This is Brian Ackerman. I want to talk to you today about the devastation of site-neutral payment. Site-neutral payment is nothing new. We’ve worked with hospital clients for a number of years to discuss how from a competitive standpoint, they may look to push certain services into a freestanding setting and the associated implications of that from not only a strategic standpoint, but a financial standpoint as well. The two additional things that we want to talk about today that are really expanding the devastation of the future impact are first, how much more hospitals relying are on outpatient revenue. The trend that you can see here shows that outpatient revenue overall is about to eclipse inpatient service revenue for hospitals across the nation. And for most community hospitals, we would recognize that that has actually already occurred. And you all quite often are closer to 60%, 70% of your revenue being driven on the outpatient side. And so, that increased reliance on revenue is something that is continued to take hold.
The second thing that is certainly pushing this impact of site-neutral to be even more significant is that payers are getting more involved in pushing volumes, pushing different services into more of a site-neutral setting and into a freestanding location. And you can see these variety of quotes, again, not only private payers, but also CMS pushing different services into the settings and it ranges from inventory surgery services, imaging services, lab services, even infusion therapy has been more and more targeted recently, again, in an effort to reduce overall costs. Those services are being pushed and forced in many cases into a freestanding setting.
So, what does that mean for you? We take a look at what we call kind of an average community hospital with revenue of $250 million. And let’s say they have a pretty significant margin of 3%. You can see what their bottom line would look like. And the impact then of particularly their more significant ambulatory services, as you can see the numbers here from a net revenue perspective. If you begin to translate that through what we would anticipate to be an impact of reimbursing those in more of a free-standing setting, the reimbursement impact is quite significant. And what compounds that issue is, it is a net revenue hit for the hospital. But that net revenue hit goes directly to the bottom line. Again, if we assume that all of these services that are currently reimbursed under HOPD transition to a free-standing reimbursement setting, even if they stay in their current location, which I think ultimately from a future pricing standpoint is where that will land. And we may kind of discuss some of the nuances of that total impact in terms of whether we would expect 100% of that impact to occur or there’s certain services that just given the nature of the service would have to remain in a hospital. And so, maybe there’s some deviation off that total and we could even assume 50% to 75% of that impact. If you want to kind of stair step it or step that back. Either way, it is multiples of the bottom line for most hospitals, and hence the significance of that devastation in terms of trying to offset that hit.
So what can you do? The first thing is to actually quantify the risk. For a number of hospitals they may be in markets where some of this has already occurred and they’ve shifted a lot of things to a freestanding setting. In other markets, maybe they haven’t had to make that push yet and so the impact may, in fact, be more significant going forward. So make sure we’re quantifying what that might be. And then, once we have that in and the other piece we want to begin to think about is timing. Again, we wouldn’t anticipate this impact to occur all in one year. But certainly, as we talk about payment reform continuing to evolve, we would think particularly over the next two, three, four years and most of this hit is going to begin to be felt at the hospital setting, so making sure that you’re accounting for that from a timing standpoint.
And then, what does that ultimately translate into in terms of action? Again, given the significance of this impact, it’s not simply something that you have to account for at a high level or simply include in a financial plan. It really needs to hit your financial plan, your operational planning, and your strategic planning. Again, with the impact of this significance, we’re thinking about how do we plan for adjustments across the board in those areas to really account for this impact.