Service Rationalization: Right Service, Right Location, Right Time | Quarterly Checkup

Service Rationalization: Right Service, Right Location, Right Time

Quarterly CheckUp

Healthcare & Life Sciences

April 21, 2015

Pick up any healthcare publication today and it is clear that our industry is in the midst of unprecedented transformation from a volume-based to a value-based environment. Sustainability will be increasingly tied to achieving the IHI “triple aim” of improved patient experience, healthier populations and lower per capita costs, with reimbursement structured to reward systems for managing population health in the lowest cost appropriate setting. Consider that outpatient as a percent of total revenue for community hospitals has increased from 28% to 45% from 1993 to 2013 (AHA). Yet many health systems remain configured around inpatient-centric, volume-based business models in terms of their service configuration, facilities and geographic footprint. In addition, large scale consolidation has turned many providers in the same market from competitors to collaborators.

While healthcare business drivers are changing, many health systems have yet to adjust their physical assets or rationalize clinical services in response. In some scenarios, traditional cost cutting measures (e.g., staffing, supplies management) may not yield the full potential for cost reduction. All of this underscores the need for a thoughtful and deliberate approach to clinical service rationalization. FTI Consulting’s work with several health systems that have been newly formed or expanded through affiliation in proximate geographies provides perhaps the most glaring impetus for considering clinical service rationalization. Their challenges have included:

  • Multiple high-intensity, high cost inpatient programs providing the same services in close proximity;
  • Outpatient services capacity that is overbuilt and thus underutilized (e.g., diagnostic imaging, lab);
  • Clinic locations that are not optimally aligned with community needs and access; and,
  • Legacy organizational structures that encourage competition rather than coordination.

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