In the 20th century, hospitals completed their transformation from the hospice-like institutions of the Middle Ages, into large, gleaming centers of advanced medical expertise and technology that save and improve lives every day. But an unintended consequence of hospitals’ dazzling capabilities is a staggering cost burden that’s proving toxic to the American economy.

Today, hospital care accounts for approximately 33% of the US’ $3.5 trillion annual health care expenditures, according to CMS. The drivers of hospital costs are complex and hard to tackle, including (but not limited to) market consolidation that enables price hikes, heavy administrative burdens, expensive technology and patient usage patterns.

In The Innovator’s Prescription, Clayton Christensen et al. explained another important driver of high hospital care costs: conflation under one roof of business models designed to address very different needs—such as the need for diagnosis of unique, complex conditions and experimental treatments, versus that for highly standardized services (for instance, some surgical procedures). This common phenomenon makes optimization of either business model very difficult, and thus drives up overhead costs.

One solution to this seemingly intractable problem is to make home and community the default locations for care, where in many circumstances it can be provided less expensively, more conveniently, and more effectively than in a hospital. Fortunately, business model innovation toward this end is gaining traction.

Nemours Care Connect, a pediatric telemedicine program run by Nemours Children’s Health System’s Center for Health Delivery and Innovation, is one promising example. Available in seven states, the service links patients with clinicians via smartphone or laptop, (24 hours a day, 7 days per week) for virtual consultations concerning acute, chronic and post-surgical issues. As reported by Modern Healthcare, in a peer-reviewed study of the program conducted by Nemours using data from 1,000 patient visits between 2015 and 2017, 27% of parents said that they would have taken their child to an Emergency Department (ED) had the telehealth service not been available. Thus, the study estimates, the service saved the Florida health system more than $100 million in pediatric ED costs during that period.

The Centers for Medicare and Medicaid Services (CMS) is also promoting home- and community-centered care models, with programs like the new Emergency Triage, Treat and Transport (ET3) payment model.

Many people who could receive appropriate care at home or in the community call for an ambulance to the ED because they don’t have awareness of, or access to, other options; or someone calls an ambulance to the ED for them when they are incapacitated. The ET3 model aims to address that by paying participating ambulance suppliers and providers to take Medicare beneficiaries who call 911 to the most appropriate care site, whether the ED, a primary care provider or an urgent care center; or to treat them on scene, supported by a qualified health practitioner and telehealth as required. The agency hopes the program will improve quality and reduce costs by helping patients access safe and appropriate care, at the right time and place.

Finally, in an interesting reversal of the 20th century movement to centralize care in hospitals, home-based care is making a come-back. The Home Centered Care Institute (HCCI) was founded in 2014 to train and mentor physicians in providing high-quality primary care to chronically ill, medically complex and home-bound patients in their own homes; and leading institutions like The Cleveland Clinic and University of California at San Francisco have partnered with HCCI to help.

CMS is also supporting the trend with the Independence at Home demonstration project, an innovative service-delivery and payment-incentive model designed to improve quality of care and life for chronically ill patients, and reduce the need for expensive, institutional care. Approximately 10,000 chronically ill Medicare patients receive comprehensive primary care at home through the program, and it has driven over $50 million in care cost savings over three years.

As evidenced by the above-mentioned programs, innovators across sectors are driving this shift in care locus from hospital to home and community, indicating broad understanding of its potential benefits, and great determination to realize them. But the shift poses great challenges for traditional hospitals that aren’t prepared for it, and might therefore resist it; and there’s still much work to do in developing and optimizing business models that enable the right care, at the right time, in the right place. Let’s hope the evolution happens faster than that of the hospital did.

This post first appeared in The Health Care Blog.


  • Rebecca Fogg
    Rebecca Fogg