Softening Patient Admissions
Behind the trend:
Rising use of high deductible health plans are causing increased out-of-pocket costs for patients.
Hospital operators divesting assets and pursuing outpatient access points.
As industry eyes trended toward Washington this year to get a handle on how actions affecting the Affordable Care Act could influence their business, providers nationwide were struggling with their bottom lines. Hospitals and health systems experienced slumping patient admissions, causing them to rethink their business strategies.
There are myriad reasons a potential patient may decide not to visit a hospital. For one, healthcare is expensive. Deductibles are rising, contributing to higher out-of-pocket spending, while medical cost increases have seemingly settled into a "new normal" around 6-7%, which is outpacing wage growth. One survey found that a majority of American survey respondents would go into debt if presented with a $500 unexpected medical expense. When faced with the choice of either making a cell phone payment or going to the doctor, some individuals decide to forgo care services.
But it's not always about the prices. Populations change. An area that may have been bustling and thriving economically can shift over time as industries change, jobs leave, people move and/or birthrates mitigate. Hospitals in shrinking cities such as Detroit and St. Louis will naturally experience softening admissions through a declining population.
While "changing patient admissions" may be taking the award's crown this year, when discussing the disruptive power of lowering admissions, we are really talking about how providers are not taking in as much revenue as they are spending. Hospitals are largely fixed cost businesses, and rising expenses have been outpacing admissions growth.
Total Admissions in all U.S. Registered HospitalsSource: AHA Annual Survey
Earlier this year, Moody's Investor Services found that the U.S. nonprofit and public hospital sector is experiencing an acceleration of annual operating expenses — a growth of 7.5% from 2015-16 — compared to 6.6% growth of annual operating revenue during the same time period.
The private hospital operators don't have it much better. For the first nine months of 2017, for example, CHS's net operating expenses percentage change (0.9%) outweighed its percentage of patient admission change (-2.3%) for the same time period. Tenet attributed a $56 million loss in Q2 in part to declining admissions.
Nine-month FY 2017
Patient Admissions % Change
Operating Expenses % Change
Net Operating Revenue % Change
The activity is causing providers to rethink their business strategies. Both HCA and CHS this year noted declining admissions in lower acuity settings. Health systems en masse are reacting to shifting dynamics in healthcare utilization by throwing money and resources to lower cost settings such as urgent care centers and freestanding emergency departments.
Providers are also assessing their markets and acting accordingly. Both CHS and Tenet made headlines this year over the sheer volume of facilities they put on the market. The operators' old strategy to divide and conquer is now giving way to act smarter in focused markets.
Hospitals clearly want a strong market presence and multiple access points to acquire patients across a spectrum of care offerings, Jessica Gladstone, SVP at Moody's, recently told Healthcare Dive. With better market power, providers can better negotiate plan rates and be more able to capture patients across a market.
In addition to selling off proprieties with low margins, low admissions contribute to operating losses and shrinking margins, causing providers to make hard decisions to lay off and/or eliminate positions as they seek to lower costs.
"We are seeing and are working with health systems to take out pretty significant amounts of cost out of their operations, both clinical and nonclinical, and setting targets like 15-20%, which is a transformative change," Igor Belokrinitsky, healthcare strategist at Strategy&, told Healthcare Dive in March. "When talking about a 20% cost improvement, you're questioning, 'Do we need this facility? Do we need to provide this service at this location? Does this service need to be provided by a physician?'"
Though the entirety of hospitals' problems can't be placed solely upon the shoulders of softening patient admissions, the trend thrust hospitals' operating woes into the forefront this year. For this reason, softening patient admissions has earned Healthcare Dive's Disruptor of the Year award.
Providers will ramp up efforts to build out outpatient access points in focused communities as well as concentrate higher acuity care services in high return markets. Hospital closures, bed-count reductions and employee layoffs are expected to increase as the industry reacts to new care delivery demands.