Health systems must prepare for shifts in patient volume outside the hospital

Hospitals and health systems are seeing some modest improvement in volumes, even if it hasn’t returned to pre-pandemic levels for many organizations.

Hospital executives need to be prepared for the continued shift to outpatient services. (Image credit: ©moodboard - stock.adobe.com)

However, as healthcare organizations look to a new year, and the coming years, they need to recognize that patients are looking for more care options outside the hospital, says Steve Wasson, chief data and intelligence officer for Strata Decision Technology. Strata recently acquired Syntellis Performance Solutions, which tracks hospital financial trends.

“We are seeing volumes pick up across the market,” Wasson tells Chief Healthcare Executive®. “However, they're shifting. Different settings of care are emerging and growing faster than before. For example, we're seeing a shift to the outpatient. So we're seeing higher growth rates in outpatient settings than inpatient care.”

“The volume is shifting whether they like it or not,” he adds. “They need to be ready. But we are seeing people put those plans to work.” (See part of our conversation with Steve Wasson. The story continues below the video.)

Outpatient revenue rose 3% from September to October, according to Syntellis data. Year over year, outpatient revenue in October 2023 was 12% higher than in October 2022.

“We’re seeing patient preferences and reimbursement shifts are moving some cases that would have been impatient to an outpatient,” Wasson says.

Going forward, hospitals and health systems need to expand outpatient services and look at ambulatory surgical centers, Wasson suggests.

“Health systems really need to be prepared,” he says. “And the ones that had been preparing, they've organized themselves to be prepared for some of the shifts in setting, I think are succeeding and capturing that volume.”

“And those that didn't, for whatever reason … they're going to lose that volume there,” he adds. “It's going to a competitor, or to a different organization.”

Hospitals are starting to move forward with construction projects that were put on the back burner during the COVID-19 pandemic, Wasson says. As they move ahead with capital projects, Wasson says they need to plan with an eye on outpatient services.

“They're looking at it from an ROI perspective on where they need to be in the next 5 to 10 years,” he says. “And they're putting the capital to work in some of those things, whether it be acquiring some sort of ambulatory surgery center to get their network to be prepared for the volumes that either they see or are going to see, or building a facility that is very much targeted towards some of those things. We are seeing folks put their capital to work for the future in a way that they weren't over the last two years.”

As hospitals move ahead with improvement or expansion projects, some find themselves in difficult circumstances. They may need to borrow money with higher interest rates than they’d prefer, or they have to use more of their own cash, and some have less cash on hand than they did a few years ago.

“It's more expensive than it was to do some of these projects,” Wasson says. “And I think that is weighing on organizations, for sure. And that's just the cost of the exercise. But even with those interest rates being higher, I think people are proceeding as they need to.”

But Wasson says he worries about the organizations that have seen their cash on hand dwindle over the past two years. Hospitals have, on average, 183 days of cash on hand in 2023, down from 250 days in 2021, S&P Global Ratings said in a report looking at the year ahead.

Organizations with more cash “are in a better position to compete,” Wasson says.

Many health systems continue to struggle with weak or modest margins. Hospitals are likely to face continued financial difficulties with high costs and thin margins, according to analysts such as Fitch Ratings and S&P.

Like other analysts, Wasson says he expected to see a more robust recovery from hospitals in 2023. However, even as volumes and revenue have ticked upwards, health systems continue to deal with high labor costs. Hospitals are also struggling with higher drug costs.

Wasson likens the ongoing cost pressures to a “Whac-a-mole” game. Labor prices remain high but have stabilized, but drug costs are now emerging as a bigger challenge.

“If we can get expenses to just settle into sort of a normal pattern, I think we could see margin improvements, climb higher in ’24,” he says. “But if we still have a drain around some of these key expenses, labor, drugs … then I worry that we're going to see that margin still be at a lower level than we'd all like for a sustainable system.”