Chains bank on out­pa­tient care

Chains look be­yond in­pa­tient side

Modern Healthcare - - Front Page -

In­vestor-owned chains have grabbed head­lines for their ag­gres­sive­ness in pur­su­ing hos­pi­tal ac­qui­si­tions, but it’s not their only growth strat­egy. Amid lack­lus­ter in­pa­tient vol­ume, the chains are look­ing for growth in out­pa­tient ser­vices too. In­dus­try ex­ec­u­tives point to broad trends that are boost­ing out­pa­tient care, such as the ag­ing pop­u­la­tion, health­care re­form and med­i­cal tech­nol­ogy, as well as ways out­pa­tient care can bol­ster strate­gies for com­pet­ing with neigh­bor­ing hos­pi­tals, align­ing with physi­cians and work­ing with pay­ers.

Dal­las-based Tenet Health­care Corp., in par­tic­u­lar, has cited out­pa­tient ser­vices as an in­te­gral part of its strat­egy for boost­ing its op­er­at­ing mar­gins to match or ex­ceed its peers’ mar­gins. Tenet told in­vestors in Jan­uary that it spent $65 mil­lion ac­quir­ing 24 out­pa­tient cen­ters in 2010 and ex­pected to spend up to $100 mil­lion ac­quir­ing 15 to 25 cen­ters this year (Jan. 17, p. 8).

Tenet ex­panded only after build­ing a team ded­i­cated to out­pa­tient ser­vices. Two years ago, Tenet pro­moted Kyle Burt­nett to be its vice pres­i­dent of out­pa­tient ser­vices, and the com­pany has since added ex­ec­u­tives from am­bu­la­tory surgery and imag­ing com­pa­nies, Burt­nett says.

Tenet draws about 32% of its rev­enue from out­pa­tient ser­vices ver­sus 38% for HCA, which Burt­nett con­sid­ers Tenet’s most sim­i­lar peer in terms of the type of mar­kets the com­pa­nies serve. That pro­vides a lot of op­por­tu­nity for Tenet to boost its am­bu­la­tory surgery, imag­ing and ur­gent-care cen­ters, Burt­nett says. The first two ar­eas have in­volved a lot of ac­qui­si­tions, es­pe­cially from physi­cian in­vestors, while Tenet is de­vel­op­ing its ur­gent-care cen­ters from scratch, he says.

The ex­pan­sion of cov­er­age un­der health re­form should dis­pro­por­tion­ately ben­e­fit out­pa­tient care, be­cause “Out­pa­tient care is ba­si­cally closed to unin­sured pa­tients un­less they can pay up front,” Burt­nett says. Also, newly cov­ered pa­tients are likely to have bet­ter ac­cess to pri­mary-care physi­cians, lead­ing to re­fer­rals for out­pa­tient di­ag­nos­tic tests, he adds. Al­ter­na­tively, if those newly cov­ered pa­tients cause a pri­mary-care short­age, ur­gent care could ben­e­fit, he says.

Wayne Smith, , chair­man, pres­i­dent and CEO of Com­mu­nity Health Sys­tems, sees an­other ef­fect of re­form that will boost out­pa­tient ser­vices. The re­form law froze cur­rent physi­cian in­vest­ment in hos­pi­tals and for­bade new in­vest­ment, such as physi­cian syn­di­ca­tion deals. That leaves joint ven­tures with physi­cians in am­bu­la­tory surgery cen­ters as about the only eq­uity method of align­ing with physi­cians, he says.

Medi­care cuts for free-stand­ing am­bu­la­tory surgery cen­ters—their rates are about 39% lower than for hos­pi­tal-based cen­ters, ac­cord­ing to Smith—made physi­cians more in­ter­ested in selling, he says. Com­mu­nity has about 15 such joint ven­tures and about 20 free-stand­ing cen­ters.

Physi­cian align­ment and ex­pand­ing out­pa­tient sites were at play when Com­mu­nity ac­quired Rock­wood Clinic in Spokane, Wash., in 2009 to com­ple­ment its pur­chase of two hos­pi­tals in that city in 2008. The strat­egy is to build net­works that man­aged-care pay­ers sim­ply can’t ex­clude from their of­fer­ings, Smith says. “The bet­ter foot­print that we have in terms of out­pa­tient fa­cil­i­ties, the bet­ter op­por­tu­ni­ties we have to cap­ture mar­ket share,” Smith says. “And it’s all about mar­ket share.”

Health Man­age­ment As­so­ci­ates, Naples, Fla., also sees out­pa­tient ser­vices as part of its ef­forts to gain mar­ket share, says Gary New­some, pres­i­dent and CEO. Like Tenet, HMA is look­ing to tap into the spe­cific ex­per­tise of com­pa­nies whose core busi­ness is out­pa­tient ser­vices: “We’ve looked at out­pa­tient as a dif­fer­ent care model than run­ning in­pa­tient ser­vices,” New­some says. “We have been part­ner­ing with peo­ple who un­der­stand that and run these types of cen­ters, rather than try­ing to du­pli­cate that man­age­ment tal­ent.” He de­clined to name the part­ners.

Physi­cian align­ment also is a goal some­times when the com­pany ac­quires or de­vel­ops an am­bu­la­tory surgery cen­ter, New­some adds. Ur­gent care works in some mar­kets where there is a ge­o­graphic gap in a lo­cal sys­tem’s foot­print, he adds.

All three ex­ec­u­tives say that pay­ers wel­come the idea of more sites that of­fer care at lower cost than hos­pi­tals. “I think the pay­ers re­ally like the idea of an ex­panded foot­print: ur­gent care, am­bu­la­tory surgery cen­ters, imag­ing cen­ters—good qual­ity care at a qual­ity price,” Tenet’s Burt­nett says. << North­west Surgery Cen­ter Red Oak in Hous­ton is part of Tenet’s ex­pand­ing out­pa­tient net­work.

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