Value-Based Investments Pay Off for NFP Hospitals

Investments in outpatient facilities and health information technology systems are helping not-for-profit hospitals overcome revenue setbacks, says a Moody's report.

Not-for-profit hospitals that are investing in ways to deliver value to their patients are shoring up revenues and staving off competitors, according to a Moody Investors Service report released last week.

Value-oriented investments such as in outpatient facilities and fully integrated electronic health record systems are helping not-for-profit providers overcome recent revenue setbacks, including payment rate cuts, reduced inpatient service volume and competition from new entrants in the healthcare market, an author of the Moody's report says.

"A lot of it is about trying to minimize the losses and trying to capture where those volumes are going," says Brad Spielman, vice president and senior credit officer at Moody's. "A lot of this is by necessity… Hospitals are competing with each other and with new competitors."

Addressing the long-term trend of rising numbers of medical procedures being conducted on an outpatient basis, Spielman described explosive growth in hospital-affiliated outpatient facilities. "These outpatient facilities are looking a lot more sophisticated. They're looking a lot more like hospitals," he said. "We're seeing facilities in the hundreds of millions of dollars."

Convenience is a key factor for hospitals to consider as they face competition from new entrants to the healthcare market, Spielman says. "If I can get flu shots and blood pressure tests and have other types of services performed at my pharmacy, that's a more satisfactory office visit… than if I have to take a significant part of my day out for these procedures," he says. "It completely changes the model of healthcare delivery. It's not on the doctor's schedule; it's on the patient's schedule."

In New York, Memorial Sloan Kettering Cancer Center has been investing heavily in outpatient facilities. "They are doing everything but housing patients," Spielman said.

In partnership with The City University of New York, not-for-profit Sloan Kettering has launched an ambitious project in Manhattan to build a 1.15 million-square-foot building on East 74th Street that is slated to include a 750,000-square-foot outpatient cancer center. The purchase price of the land for the project was $215 million, according to city officials.

Tenet Doubles Down on Urgent Care Facilities

"Many hospital systems began preparing for this shift several years ago by investing in outpatient service centers and urgent care centers," the Moody's report says. "Several communities have seen a marked increase in the number of urgent care centers, large full-service outpatient centers and even stand-alone emergency departments."

Spielman says hospitals, particularly large NFP facilities and health systems, are under tremendous competitive pressure to upgrade their information technology systems.

"In order to be competitive in the future, they need to implement electronic health record systems," he says, adding that a range of benefits can flow from IT investment such as the lower costs of a paperless business environment and quality improvements for patients. "There's one record that follows you. The potential for quality improvement is substantial."

But hospitals need to beware of IT upgrade risks, Spielman says. "You don't actually see an immediate return on these investments," he said, noting it takes time to realize IT gains such as reduced administrative costs and better clinical outcomes.

Successful IT projects have a solid foundation in the culture and medical practices of a hospital, Spielman says. "[EHR] needs to be truly integrated into the way the organization does business…This goes down to the physician level. You have to have buy-in."

The Moody's report suggests that NFP health systems have no choice but to invest in a good-quality health IT system. It is, says the report, "a minimum requirement for organizational success, especially among larger systems."