Outpatient care variation reduction: Is there a worthwhile opportunity?

At first blush, the outpatient setting seems to have a sizable opportunity for cost savings by reducing care variation. We estimate a national cost savings opportunity of $7.0 billion in the 2019 calendar year, which is just shy of our inpatient CVR opportunity estimate of $9.4 billion. However, capitalizing on that topline estimate is challenging. Outpatient CVR opportunities are more diffuse than inpatient. They’re also a tougher financial sell since these efforts can reduce revenue.

As shown below, the average cost savings per case in outpatient is a fraction of that seen in inpatient. This is because there are significantly more services provided outpatient at a much smaller cost savings opportunity per case. As we hypothesized, organizations would have to drastically reduce variation across a much broader range of services delivered to realize an equivalent cost savings gain in the outpatient setting as they would in the inpatient.

Differences in inpatient and outpatient billing make it even harder to identify worthwhile outpatient CVR opportunities. Our outpatient methodology measures the direct cost variation across all institutional services billed as part of a given outpatient encounter. Those services often generate revenue of their own. In contrast, services for an inpatient admission are captured under a single MS-DRG and don’t generate additional revenue. Thus, cost savings from outpatient CVR do not yield the same financial benefits as inpatient CVR under predominantly fee-for-service business models.

Organizations can still achieve wins in outpatient CVR that amount to significant savings. We've seen a handful of leading organizations standardize care in services that have shifted heavily into the outpatient space—and will remain in outpatient care for the foreseeable future. For these organizations, outpatient CVR efforts align with their commitment to reducing the cost of care in value-based payment models as well as other strategic priorities, such as retaining volume and revenue in a transitional market space, ensuring consistent quality of care, and preserving provider capacity.

Two service types that fit these criteria include:

• Cardiology services: Roughly half of cardiology services have shifted to the outpatient space, and there is minimal additional opportunity for further shift in the short-term. Electrophysiology and cardiac catheter lab services such as heart electrode procedure, intracardiac catheter ablation, and diagnostic cardiac catheterization all demonstrate a cost savings opportunity per case between $131 and $716.
• Vascular services: Vascular services pose similar cost savings opportunity for organizations, particularly in vascular catheter services such as percutaneous transluminal peripheral venous balloon angioplasty and arterial vascular catheterization. These services demonstrated a cost savings opportunity per case of $236 for the former and $381 for the latter.