HHDS.04 - Outpatient Clinics: Primary and Specialty Care

This is Chapter 4 of 50 in a summary of the textbook Handbook of Healthcare Delivery Systems. Go to the series index here.

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Chapter 4 Summary
Outpatient Clinics: Primary and Specialty Care

Chapter Authors
Deanna R. Willis - Indiana University School of Medicine

NOTE: Like the other chapters, the book was published in 2011 and doesn't include changes in the organization over the last decade.

Some Commentary

This chapter makes the prospects of operating a primary care outpatient clinic in the USA sound horrible. Low margins, little opportunity to add additional services, and a lack of mechanisms to recover: extra services provided to patients, coordinated care, or down-steam revenue.

It seems speciality care clinics may be a bit better as they have higher margins. But overall this is a high volume low margin part of healthcare when compared to hospital based services.

1.  Background, Size, Scope

Outpatient medicine in the US is a tough business. Most clinics operate on a fee for service model for face-to-face encounters. High volumes are required, with generally low margins. 

In 2005 it was estimated an approximate 963.6 million office-based physician visits occurred in the USA. Approximately 3.31 visits per person that year. Primary care (family medicine, general internal medicine, general paediatrics, and obstetrics and gynaecology) comprised 60% of visits. Of remaining 40%, half were surgical subspecialties and half medical.

Most outpatient visits occurred in metropolitan areas verses rural. It is postulated that this may be because rural physicians provide more than a single service type in a single visit, that nonmetropolitan patients travel to metropolitan areas for outpatient appointments, or that culturally rural patients visit the doctor less.

Of all office visits, 53% were for a chronic health condition. Hypertension accounted for 23% of office visits, and has been the leading cause of office visits since 1995.

The most common visit type for those under age 21 was for 'routine child health check'.

2.  Outpatient Structure

2a.  Office-Based 

Office-based practices are typically owned by physician groups. They collect fees from their professional services, as well as from technical procedures or ancillary testing in their clinic - such as x-rays.

One of major downsides is that many office-based clinic services do not have billable codes, and it is difficult to offset the clinic cost without the ability to capture the downstream revenue.

For instance, if a licensed practical nurse (LPN) checks a patient's blood pressure, it may not be billable unless the physician also sees the patient. Or, if a patient is booked to undergo a surgery after their outpatient visit, it will be the hospital with the operating room that collects the bulk of the profit generated from this encounter

"Thus, it is generally considered difficult, in today's healthcare market to have an independent office-based practice that is financially successful unless a significant number of procedures or ancillary testing are performed at the clinic"

2b. Hospital Based

The second model of Hospital-based clinics, are closely affiliated or owned by the hospital. Not only do they charge professional fees but also a 'facility fee' that is chargeable at 'hospitals' - which raises revenue.

The physician's professional fees are lower in this setting, but they do not have to pay staff, wages, and facility rental space out of their income

3.  Practice Expenses and Overhead

The greatest expense in a clinic is salaries. There are suggested ratios from groups such as the Medical Group Management Association (MGMA) which proposes optimal number of support staff per full-time equivalent (FTE) physician.

Staffing clinics with support work is difficult. There is often not 'surplus' or 'extra' workers. The absence of a single support staff for a day can dramatically effect the clinic's function. Although temporary 'agency' workers may be available, the skill level may not be sufficient.

The chapter also suggested that a variable (but at times significant expense) is the cost of vials of 'injectables'. Some vaccinations (apparently) may cost over $800 per bottle.


4.  Revenue and Payment for Services

Outpatient clinic fees are often not known until the time of service, and the amount that a patient's insurance will cover is not always known until the patient has the clinical encounter and a bill is submitted. This can create uncertainty for patients.

Clinics may monitor their payor mix: which is both the mixture of insurance companies paying for services as well as the types of services being provided. Diversity in payees prevents a single insurance company from having too much leverage. There is financial incentive to minimize 'low reimbursement services'.

Relative Value Units (RVUs) help weigh each medical service and procedure incorperating the clinical and equipment expenses to provide it, as well as malpractice expense. These numbers may be applied to the work being done by each clinical (wRVU) to assess each physicians relative productivity to the group.

5. Quality

Pay-for-performance (P4P) is a buzzword that sounds pretty good. In reality reimbursement for this is often derived from administrative level data sets, and this makes it difficult to determine if patients are actually 'controlled' or if they just had 'an A1C ordered'.

New 'hybrid methodology' pay-for-performance programs are emerging that incorporate clinical data into reimbursement, which helps more directly tie the financial incentives to real clinical outcomes, not simply 'services provided'.

6. Care Coordination

There is little incentive to coordinate care. Primary care clinics have low margins and therefore hiring people to coordinate care is difficult - unless the clinic is closely affiliated to a hospital and there may be an increase in hospital based services.

Speciality clinics have higher margins, and this enables the use of nurse practitioners to help coordinate care. Typically this is restricted to "disease management" - of a single disease or condition.

Insurance companies are introducing 'Case Management' services to help coordinate patient's requiring multiple services.

7. Primary Care Shortage

There are currently not enough primary care doctors, and the shortage is anticipated to get worse. The number of medical students interested in primary care continues to decline, as the number of elderly grows.

HHDS.05 - Designing a Nurse-Managed Healthcare Delivery System

HHDS.03 - The VA Healthcare Delivery System