Weaker finances at the nation’s hospitals causes administrators to further shrink the budgets for clinical laboratory and anatomic pathology services

Hospital admissions across the country continue to be flat or in decline over recent years. The result is less revenue for many hospitals. As a result, administrators continue to shrink the budgets of hospital service lines—including clinical laboratory services. For pathologists and clinical laboratory leaders, this poses the challenge of setting innovative strategies that take into account the changes in payment and delivery models.

Hospital Inpatient Admissions Have Been Declining over Recent Years

Modern Healthcare (MH) recently published a story on the declining inpatient admissions trend. The story, written by Rachel Landen, focused on admission rates at thirteen large hospital systems for the third quarter of 2014. These included:

ProHealth Care
MedStar health
UPMC
Sutter Health
Cleveland Clinic Health System
Sanford Health
Indiana University Health
Advocate Health Care
Orlando Health
North Shore-Long Island Jewish Health System
Christiana Care Health Services
Dignity Health
Froedtert Health

Admissions at the 11-hospital Cleveland Clinic Health System fell 3.25%, third quarter numbers showed. During the same time period, outpatient observations increased 14.15%. “The shift in patient volumes from admissions to observations is partially attributable to the implementation of the two-midnight census rule by CMS in October 2013,” the system’s management wrote in its unaudited quarterly financial statements, Landen reported.

CMS Two-midnight Rule Impacts How Clinical Lab Tests Are Paid

According to the CMS website, under the two-midnight rule diagnostic tests—such as medical laboratory tests—and other treatments are generally appropriate for inpatient hospital admission and payment under Medicare Part A when the physician:

  1. Expects the beneficiary to require a stay that crosses at least two midnights, and,
  2. Admits the beneficiary to the hospital based upon that expectation.

In all, nine of the hospitals MH surveyed experienced declines in inpatient admissions. The declines ranged from 0.24% at Orlando Health to 5.28% at Wisconsin’s ProHealth Care. Overall, the hospital inpatient admissions declined by 1.43%, compared to the same period the prior year.

2014 Announcements on 2013 Earnings

Other health systems are experiencing the same pattern. “The majority of hospitals and health systems are seeing a flattening of their inpatient volumes,” Jeff Jones told MH writer Melanie Evans in another story on the admissions decline trend. Jones is Managing Director at Huron Consulting Group, based in Chicago. “Some [hospitals and health systems] are beginning to see a sustained decline.”

Jeff Jones Managing Director at Huron Consulting Group

Jeff Jones (pictured above) is Managing Director at Huron Consulting Group. He leads strategic planning and strategic relationships for Huron Healthcare. Jones believes that some hospitals are seeing a “sustained decline” in inpatient volumes. (Photo and caption copyright Huron Healthcare.)

In earnings reports released last year, Community Health Systems, reported a nearly 5% drop in its inpatient volumes for 2013, wrote Evans. The Franklin, Tennessee-based system is one of the nation’s largest hospital chains. LifePoint Hospitals of Brentwood, Tennessee, reported a fourth quarter 2013 decline of 3.9%.

Not-for-profit Bon Secours Health System, based in Marriottsville, Maryland, began to see its admissions weaken about three years ago. Two years of flat admissions ended in a third quarter decline rate of 3%, according to Janice Burnett, CFO for Bon Secours, in an article for Becker’s Hospital Review. The system projects declines of 1%-2% going forward.

Also last year, Partners HealthCare reported 3.6% fewer patient admissions in its dozen-hospital system for 2013, Evans wrote. For its second (winter) quarter of FY14, the Massachusetts not-for-profit showed a 4.5% reduction in admissions and a 1.6% decline in outpatient visits. That’s according to Jeff Goldsmith president of Health Futures, Inc., in a posting on The Health Care Blog. Goldsmith is also Associate Professor of Public Health Sciences at the University of Virginia.

Some Hospitals Have Seen Admission Rates Go Up

Not all systems saw a decline in inpatient admissions. Four of the systems in the MH survey experienced increases in admissions. These ranged from 0.04% at North Shore-Long Island Jewish Health System to 6.49% at Froedtert Health in Wisconsin. Rates also increased at San Francisco-based Dignity Health roughly at a midpoint of 3.05%.

Another Franklin, Tennessee-based system, IASIS Healthcare, announced in a news release that its year over year first quarter 2015 admission numbers are up 3.1%. IASIS owns or leases and operates eighteen medium-sized acute care hospitals in high-growth urban and suburban markets in seven regions across the country.

There’s another place where volumes are not going down, according to a recent story from The Advisory Board Company  (ABC). It is children’s hospitals. They are less sensitive to the downward pressures on admissions, ABC reported. This is because there are few alternatives to hospitalization for seriously ill children.

Hospitals must look for innovative ways to offset declining admissions. To achieve this, they are reducing costs, expanding revenue through more outpatient and outreach services, and pursuing deals in growth markets. For their part, pathologists and clinical laboratory administrators will need to understand these ongoing changes in hospital utilization and reduced inpatient admissions. Understanding the trends will position laboratory leaders to more quickly ferret out opportunities to add value as care and delivery models continue to shift.

—Pamela Scherer McLeod

Related Information:

Hospitals’ Admissions Still Declining

Hospital Admissions Still Declining

Hospitals Report a Decrease in Admissions in Q4

Hospitals Plan for Lasting Declines in Admissions

Falling Inpatient Revenues at Many Hospitals Is Sign of Healthcare’s Transition to New Models of Integrated Clinical Care and Changes in Medical Laboratory Test Utilization

Nation’s Clinical Laboratories and Pathology Groups Face Greatest Pressure to Cut Costs and Deliver More Value Than at Any Other Time in Past 25 Years

In 2013, Healthcare Experienced Largest Drop in Job Growth Since 1990 and Hospitals Are Shedding Jobs; These Trends Are Likely to Mean Less Resources for Hospital Laboratories

Medicare Targets Avoidable Hospital Readmissions to Jumpstart Delivery Reform 

Ongoing Shift from Inpatient to Outpatient Care Shows Up as Revenue Loss in Boston’s Partners Healthcare’s QTR2 Report and Includes Decline in Outpatient Clinical Lab Services