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The Economic Ramifications of the Shift from Inpatient to Outpatient Surgery

By June 17, 2019 No Comments

The principles of supply and demand dictate that as the cost for a service increases, demand for the services decreases. While this principle may be applicable to non-life altering decisions like haircuts or car washes, the execution of a quality perioperative care is not so elastic. In virtually all cases when a patient’s health is at risk, they are unlikely to settle for less than stellar treatment given the long term ramifications. This fact entrusts the healthcare industry with a distinct moral duty to provide elite levels of care at affordable prices, despite the ability to price gauge with niche or even common medicines and treatments. Thankfully, both medical and technological innovation have improved the viability of outpatient surgery. As compared to its inpatient alternative, outpatient surgeries create value for both patients and hospitals alike.

To understand the value and cost-effectiveness of the aforementioned surgical care, it is first critical to distinguish between inpatient and outpatient care. In technical terms, inpatients typically require an overnight stay. In contrast, outpatients are generally able to leave the day they are admitted [2]. Despite surgeries for more severe conditions usually requiring inpatient care, the number of conditions relieved by outpatient surgery is skyrocketing, and there exists outstanding research highlighting the utility of such procedures.

The benefits of specialized outpatient care are illustrated by the prevalence of ambulatory surgery centers (ASC’s). These dynamic institutions offer increased efficiency over hospital systems for surgery. A Health Affairs study analyzing data from the National Survey of Ambulatory Surgery found that ASC’s take 25 percent less time to finish surgeries than hospital based surgical departments [6,7]. With less time required for surgeries, doctors are able to treat more patients and offer their services at more affordable amounts for patients and insurers.

In order to compete with the rising prominence of ambulatory surgery centers, many hospitals are purchasing the practices of private physicians and surgeons. Hospitals essentially absorb these practices into their outpatient departments, helping to shift market share from private physicians’ offices to hospital outpatient departments [5]. This structural shift, combined with the growth of ASC’s, has resulted in a 33 percent increase in fee for service outpatient surgeries from 2008 to 2015 [5].

If doctors aim to improve efficiency, the rise in outpatient care is logical. Between 2005 and 2015, average hospital bed occupancy rates decreased from 69.3 percent to 65.5 percent [4]. Currently, the average hospital possesses far more beds than what the current market requires [5]. This phenomenon highlights a glaring market inefficiency in surgical services. Still, the greater costs associated with inpatient surgery financially incentivizes hospital systems to admit inpatients. Thus, specific auditing procedures have been implemented to prevent hospitals from unfairly admitting inpatients. In 2014, the “Two Midnight Rule” was implemented by Medicare, where all inpatient stays with 2 or less nights were subject to audit [5].

Despite the benefits of inpatient stays for hospitals, quality of treatment correlates more with efficiency than high costs [3]. In Desai Et Al., researchers conducted a study finding that higher cost did not have a strong positive correlation with better outcomes [3, 7]. This research serves as a key indicator for the economic future of surgical care. Ultimately, if hospitals can learn to leverage the efficiency of outpatient surgery, the potential quality and time optimization at scale may offset the losses of admitting fewer inpatients overtime. This reality is great for both hospitals and patients, saving both time and money, and thus highlighting the beauty of mutual economic benefit.

1. Desai NR, Ross JS, Kwon JY, et al. Association Between Hospital Penalty Status Under the Hospital Readmission Reduction Program and Readmission Rates for Target and Nontarget Conditions. JAMA.2016;316(24):2647–2656. doi:10.1001/jama.2016.18533

2. Medicare. “Are You a Hospital Inpatient or Outpatient? If You Have Medicare – Ask!” August 2018, 1. Accessed June 16, 2019. https://www.medicare.gov/Pubs/pdf/11435-Are-You-an-Inpatient-or-Outpatient.pdf.

3. Groeneveld, Peter W., MD, MS. “Measuring and Improving the Value of Hospital Care.” Jama Network. October 19, 2018. Accessed June 16, 2019. https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2707420.

4. CDC.gov. “Hospitals, Beds, and Occupancy Rates, by Type of Ownership and Size of Hospital: United States, Selected Years 1975–2015.” CDC.gov. 2017. Accessed June 16, 2019. https://www.cdc.gov/nchs/data/hus/2017/089.pdf.

5. Miller, Mark E., PH. D. “Hospital Policy Issues.” Medicare Payment Advisory Commission, July 22, 2015, 2-19. Accessed June 16, 2019. http://web.archive.org/web/20160325170501/http://www.medpac.gov/documents/congressional-testimony/testimony-hospital-policy-issues-(ways-and-means).pdf?sfvrsn=0.

6. Munnich, E. L., & Parente, S. T. (2014). Procedures Take Less Time At Ambulatory Surgery Centers, Keeping Costs Down And Ability To Meet Demand Up. Health Affairs, 33(5), 764-769.

7. Advancing Surgical Care. “Study: Commercial Insurance Cost Savings in Ambulatory Surgery Centers.” Study: Commercial Insurance Cost Savings in Ambulatory Surgery Centers, April 10, 2016, 1. Accessed June 16, 2019. https://www.ascassociation.org/advancingsurgicalcare/reducinghealthcarecosts/costsavings/healthcarebluebookstudy.