Chains bank on outpatient care
Chains look beyond inpatient side
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.