independent. They tend to have ASC ownership stakes. Many of them are already operating out of the ambulatory surgery center much of the time. They can do a lot of their procedures either in the hospital, or the surgery center. Abby Burns (18:27): Okay. Sebastian Beckmann (18:28): Cardiovascular physicians, so interventionalists in particular I have in mind here are more likely to be employed by hospitals. Most of the time, they're working out of a cath lab, and their local ASC probably doesn't have a cath lab. Abby Burns (18:43): Okay. Sebastian Beckmann (18:44): They tend to be a little bit less independent as a result of that employment relationship, but they don't have that ownership stake that gives them a financial incentive. That sets up the second big category in my mind, which is infrastructure, right? So you can do a joint replacement. You can do an ACL repair. You can do that in the hospital. You can do that in a surgery center. You just need, I don't know exactly scalpels, and saws, and other butchery equipment, I assume, whereas a cardiac intervention, you need a whole cath lab, and that's an expensive investment that the average ambulatory surgery center hasn't made. So that's something that's going to take time and capital to start up. Abby Burns (19:26): That also makes me wonder in this world where health system financials are looking better than they did in the last couple of years, but still not great, I think average hospital margin is somewhere in the 1 to 2% range, realistically, what proportion of hospitals can make this type of capital investment? Nick Hula (19:44): So I think some of the larger ones will be able to do so, but for a lot of health systems, I think the answer for them is you need to partner to make those levels of investments, be that a health system partnering with a physician group, or partnering with an ASC operating on these big, big chains of companies who are operating ASC to be able to have the funds in order to start up these ASCs, but also operate them on a continual basis. Abby Burns (20:14): So it's not a matter of if you can't go it alone, don't do it at all, instead is, what is your strategic lifeline, and lean into that. Have you seen examples of this actually working? Nick Hula (20:24): Yeah. Absolutely. We see health systems partnering with physician groups, or ASC operators all the time. I think the key to it though is to find a partner where you align on cultural values, or on shared goals. For example, if a health system who is just seeing ASCs as a very defensive maneuver, and they partner with a independent physician group who they really want to make profit off of this, there's a big misalignment in incentives and goals that'll fall apart. On the flip side, we talked with one organization. They were actually one of those really big ASC operator chains, and they saw a huge opportunity to expand in a very specific geographic market, and all of the big local health systems, they were interested but not really committed into a long-term surgical presence in that area. (21:24): So they searched, and searched, and searched, and eventually found a much smaller health system in the area that for years have been trying to grab a foothold in that region. And they ended up partnering with that ASC operator, because they shared the exact same goals, the exact same aims. That made the partnership super smooth, because they were able to find that right culture fit, that right priority- Abby Burns (21:47): The strategic alignment. Yep. Nick Hula (21:49): Yeah. Abby Burns (21:49): Okay. So we've got the physician landscape. We've got the infrastructure. Sebastian, you said there were four factors. What are the other two? Sebastian Beckmann (21:57): Yes. So the third that I like to talk about is our health plans actively working to accelerate the shift in your market or not, and we've seen this be really market dependent. Right? So to return to that ortho example, I talked to a hospital in Southern California who work with a health plan who reimburses all joint replacements at ASC rates. Abby Burns (22:18): Wow. Sebastian Beckmann (22:18): They're not requiring anyone to do this work in the ASC, but good luck making a margin on that ASC rate if you're still taking care of the patient in the hospital. So that's a really good way to lock in that shift. I think there's other things that health plans can do to accelerate shift. So like I talked about the benefit design earlier, partnering with particular providers in a center of excellence model to take patients or cases to that ambulatory setting, but I think that's a third big driver. So is this something that health plans are actively working on, or is it something that they'd be willing to partner on if you can help save that money? Abby Burns (22:58): Okay. What's the fourth? Sebastian Beckmann (23:00): Is there actually enough volume? So if you think about your average physician, they have to choose where they're practicing. If they're only going to do one or two of these ambulatory eligible procedures in a week, it doesn't make sense for them to go to that setting. They're just going to stay in the hospital, because it's too hard to set up a parallel schedule to justify that. You need that minimum volume that's eligible for the ambulatory surgery center setting in order to schedule everyone's time around it. And that means that you need to have a large enough market. Abby Burns (23:30): So that's a perfect transition to talk about our other bucket of considerations, which is how does this look different market to market? So we have the strategic ambitions health systems might be pursuing. We know what factors they should consider when they're evaluating which services to move. What about market conditions? How does the calculus look different market to market? Nick Hula (23:54): I think you can look at a lot of those same things, physician, employment status, level of independence, that stuff. Other things I add to the mix there to look at when it comes to market conditions is looking at local certificate of need laws, especially in really crowded markets with lots of big players, or markets where one single health system has a monopoly. Abby Burns (24:22): What would a couple example markets of either super consolidated, or a place where a health system has monopoly on the volumes? Nick Hula (24:29): Yeah. So I think in some smaller metropolitan areas where really one health system has a dominant play over the market, both in the urban core, as well as suburban areas, it might be hard for other smaller health systems to really form their foothold, and form