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Making the Case for a New and Improved Health System 

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Making the Case for a New and Improved Health System 

In this article, Suhail Acharya makes a case for a high-quality primary care network to help optimize hospital capacity.

Recent trends appear to make a case for health systems needing to diversify their revenue to maintain financial health. However, one strategy that is underappreciated is investing in primary care to optimize hospital capacity and generate higher margins. Primary care can help better manage patients with chronic conditions and reduce the number of low-margin medical admissions. The freed-up hospital capacity can then be used for high-margin surgical procedures, thereby ensuring the best use of a hospital’s specialized resources as well as ensuring the long-term financial sustainability of hospitals. In this article I cover, specifically how health systems should think about the financial value of primary care, using it as a means to optimize hospital capacity. 

Introduction

Although hospitals continue to dominate the profit landscape in the care delivery sector, recent industry dynamics reveal substantial challenges to their financial viability.

The transition towards care delivery in ambulatory settings, coupled with the surge in labor and supply costs, and the expanding influence of value-based care, poses a formidable threat to health systems.

These challenging fundamentals have contributed to a gradual but consistent decline in industry median operating EBITDA margins for not-for-profit health systems—from 11.6 percent in 2012 to 9.6 percent in 2021—with no signs of imminent reversal. 

To combat the threat to the traditional hospital delivery model, health systems are actively pursuing diversification strategies such as specialty pharmacy, home-based care, and health plan businesses.

However, a particularly promising avenue lies in the transformation of primary care to optimize hospital capacity. Medical admissions involving patients with multiple chronic conditions take up significant bed days at most hospitals and are often low/negative margin. These admissions can be avoided if the patients are better cared for through primary care and the freed-up hospital capacity can then be used for high-value surgical procedures. In short, primary care can be used to expand hospital capacity for high margin procedures without the capex that is needed to build new beds. 

Primary care can be used to avoid low-margin medical admissions and free up hospital capacity for high-margin elective procedures

Implementing this concept requires a shift in how health systems think about primary care, moving it from a hospital referral source to a proactive management approach for high-risk patients, hence freeing up hospital capacity.

 

Key points include:

  • Creating financial value
  • Improved health equity
  • Enhanced patient experience

 

Read the full article, Primary Care as the Key to Optimize Hospital Capacity, on LinkedIn.