Bottom line, quality pressures drive hospitals to weigh cutting services

Providers should use outcomes-based evidence to drive decisions about what they will continue to offer and what they won't, experts say.

The shift in healthcare delivery and a demand for greater value, especially among consumers charged with paying for their own care, is leading many hospital administrators, including chief financial officers, to explore cutting back on services to trim costs while improving quality care.

"The need for health systems to reconfigure their cost structure is being driven by two imperatives in today's market. The first is declining payments. The second is changes in competition--especially new entrants to the marketplace--that significantly affect the price of healthcare services, particularly in primary and secondary care," said Richard L. Gundling, vice president, healthcare financial practices at the Healthcare Financial Management Association.

Phil Kamp, chief strategy officer for Valence Health, Chicago, agreed. "The decision on what to cut, when and why are driven by an understanding of the clinical benefits of those services. Providers should use outcomes-based evidence to drive decisions about what they will continue to offer and what they won't," he said.

[Also: Changing priorities shift hospital focus to outpatient strategies]

"If providers can't offer a competitive price for a service, they may not want to offer it. A serious look at service-line profitability, given market conditions and competitive landscape, is a step more providers should undertake as fee-for-service reimbursement continues to decline."

Sometimes, the decision to cut is driven by the bottom line. In April, Saint Louise Regional Hospital and the O'Connor Hospital, both California hospitals owned by the beleaguered Daughter's of Charity system, announced plans to cut services including labor and delivery, pediatrics and neonatal intensive care to shore up finances.

Meanwhile, in May the Hawaii Health Systems Corp. said it would lay off 87 employees and cut home care services and adult inpatient psychiatric care at some of its hospitals to make up millions in deficits.

"Changing utilization patterns increasingly favor outpatient over inpatient care," said Gundling. "In the longer term, focus on population health management is likely to reduce demand for certain specialty and high-acuity services."

[Also: CMS update boosts 2015 Medicare outpatient payment rates]

That's true in Worcester, Massachusetts, where UMass Memorial Health Care plans to shift uncomplicated surgical procedures to a new, $31 million outpatient center that it plans to build in the city.

Kamp expects hospitals to offer fewer services and procedures that don't offer significant clinical benefit for the cost as patient volumes decline. But he cautions against cutting too close to the bone.

"Hospitals don't have to offer every service, but necessary services should be available within a reasonable service-area definition. Value-based care revolves around the number of lives managed rather than system utilization. It's important to consider the patients you'll lose if they get services outside your network," he said.

Gundling says the upside to downsizing services "is balanced by investments in risk-based contracting and population health management. Among the areas of investment are healthcare information technology and clinical networks that meet the demand for better management of patient care at the primary and secondary levels.

Success in this environment will depend on having the right resources to manage risk and population health.

"Health systems also will need to respond to or create the inevitable disruptions in healthcare delivery that will continue to emerge in coming years. Disrupting your own business model is better than being disrupted by others. Cost containment, cost structure reconfiguration and innovation can be managed simultaneously," he said.

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Kamp said identifying the most effective procedures and services is the first step toward managing all types of costs.

Recent scrutiny is also falling on hospital surgeons after recent reports showed how patient risk  was much higher when surgeons aren't frequently performing procedures. Higher volume, reports show, create better care and outcomes.

"The CFO needs to spend time with the chief medical officer to understand what procedures and services impact clinical outcomes and overall volumes. He/she needs to have access to the right systems and analytical tools to measure clinical outcomes and costs," said Kamp.

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