In 2011, Catholic Health Initiatives set a strategic goal: 65 percent of net patient service revenue would come from sources other than hospital inpatient care by 2020. The Englewood, Colo.-based health system is on its way to achieving that goal by reorganizing physician services and strengthening its ambulatory care network. Today, a little more than half of net patient service revenue is generated outside of inpatient care.

"We've been making incremental progress," says Michael Rowen, president of health system delivery and chief operating officer at 87-hospital CHI. "We are making a conscious effort to expand the range of services we provide and focus on managing the health of the populations we serve."

CHI is among a growing number of hospital systems around the country that are responding assertively to the downward trend of inpatient utilization and embracing growth in ambulatory care. Evidence of this trend is showing up in Medicare and hospital-based data, for instance:

• Inpatient admissions fell 7.8 percent per Medicare beneficiary from 2004 to 2011, while outpatient volume rose 33.6 percent during the same eight-year period, according to MedPAC.

• Total inpatient admissions for U.S. hospitals fell from 35.76 million in 2008 to 34.40 million in 2012. Meanwhile, total outpatient visits rose from 624 million to 675 million over the same period, according to the American Hospital Association.

• Half of hospitals are taking the Affordable Care Act into consideration in their construction and design plans, and 22 percent say medical office building construction is a future facility development plan in response to the ACA, according to the 2014 Hospital Construction Survey conducted by Health Facilities Management and the American Society for Healthcare Engineering.

The decline in inpatient volume has been going on for the past decade, says Joanna Hiatt Kim, vice president of policy for the AHA, and it's largely due to new technologies that allow tests and procedures to take place outside of the acute care setting. "It's been a continuing trend, not something that happened suddenly," Kim says.

At the same time, efforts are under way to move care upstream to engage in preventive care and keep people out of the hospital. Incentives, including Medicare's Hospital Readmissions Reduction Program, enacted under the ACA, are driving the focus on making care more accessible and coordinated with ambulatory providers to avoid unnecessary inpatient stays. Alternative payment models, such as accountable care organizations, also incentivize providers to deliver high-quality care across the continuum and reduce the number and length of inpatient stays and emergency department visits.

In addition, to compete for customers today, organizations recognize that they must deliver consumer-focused care in settings that are appropriate and convenient for patients.

"We designed care for years for the convenience of providers, not patients," says Cliff Deveny, M.D., senior vice president of physician services and clinical integration at CHI. "We made them drive downtown to large care facilities and charged them for parking. Today, the people paying the bills, and especially Medicare, are expecting a different value proposition."

Managing the Entire Ecosystem

In July 2013, CHI announced that it had formed a new management services organization to move physician management services under a centralized organization across eight divisions. CHI's 2,900 providers will work under a model with standardized revenue-cycle management, referrals, scheduling and practice management. CHI took a $65 million minority stake in MedSynergies to manage the operations. Also last year, CHI announced that it would issue $1.7 billion in taxable and tax-exempt bonds to support market expansion and clinically integrated networks.

In December, 1,900 CHI physicians moved to this centralized platform, says Deveny. Meanwhile, existing medical groups are being consolidated into large regional groups with standardization around governance. In addition, all 350 CHI primary care clinics are moving to a patient-centered medical home model by the end of this year.

"This is bringing the precision, focus and operating standards to the ambulatory side that our hospitals have operated under for 25 years," Deveny says. "It will develop a brand, a set of expectations and consistency of IT systems that can optimize functionality. Providers will be able to reach patients who need care but who aren't getting it."

CHI isn't alone in moving toward a more integrated approach that seeks to maximize and streamline outpatient services, says Mitch Morris, M.D., leader of Deloitte's national provider practice.

"We are seeing this all over the country," Morris says. "For years, the trend was hospital-to-hospital mergers and acquisitions. Today, it's vertical integration. It's, 'Let's buy the whole value chain' — from home care to hospice to skilled nursing — and manage the entire ecosystem."

This type of integration — either through acquisitions or partnerships — allows hospitals to participate in risk-based payment reform models, including ACOs, Morris says. CHI, for one, says a centralized structure and single taxpayer ID for participating providers meets criteria for ACO participation, regardless of whether the physicians are direct employees.

"These are big bets and we will see if they work out over the next decade," Morris says.

The Banner Experience

An integrated strategy appears to be paying off for Phoenix-based Banner Health, at least with initial ACO results. On Jan. 30, the Centers for Medicare & Medicaid Services announced that savings for its Medicare ACO and Pioneer ACOs exceeded $380 million. Banner Health was one of only two Pioneer ACOs that achieved 41 percent of $146.9 million in savings among the 32 participating organizations in 2012. On average, each participating Pioneer organization saved $20 per member, while Banner Health saved $50 per member, according to a report by L&M Policy Research LLC for CMS.

To achieve those savings, Banner Health focused on care collaboration for highly complex patients, including early interventions and supportive care, especially during transitions from inpatient to ambulatory. Information technology was another important component to the ACO structure, including giving participating providers more information about beneficiaries and their care needs and utilization trends, according to Banner Health.

Banner Health's strategy is to "expand our footprint and take our brand much more aggressively into communities," says President and CEO Peter Fine. "We are conducting an intense effort to provide services on the inpatient side only when patients need it."

Banner Health has about 1,000 physicians in its medical group and continues to add more. The nonprofit system opened 10 ambulatory care centers in the past two years, eight in Arizona and two in Colorado.

