For many healthcare delivery systems, surgical volumes have historically
driven the majority of their revenues. Financial security depended upon
and often paralleled growth in inpatient surgeries, and the simultaneous
revenue growth from related ancillaries such as anesthesia, radiology,
laboratory, and pathology. As a result, large investments have been made
in the expansion of operating room facilities, employing surgeons, investing
in surgical technologies such as robots, and developing new surgical service
lines, including bariatric, cosmetic, and vein surgery. For years the
old adage proved to be true – “If we build it, they will come”.
As was often the case, the revenue growth far exceeded the cost growth,
thereby guaranteeing a strong operating profit margin.
Unfortunately, current data indicates that this past scenario may no longer
be the case. It is becoming increasingly clear that inpatient surgical
volumes can no longer save the day for many health care providers and
institutions. Inpatient volumes in most parts of the US are falling and
the revenue from the surgical product line is at or near the cost/expense
line, reducing significantly or totally eliminating any financial margin.
What are the reasons this new picture?
1. More and more evidence is surfacing supporting our previous observations
that there has been an overuse or misuse of surgical procedures. This
was clearly outlined and validated in the special report appearing June
20, 1013 in USA Today. One article in a five part series was entitled
“Under the Knife for Nothing” and stated that tens of thousands
of Americans undergo unnecessary surgeries that maim, and even kill patients.
This paper is read by a large portion of the American population, including
physicians, and has caused numerous healthcare professional organizations
to revisit their guidelines for doing surgeries. Such work is starting
to have an effect on prostate, ovarian, colon, lung, and C-Section surgeries.
More reductions will undoubtedly occur in the future.
2. New clinical technologies are replacing some prior surgeries with non-invasive
procedures, moving these activities to outpatient facilities where costs
can be significantly reduced while enhancing safety and quality outcomes.
3. Increasing high deductible insurance plans for many people, which will
only increase under the Affordable Care Act, is causing people to forgo
some elective surgeries, often substituting alternative/complementary
4. Re-dos of prior surgical mishaps are being reduced as a result of “time-outs”
and other process improvements and best practices in the operating areas.
5. New guidelines put forth by the American Cancer Society are suggesting
that certain “lumps” are being over treated and should no
longer be classified as cancer. These include breast, lung, colon, and prostate.
6. The aging population is not electing surgery for some of their diagnoses,
instead electing more conservative approaches, even including palliative
and hospice care.
7. The greatest increase for Medicare spending in the last several years
has been in post-acute care; three times as much as is being spent on
acute care and five times as much as is being spent on procedures.
Clearly, some inpatient surgical procedures will undoubtedly increase in
the future. These include surgical interventions required by trauma patients,
and neurosurgical procedures for Parkinsons, curable brain tumors, implanting
stimulators to various muscle groups so paralyzed people will gain movement,
and for early stroke surgical therapies. Organ transplants will also increase
as laboratory organs made from stem cells become increasingly available.
However, these are high cost procedures and, as payments from all payers
move closer to Medicare rates, their profit margins will suffer.
Many health care organizations are asking what they can do to recover their
lost surgical volumes, hoping to fill vacant operating suites with new
business. There may be positive answers for some, including markets with
growth of younger populations, trauma, and higher income levels. But these
are not the norm. We look again at the "old-adage" and objectively
we must conclude that it is no longer valid and surgical volumes will
be less likely to drive a profitable bottom line as the future unfolds.