Follow the money: Inpatient surgery moving out of hospitals into ambulatory centers

Inpatient procedures, such as hip replacements and other surgeries, are in the midst of a migration. They're moving out of big hospitals, in fact, and into the ambulatory facilities -- freestanding clinics included. 

A big part of the reason? Cost.

It's a serious market shift from where things were five or six years ago, when most medical decisions and procedures took place in the main hub of a large system. Greg Hagood, senior managing director at SOLIC Capital and head of its healthcare practice, said the shift began about two years ago -- and it's been picking up steam ever since.

[Also: Healthcare adds 28,000 jobs in November, mostly through ambulatory hiring]

"While there's still a trend toward large-scale corporatization of physicians, more and more they're joining groups that are being backed by private equity," said Hagood. "And you've seen the insurance companies embrace the surgery center as a much lower-cost environment."

Procedures like the hip replacement are typically less expensive at a surgery or standalone ambulatory center -- between $22-25,000 as opposed to around $40,000 in the hospital itself. Payers like these surgery centers for two reasons: The higher patient satisfaction, given less bureaucracy than at a typical hospital. Plus, they see it it as a way to fight back against the autonomy of the big health systems. Physicians have bought in for the same reasons.

In July, the Centers for Medicare and Medicaid Services decreed that knee replacements can be performed in such facilities. The agency also said it would allow certain types of hip procedures to be performed by surgery centers. Think: Medicare is starting to incentivize this shift as well.

Surgeries and implants tend to be money makers, but hospitals are rolling with the tide and moving those procedures to the inpatient setting -- and taking less money for them as a result.

"There's a lot of money fleeing the hospital sector," said Hagood. "On the flip side, look at what happened in the fall. Bain Capital invested in Surgery Partners. Then you saw KKR buy a relatively small surgery center operator. If you just look at a microcosm of where the private equity is flowing, it's absolutely in that direction. We expect to see that trend continue, that flow of patients out of the hospital and into the ambulatory environment."

A lot of these ambulatory centers are located in rural locations, and have begun to supplant the community hospital as a primary destination for rural patients. It's no secret that rural hospitals are struggling -- four have closed since the beginning of the year, two of them in Ohio -- so residents in those areas are increasingly turning to ambulatory centers and telemedicine to fulfill their healthcare needs.

"When a health system says, 'We're going to close our hospital,' typically there is a commitment to provide levels of ambulatory care in the community," said Hagood. "It's not necessarily done in the same facility that was a hospital. They're not going to maintain that old facility. But they will offer up some version of care. Some of those hospitals have closed, and the repurposing is still up in the air."

For a lot of these closed facilities, there's no immediate alternate use; some can be turned into skilled nursing facilities, but that's all they're able to do because of the way Managed Care has changed their reimbursement. 

"Behavioral care is another option where we've seen some interest," said Hagood. "I think there will be greater interest in using an inpatient facility for behavioral care, but that requires investment in infrastructure."

That shift will continue, said Hagood, and combined with telemedicine services, will start to shape a new paradigm of rural health.

"A lot of these community hospitals are doing a really good job, but the trend is going toward community care with a regional medical center," he said. "What you don't need is a 50-bed inpatient hospital."

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com