Although Fine says he is pleased with the results of the Pioneer ACO, it could be difficult to expand and replicate because participating beneficiaries can receive care from outside the ACO care network. "We are not a huge fan of the Pioneer model, despite our success," he says. "It's very difficult to manage a person's care when they can go outside their network. We really hope that Medicare will allow this program to migrate to more of a Medicare Advantage program with disincentives for going out of network."

Fine added that the high level of risk in the Pioneer ACO model is a downside for providers. "If you attach penalties, you will have systems bailing out on this because they can't control the process from end to end with this risk involved," he says. "I think Medicare is moving down a path of negative outcomes as they assign more risk to this model."

But Banner Health will continue to experiment with new models of care delivery and payments to optimize care, he says. "We really believe we are in the throes of a reinvention of the industry," Fine says. "We think the future state is about more effectively managing the care process, like standardizing clinical care processes. We think the future is about the production of reliable care and the only way to get there is to reduce variability. A reliable clinical product is what the public wants and expects."

The 'Remote-Centric' Model

Health system executives interviewed for this article cautioned that the shift from inpatient to ambulatory care isn't the end game — it's the beginning of a journey.

When Chris Van Gorder took the helm at Scripps Health in San Diego 14 years ago, the system had six hospitals and six ambulatory care sites. Today, Scripps Health has five hospitals and 26 ambulatory care sites. But he says it's not enough to move patients from inpatient to outpatient settings — some require high-touch care in the form of case managers, nurses and home monitoring.

"We are moving from a hospitalcentric model to a patientcentric model to a remote-centric model," Van Gorder says. "If we can intervene with patients on a continual basis, we will deliver a lot better care at a lower price."
The value proposition isn't there yet, but Van Gorder says it will be. "Health care is on a teeter-totter and it's teetering slowly to a population health model," he says.

Last year, Scripps Health began offering hospice services in response to the closure of San Diego Hospice. In November, Scripps Health announced it was in discussions with Hospice of the North Coast to form an affiliation. Van Gorder says hospice is part of the overall strategy of high-quality appropriate care for patients.

But Scripps Health also is continuing to evolve its inpatient strategy. The system is in talks to purchase El Centro Regional Medical Center, a 161-bed public hospital in California's Imperial Valley. Van Gorder says the acquisition is part of a strategy of regionalized specialty care and easily accessible primary care. "There are a lot of services that could be developed so people in Imperial County don't have to drive to San Diego County for routine care," he says.

Today, hospital leaders must be able to manage not only inpatient services, but also outpatient services while looking ahead to whatever new trend lurks around the corner. The learning curve for hospital leaders and managers can be steep, says Deloitte's Morris.

First, there's a need for education about the proper management and design of ambulatory care practices, which are a different animal from those on the inpatient side, Morris says. Hospitals need to hire the right people with operational experience on the ambulatory care side.

At Virginia Mason Medical Center in Seattle, some leaders have experience on both sides. For instance, the hospital's medical director, Joyce Lammert, M.D., was previously medical director at the clinics, and the clinic medical director previously worked on the inpatient side. "Mixing of personnel helps to develop a more integrated culture," Lammert says.

Charleen Tachibana, R.N., chief nursing officer at Virginia Mason, says the system purposefully moves personnel around and also engages in experienced-based design so providers can better understand the patient viewpoint. "We have to learn to be more nimble and see things from a patient perspective. Otherwise, it will not be coordinated, it will be fragmented. You can only improve so much in your own silo, and if you move beyond that, then I think it starts to crack."

Shifting the Mindset, Skill Set

Another challenge hospitals face in adapting to this new paradigm is fixed hospital costs, says Morris of Deloitte. "The hospital stay is the last resort now — that's always been the ideal, but we haven't had the mechanism to coordinate care until now with these alternative payment models," he says. "Now there is an incentive to take care of people with the least acute care. It's a change in mindset and a change in skill set."

Hospital leaders are looking to energy consumption as a way to reduce those fixed costs, according to the HFM-ASHE 2014 Hospital Construction Survey. Sixty-five percent of respondents are doing commissioning — an audit to review performance of a building's energy systems.

CHI's Rowen says lower daily inpatient census is the new reality. A 600-bed hospital might have its census drop from 550 to 400 or more. "On the inpatient side, utilization is going to shrink — even with the boomers' needing more services," Rowen says. "Maintaining that status quo requires picking up market share from competitors."

Another option, one CHI is trying, is repurposing smaller hospitals into diagnostic and treatment centers, he added.

The shift from inpatient to outpatient services is pushing innovation in care delivery, Morris says.

Advocate Health Care, Downers Grove, Ill., developed a readmission risk tool to better identify and intervene with patients at high risk for readmission and make sure they have access to appropriate follow-up care once they leave the hospital. Advocate also is partnering with local skilled nursing facilities on care transitions by providing a two- to five-page transition of care report detailing each patient's hospital stay and immediate and long-term care needs.

Virginia Mason, long a pioneer in patient-centered care, is taking care transitions one step further by enlisting family members to help. The system is piloting a "care companion" program in orthopedic surgery that educates a patient's spouse, friend, partner or other family member on the patient's care needs and overall condition. That person agrees to be a care companion and is given a job description prior to patient discharge. It could include nutrition, medication checks, making follow-up appointments and accompanying the patient to appointments or physical therapy.

"What we are hoping to find is that a companion is better able to help a patient transition home and is more comfortable with the person coming home," says Tachibana.

Hospital executives say the changes happening today are causing them to refocus on the original mission of health care. "The first thing they teach you in public health is that the health status of a population is not dependent on the number of hospitals and doctors in the community," Rowen says. "To the extent we can get into the business of supporting wellness, it gets us back to our roots."

Rebecca Vesely is a freelance writer in San Francisco.