Is your hospital managing outpatient services as well as it should?

By       Ron Benfield, President / CEO and Craig Wilcox, Vice President

It's time to run outpatient business with the same service line discipline as inpatient service lines.

Your Situation

Ambulatory services now make up as much as 70-80% of your health system's business, so you're actively looking for ways to stimulate outpatient growth. Along those same lines, your focus on inpatient service lines such as women's services, cardiology and orthopedics has been financially rewarding and brought greater market share. Now you want to apply the same discipline to outpatient services that helped you grow and measure service line performance on the inpatient side.

The Problem

Hospitals need a better way of segmenting outpatient activity.

Traditionally, hospitals have been inpatient-centric. So when DRGs came out in 1984, they made it easy to group inpatient discharges into clear-cut service lines. Over the years, our industry has made multiple attempts to create a grouper to classify outpatients, but none have gained widespread acceptance. 

Medicare's APC method of payment, unlike DRGs, doesn't serve well for service line groupings, because there are thousands of them. Most patients group to multiple APCs for same stay.

Some have tried to create patient groupings oriented around body system, similar to DRG groupers, but the output is strained and crosses too many departments. Consider three unique cardiac patients, one who visited the ED with chest pain, one with an electrophysiology ablation, and one with an outpatient stress test. The main factor these three patients have in common is that they share an ICD-10 chapter. Otherwise, they're very different. Each is seen in different departments; they have different payment mechanisms; and the referral patterns are all different. There is no real logic behind grouping them all to a cardiac outpatient service.

 What is needed today is an approach to grouping outpatients into roughly 30 groups that classifies every outpatient into segments with similar treatment, payment and referral sources, making them useful for outpatient service line planning and tracking.

Enter Millwood Outpatient Groups

If conventional outpatient groupers are not workable, a better approach would be to look retrospectively at patient data to classify each account into groups that make logical sense for service line purposes. Grouping is largely done based on the predominance of resources used to care for the patient, including location and charges.

A few simple examples show that this can be very straightforward:

Patient #1 comes in for a physician-office-ordered CT for abdominal pain. The patient has the scan, and the bill includes the scan and a charge for the contrast drug. Would you consider this patient:

  1. Outpatient elective CT

  2. Pharmacy

Obviously, this an outpatient elective CT, because the purpose of the visit was for the CT scan, and the contrast drug was an integral part of the scan. More than 80% of charges are for outpatient CT.

Another. Patient #2 comes into the ED with a headache and disorientation. The patient is seen by ED staff and has a CT scan to rule out a brain bleed along with some drugs. Is this patient:

  1. Emergency Department

  2. CT Imaging

  3. Pharmacy

We'd call this an ED patient, even though the imaging and drug charges might be more than the ED charges. This is was an emergency visit, and the CT scan was incidental to it.

Last One: Patient #3 comes to the ED with abdominal pain. A CT clearly shows need for an appendectomy, and the patient receives emergency surgery. Is this patient:

  1. Emergency Department

  2. CT Imaging

  3. Outpatient Surgery

While this patient had ED, CT, and surgical services, we'd place this one in an Outpatient Surgery with ED group. The surgery was the predominant service delivered, and the ED was just the point of entry.

We systematized this approach in the early 2000s by convening a group of hospital leaders in a conference room over many sessions, going over hundreds of patient bills and asking ourselves, "What would we call this patient?" By classifying every outpatient into one of 30 meaningful groups, we've translated the same patient-by-patient logic into the Millwood Outpatient Groups™ we use today. 

Millwood Associates likes to focus on fixing hospital processes that are broken and eroding hospital margins, and Millwood Outpatient Groups™ can help expose problems that are often hidden in plain sight. Among other benefits, it allows hospitals to segment that 65 to 75 percent of their business that is now outpatient into 30 like categories of patients who have presented at the same departments, have similar payment mechanisms and follow similar paths to our door. 

Benefits of Millwood Outpatient Groups

  • Track and manage outpatient market share / volumes by service line

  • Track financial performance by service

  • Set adequate managed care contract rates for different services

  • Optimize revenue cycle processes at a very fine level of focus to ensure best performance for each service

  • Make back end apples-to-apples comparison of revenue yield, uncovering outliers on the low side of payment

  • Create the same service line thinking that has been beneficial to improve inpatient services (quality, volume, dialogue with physicians)

  • Contribute to effective strategic planning that incorporates the growing importance of outpatient services

ABOUT MILLWOOD ASSOCIATES: We’re a healthcare consulting group that helps hospitals improve their financial margins to ensure sustainability of mission. All of Millwood’s solutions are designed to fix broken processes which erode hospital margins. For example, by helping hospitals get paid fairly for the services they provide, we can remove the pressure and damage of harmful cost cuts, typically adding 2 to 3 percentage points to their margin. Follow us on LinkedIn, or click here to find out how to get started with sustainable fixes for your margin challenges.