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Study: Inpatient declines to hit all hospitals

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One explanation for Indiana University Health’s decision to delay its Methodist Hospital expansion is that new “value-based” payment models appear to be pushing down hospitalization rates, according to a study released Friday.

Consultants at Illinois-based Kaufman Hall & Associates suggest in their study that leading experiments in value-based purchasing are behind significant declines in inpatient admissions in those markets.

And if the same proves true elsewhere, hospitals should be much more circumspect about their building projects, Kaufman Hall consultants Mark Grube, Kenneth Kaufman and Robert York wrote in a blog post for the influential health care journal Health Affairs.

“Capacity planning and major building projects that are in the early stages should be rethought and reevaluated by hospital leadership teams,” they wrote March 8. “Organizations can no longer sustain the costs associated with overbuilding or duplicating expensive services in many locations.”

In an internal letter last week, IU Health disclosed that it has paused construction of a new bed tower at its Methodist Hospital due to concerns about the economy and health reform. The tower, scheduled to be complete in 2015, could have included as many as 250 beds and cost $500 million.

“We believed the project would have started by now, but because of several external factors, we have delayed the construction until we can fully ensure the design of the new critical care bed tower will align with the future health care environment,” wrote Jim Terwilliger, president of IU Health Methodist Hospital.

Use of inpatient services has been a declining portion of medical care for 30 years, as changes to reimbursements by public and private health plans shifted more care into outpatient settings.

But Kaufman Hall’s consultants, who have counted IU Health as a client for years, contend that the recent decline in inpatient utilization is driven by the shift to value-based purchasing. That's a catch-all term for such concepts as accountable care, bundled payments and medical homes.

Accountable care gives groups of doctors and hospitals a financial incentive to keep patients healthy and out of the hospital.

Bundled payments include one check written to a group of doctors and hospitals for an entire episode of care—such as kidney dialysis—giving the providers an incentive to keep the cost of care below the total payment amount.

Medical homes give payments to a group of doctors to manage all medical needs of each patient, with the idea that they will be able to better manage chronic diseases or high-cost episodes of care.

In Minnesota, where the state’s hospital systems have been among the first to embrace these models, the rate of inpatient admissions per person fell 13 percent from 2006 to 2011, according to Kaufman Hall’s analysis.

In the greater Chicago area, the Advocate Health Care hospital system has partnered with the Blue Cross Blue Shield of Illinois health plan to care for a defined population of patients and be financially rewarded for keeping patients healthier and needing less health care services.

Kaufman Hall credits that experiment will a 6-percent decline in inpatient use in the greater Chicago market from 2007 to 2011, compared with a decline of just 1 percent from 2001 to 2007.

Kaufman Hall also cited declining utilization in San Diego, Seattle and Washington, D.C., with experiments in value-based purchasing in those areas. And the consultants predict the trend will spread to all markets over the next decade.

“As a result, inpatient admissions per 1,000 are projected to decline through 2021 in all markets, whether care is 'loosely,' 'moderately,' or 'well' managed in these areas,” wrote Grube, Kaufman and York.

They cited a study by Seattle-based actuarial firm Milliman Inc. to suggest inpatient utilization will fall another 15 percent between 2011 and 2021.

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