Outpatient care leads to building boom

By Caroline Hudson / February 28, 2024

Providers are making big investments to quickly bulk up outpatient offerings as more patients seek less invasive and less time-consuming procedures closer to home.

Orthopedic, gastrointestinal, urologic, cardiac and ear, nose and throat procedures—once labeled "hospital-only" and sometimes requiring multiple-night stays—are increasingly being offered in ambulatory surgery centers, allowing patients to go home that day. In response, providers are adding more of the facilities. In the last decade, there has been at least a 25% jump in surgery centers to about 5,400 centers nationwide, according to Centers for Medicare and Medicaid Services data.

Payers are also on board with the shift.

Ambulatory care has been a hot topic on recent earnings calls and referenced often in quarterly financial reports. Running an outpatient facility is generally cheaper for health systems in the long run, although some outpatient procedures draw less reimbursement from payers and costs for equipment and staffing remain. Health systems continue to field questions from investors and other stakeholders about their plans for increasing ambulatory access and what that could mean for future operations. 

To avoid being left behind, health systems are investing hundreds of millions of dollars into new infrastructure to support higher-acuity care in the outpatient setting, entering joint ventures and other partnerships to lower their costs and recalibrating their strategies to rely more on ambulatory alternatives.

Providers' investments in outpatient care pay off

Moving from a hospital-centric mindset to a model that incorporates more outpatient sites requires investments in buildings and equipment, plus insight into what procedures patients want closer to home.

Getting the shift right can mean long-term benefits to health systems, especially those struggling with capacity constraints.

"At our acute facilities right now, like a lot of other acute facilities, inpatient beds and access to surgical capacity is at a premium," said Kyle Nondorf, regional vice president of acute care for SSM Health in Wisconsin. "The ability for us to move these services into the outpatient arena allows us not only to create value for patients in our health plan, it really allows us to free up capacity for those higher-acuity patients who are having to go out of the region or waiting for beds in the region."

St. Louis-based SSM is designing a new ambulatory surgery center in Sun Prairie, Wisconsin, roughly 15 miles from St. Mary's Hospital in Madison, and plans to break ground on the project this spring. The surgery center will house eye and orthopedic services. A spokesperson declined to share a cost estimate.

Dr. David Lubarsky, CEO of UC Davis Health, said he began planning for more ambulatory capacity after taking the CEO role in 2018. The Sacramento-based health system wanted to make “a giant bet” on ambulatory care and about three years ago, plans for the $579 million ambulatory surgery center began to take shape, he said.

Slated to open in spring 2025, it will house 14 operating rooms and five procedure rooms, and increase UC Davis' operating room capacity by almost 50%, Lubarsky said.

“It’s not like [you] show up and then you just leave in 30 minutes,” he said. “We’re going to be doing much more complex surgeries there with the planned ability to have more than a dozen patients every night staying up to 23 hours, so we can straddle that zone between what used to be an inpatient procedure [and] now could be an outpatient procedure.”

SSM and UC Davis aren't alone. Many health systems are game to invest resources into higher-acuity outpatient care.

For-profit Tenet Healthcare, for example, last year said it spend about $250 million in ambulatory care each year, and the investment seems to be paying off.

Dallas-based Tenet’s ambulatory care company United Surgical Partners International recorded 9.2% growth in same-facility revenue in 2023, CEO Saum Sutaria told analysts on a fourth-quarter earnings call. The system added 30 ambulatory surgery centers last year and has another 30 centers in the planning or construction stages, he said.

“We anticipate continued strong growth in the ambulatory surgery segment. 2023 was a very strong year, and it was across service lines, as I pointed out—GI, urology, ENT, orthopedics, ophthalmology. We had strength across the board,” Sutaria said on the call. 

Franklin, Tennessee-based Community Health Systems has been adding several ambulatory surgery centers each year and has centers in about 85% of its markets. The system finished expanding a gastroenterology ambulatory surgery center in Birmingham, Alabama, and acquired another center in La Porte, Indiana, in late 2023, CEO Tim Hingtgen told analysts on a fourth-quarter earnings call. It also opened an ambulatory surgery center in Cedar Park, Texas, earlier this year, he added.

Joint ventures are key to providing outpatient care

Providing higher-acuity care in an outpatient setting is a tricky balance.

In many cases, health systems turn to joint ventures or partnerships with physicians and other healthcare companies to achieve more efficient operations and cut down on the cost of care. 

Partnerships are a way for systems losing inpatient volume to share costs and bring some of that revenue back in house. The partner doctors and healthcare companies, on the other hand, gain more bargaining power with payers and take on less financial risk, said Roger Strode, a partner at law firm Foley & Lardner who focuses on healthcare mergers and acquisitions.

Salt Lake City-based Intermountain Health signed an agreement in April for Nashville, Tennessee-based Surgery Partners to take over management of the system’s ambulatory surgery centers in Utah and Idaho, in addition to developing more centers. That same month, Surgery Partners signed a deal with OhioHealth to form a company that will increase surgery center joint ventures throughout Ohio.