A couple months ago, we investigated joint replacement volume trends, noting that the rubber-band recovery we’ve seen over the last two years shouldn’t come as a surprise. We also hinted that site-of-care shifts were a surprising boon for health plans, which would have had to spend substantially more without outpatient shift.

We wanted to explore that further. We modeled health plan savings in detail and estimated the opportunity for health plans if they had pursued site-of-care shift as an active strategy. Remember, while we’re doing the math on joint replacement, the real opportunity is much bigger: any procedure that could shift from the hospital to the ambulatory setting.

Let’s start with the historical picture. The chart below shows two lines on spending: actual historical joint replacement spending from 2017-2022 and an assumed trend of joint replacement spending if it had maintained the same site-of-care distribution from 2017. All of this comes from Clinformatics Data Mart ^® (2007-2022), which houses both commercial and Medicare Advantage (MA) claims.

As a result of shifting from inpatient to outpatient, health plans saved around $435 million over five years, or 29%. Keep in mind, this figure — and any of the others in here — is just a subset of commercial and MA data. Across all payers, we expect this would be much bigger.

Optum’s de-identified Clinformatics^® Data Mart Database (2007-2022)

From the health plan perspective, those savings happened by accident. They benefited from rapid outpatient shift thanks to a decade of clinical evidence, robust examples of practices piloting outpatient joint replacement successfully, and a physician specialty already invested in ambulatory surgical centers (ASCs) before CMS took joints off the Inpatient Only List. All supercharged by a pandemic that created a clinical and operational reason to get patients out of the hospital as quickly as possible.

While outpatient shift happened quickly, shift to the ASC has been slower and steadier. But the savings opportunity is substantially higher. The reimbursement difference between inpatient and ASC care is 33% compared to the 7% difference between inpatient and outpatient care.

If health plans were to push more towards the ASC setting, their savings would be even higher. For example, the current ASC site-of-care distribution is 13%. If that were to increase to 23% one year in the future, plans would save around $265 million. 

Optum’s de-identified Clinformatics® Data Mart Database (2007-2022)

Big picture: Pushing site-of-care shift is a major savings strategy.

To accelerate shift, health plans could enforce outpatient reimbursement, activate consumers, or partner with providers directly to shift cases.

Most basically, they can equalize inpatient reimbursement rates to ambulatory levels, which would result in a spending cut for inpatient procedures. While providers will still have the choice to deliver care inpatient, they’ll be hard-pressed to make a margin. We know that health plans are already taking that approach in some markets where joint replacement shift is already established. That approach will likely work best with markets and procedures that have already started to shift, locking in an ongoing ambulatory shift.

But health plans also have the opportunity to actively push forward shift with a more targeted approach. As they see opportunities to shift additional procedures — looking at general surgery procedures with wide site-of-care variation across the country or cardiac procedures recently removed from the Inpatient Only List — health plans may see joint replacement shift as a precedent.

In that scenario, they could provide incentives — such as waiving deductibles —  for patients to go to lower — cost sites of care. That strategy proved successful for imaging shifts in the last decade, when health plans partnered with benefit partners to incentivize use of lower-cost sites of care. They could even partner with physicians directly by engaging in bundled payment arrangements to create predictable revenue for ambulatory surgeries and encourage surgeons to shift cases. 

How health systems respond depends on the state of shift in their market. In markets that have already started to shift, health systems will likely face margin pressure as plans cut inpatient reimbursement to hospital outpatient or ASC rates, which will put health systems on a reactive footing. To maintain volumes and margins, health systems will need to own or joint venture for the infrastructure, build clinical pathways to enable outpatient care, build physician confidence in outpatient care, and find upside through payer negotiation or partnership.

Markets that are shifting more slowly present a competitive opportunity. In these scenarios, health systems can take a proactive approach that is more focused on winning volume and share through health plan partnerships. They can achieve this by co-creating a shift and cost management strategy with physicians, negotiating rates for outpatient care early, or finding creative partnerships — such as ASC bundled payments — to lock in share early.

To see whether you should take a proactive or reactive stance, check out our interactive maps, where you can see how your market compares to others on the rate of shift out of the hospital.