relationships with a more limited pool of patients [inaudible 00:24:54] physicians. Abby Burns (24:54): Are there specific cities or MSAs that come to mind as, "This is a really ripe market," versus, "This market is not going to move?" Sebastian Beckmann (25:02): I wish I could give you an answer. Unfortunately, that's actually an analysis that we're still doing. So we're looking at by health referral region how quickly has shift happened across the last five years, and we're also looking procedure by procedure for that same information. So we're going to see and be able to share that full level of how macro level how has the market moved? Micro level how is there variation between joint replacement, versus spinal fusion, versus PCI, versus prostatectomy? We'll be able to see that, and we're publishing maps that will show all of that as well. Abby Burns (25:34): So more to come. Sebastian Beckmann (25:36): Always more to come. Can I call out something that we haven't talked about- Abby Burns (25:41): Please? Sebastian Beckmann (25:42): ... which is consumer behavior. We ran a survey a couple of years ago where we posed that question, "Would you rather get a joint replacement at a hospital. Or an ASC? P.S., you get to save $500 if you do it at the ASC," and everyone picks the surgery center. Abby Burns (25:58): I can't imagine that was super surprising given the wording of the question. Sebastian Beckmann (26:03): Yes. I too would like $500 please. But there is an element of when consumers can choose, they will choose the savings. I don't think they have a choice. I think they're going where their physician is doing the procedure, or where the health plan says, "Here's where you get the procedure paid for, versus not." So even though that feels really important, I actually don't think it's a driving factor. Abby Burns (26:28): So consumer choice is something that could make the transition happen more quickly, but it's not going to be the thing to kick off the transition. Essentially, consumers need to be given the choice by their health plan, by the health system, by the providers in the market, and they might act accordingly. Sebastian Beckmann (26:50): I think usually they're not given the choice. I think usually somebody else is making the choice for them, and it's either their health plan, and how they design their benefits, or their surgeon, or physician, based on where they're choosing to practice. Nick Hula (27:02): Right. I think for example, you're not going to be driving on the highway, and see a billboard for a surgery center, and be, "Yep. That's where I'm getting my knee replacement done." But if your doctor says, "Hey. Show up at this office at this address for your joint replacement," that's where you're going to go. The doctor might be picking, "Hey. We're going to be doing this at an ASC versus at a hospital." Sebastian Beckmann (27:25): Even when that choice doesn't actually reflect the patient's preferences. If they had the choice, if they were fully informed, if they had the ability to change it, maybe they would pick something different. Abby Burns (27:37): Nick, Sebastian, we are coming up to the end of our conversation, and I want to make sure that we are incorporating the perspectives from the whole healthcare ecosystem, for lack of a better word. So we talked about the health system perspective around site of care change. We talked about how health plans actually have a really big opportunity to not just lock in site of care shifts, but actually accelerate them. How would you categorize the impact, the role, the opportunities of other healthcare stakeholders in shaping the narrative around site of care shift? Sebastian Beckmann (28:09): Something that Nick talked about earlier is the importance of partnerships in funding ambulatory expansion, and the example he used focused on a upstart health system in that market partnering with outside funders to enter that market. That could have also been a private equity group. That could have been a big physician employer who wanted to increase their presence in that market. I think that's the role that those disruptive players can take here. They can be the money that actually accelerates this shift, and they can spread the operational best practices that makes it a success. Nick Hula (28:50): Another big player that I want to bring up is life sciences actually, and really any type of company that is selling to hospitals, and health systems, and ASCs, because they're going to be the ones that actually enable a lot of this care to take place in those settings. We talked a lot about things like joint replacement, or stenting, PCI, all that stuff today. That's not going to happen in a ambulatory setting unless there's the innovation that allows for it to happen in the ASC setting, as opposed to the hospital, and that's a big role that life sciences has to play in enabling site of care shifts. But then they're also going to have to really understand what are the needs of their hospital health system provider customers in that space, and be able to target their value propositions to that more unique ambulatory setting in a different way than they may have targeted hospitals in the past. Sebastian Beckmann (29:46): Health plans are an accelerator that we talked a lot about, but life sciences, private equity, other players in this space can play just as important a role in driving that change forward. Abby Burns (29:59): Nick, Sebastian, thank you for coming on Radio Advisory. Nick Hula (30:02): Thanks for having us, Abby. Sebastian Beckmann (30:04): Thanks for having us. Abby Burns (30:10): Services are moving to outpatient settings at a much faster rate than they ever have before, and whether you view that as an opportunity, or a threat, the fact remains that the landscape of both where care happens, and who provides it might look very different a year from now compared to today, and your strategic plan needs to adjust accordingly. This is something our team is actively researching. So keep an eye on advisory.com/siteofcare to see our latest research. And remember, as always, we're here to help. (30:52): If you like Radio Advisory, please share it with your networks. Subscribe wherever you get your podcasts, and leave a rating in a review. Radio Advisory is a production of Advisory Board. This episode was produced by me, Abby Burns, as well as Rae Woods, Kristin Meyers, and Atticus Raasch. The episode was edited by Katy Anderson with technical support provided by Dan Tayag, Chris Phelps, and Joe Shrum. Additional support was provided by Carson Sisk, Leanne Elston, and Erin Collins. We'll see you next week.