Harvard Business review

How U.S. Health Systems Can Build Capacity to Handle Demand Surges

During the chaos created by the Covid-19 pandemic, manufacturers across industries have been forced to adjust to rapid changes in demand for goods ranging from toilet paper to nasal swabs. Their response is an extreme example of episodic demand spikes, which occur seasonally in many industries. Consider florists before Valentine’s Day or candy shops before Halloween. Suppliers generally prepare for these situations by increasing production, price, or both.

America’s health care providers can take lessons from these industries and build flex capacity outside of their rigid, brick-and-mortar care models to better manage episodic demand and meet public health challenges like those posed by the current pandemic. In this article, we describe how health systems can do that by embracing innovations such as telemedicine, walk-in clinics, and home-based care.

How Reimbursement Drives Rigidity

America’s inflexible health care system does not behave like a normal market. For example, unlike a traditional business, hospitals lose money during their seasonal peak: flu season. And if health systems struggle to manage the flu, it is no wonder that many hospitals have suffered from chronic capacity gaps and significant financial strain during the pandemic, where cases have rapidly ebbed and flowed.

Why do health systems consistently experience supply-side constraints? First, reimbursement drives rigidity. America’s hospitals are built on the chassis of fee-for-service, which rewards volume rather than value. Empty beds and operating rooms mean lost revenue, so health systems are incentivized to maximize utilization, which discourages them from keeping extra capacity available for admission spikes.

Second, just as the quantity of beds is fixed, the price of inpatient care is static. Payment rates (e.g., diagnosis-related groups, or DRGs) are set externally and cannot be adjusted in real time according to seasonal demand. Health systems are caught in a bind: Last-minute staffing and supply requests increase expenses even as revenue remains flat, and high fixed costs are never recouped, leaving both providers and patients worse for the wear.

If hospital leaders can’t change prices or production in response to demand spikes, then the only lever left is labor. Indeed, if Amazon can hire its way to success on Black Friday, the kickoff of the Christmas shopping seasons, shouldn’t policymakers have been justified in calling for a doctor draft during Covid-19? Unfortunately, surge staffing only works if the pipeline is robust and the underlying operating model is sound. Health systems already struggle during flu season, with primary care physicians increasing staffing by 30% and still reporting both capacity gaps and financial deficits.

Covid-19 exacerbated these staffing gaps, with a 44% increase in required full-time equivalents driving up hospitals’ labor expenses by 63% during April 2020. These staffing shortages have persisted into 2021, and the pandemic has made clear that the supply of health professionals is neither bottomless nor equitably distributed and that workforce stopgaps alone cannot resolve the market failures undermining operational readiness.

Rather than relying on the resiliency of individuals, we should seek to improve the adaptability of organizations. We argue that providers’ operating models need to develop “seasonality” functions: flexibility on capacity to adjust the where, when, and how of care delivery in response to unpredictability on the demand side for the pandemic and beyond. Here are a few ways to do it:

Increase capacity with home-based care. 

Elderly patients with multiple chronic conditions comprise a disproportionate fraction of health care spending. In 2012, the Centers for Medicare and Medicaid Services launched a pilot program to evaluate whether home-based primary care could reduce hospitalization rates for this population. A pre-pandemic case-control study of one model found the intervention reduced emergency department (ED) visits by 10% and hospital admissions by 9%. Likewise, preliminary evidence from another model during the pandemic showed that patients in home-based primary care remained healthy while using less hospital care.

Health systems can build on existing home-based primary care models and new pandemic-era home monitoring programs to increase “slack” for hospital care by reducing the likelihood that frail, elderly patients will require scarce resources during periods of high demand.

Redesign point of entry with walk-in care. 

Crisis creates tunnel vision, and in medicine, the ED is the entrance of every tunnel. While the ED is appropriate for many cases (e.g., trauma care), health systems could better manage spikes in demand by using walk-in sites such as urgent care centers, which research suggests could serve as a temporary valve for nearly a quarter of ED cases.

During the pandemic, urgent care centers helped triage suspected Covid-19 cases, with 41% of all volume attributed to Covid-19. For example, patient volumes grew by 170% during the pandemic at CityMD, a New York City-based urgent care provider that served as a key node in the city’s testing network. CityMD’s success during Covid-19 was buoyed by its partnerships with payers to improve referrals and data sharing across providers and its development of new programs that focused on coordinating follow-on care for patients.

To improve management of low-acuity cases during high-demand periods after the pandemic, health systems could incorporate features of walk-in clinics such as expanding the hours they are open and increasing the locations where members of the community can access services. This could include partnerships with retail clinics such as CVS MinuteClinics and urgent care centers (e.g., like St. Anthony’s Medical Center in St. Louis has done), adjusted operating hours and open-access scheduling that allows patients to schedule a visit the same day, and support for pop-up health sites for discrete health services like those that nonprofits have established to bring care to rural or underserved populations. For example, at University Hospital in New Jersey, we have expanded walk-in opportunities within our ambulatory care center for established patients.

Use telemedicine to triage patients. 

Although Covid-19 regulatory flexibilities have increased the uptake of telemedicine, the applications have largely been limited to substitutions, such as performing consults over Zoom instead of in physician offices. A “seasonality” approach to virtual care would use telemedicine as a platform for rapidly activating parallel care pathways in response to fluctuating patient needs.

Consider New York Presbyterian’s Express Care Service: Under this model, low-acuity patients waiting in the ED for care can elect to see a provider immediately via a virtual appointment in dedicated onsite telemedicine rooms instead of waiting hours for an in-person consultation. This parallel approach accelerates the triage process for low-acuity patients already in the ED, and a pre-pandemic study found that it reduced waiting times fivefold.

During the Covid-19 pandemic, the Mount Sinai Health System in New York City developed a similar telemedicine model for palliative care, with operators activating a backup pool of physicians in response to a spike in ED-associated consults. Using telehealth to reduce pressure on clinical bottlenecks improves access for patients and avoids excess fixed costs, such as bed space. At University Hospital, we established a virtual urgent care service during the pandemic, which was especially helpful for individuals experiencing acute problems related to their chronic diseases but who were reticent to seek in-person care.

Reduce demand for hospital beds with with hospital-at-home care. 

To reserve inpatient beds for higher acuity cases, health systems can use hospital-at-home (HaH) programs, which enable patients with acute conditions such as pneumonia or heart failure to be stabilized at home through home and virtual visits and remote-patient-monitoring technology. These models are especially useful for patients with conditions that require relatively predictable or high-frequency hospital care such as asthma or heart failure. In Australian, HaH programs have been scaled to manage nearly 33,000 admissions or 5% of all bed-days annually in the state of Victoria. National panels in the United States have endorsed a proposal for a new Medicare payment model for HaH.

During the pandemic, Atrium Health’s HaH program cared for nearly 1,500 patients, helping limit inpatient hospitalization to only 3% of the population, thereby preserving bed capacity for sicker patients. And with Covid-19 hospitalizations rising during the winter, the Centers for Medicare & Medicaid Services announced a new Acute Hospital Care At Home program encompassing more than 60 different conditions to alleviate the strain on inpatient capacity. University Hospital is in the process of establishing such a program for high-acuity patients who are admitted frequently.

To build on this momentum after the pandemic, health systems will need to engage with regulators and rethink inpatient resource allocation and with innovators already developing new use cases for HaH for specialties such as surgical care and oncology. By scaling such models, health system leaders can not only bolster surge capacity for future public health emergencies but also reduce costs and make care more convenient.

Accelerate value-based payment reform. 

Like many delivery innovations, the viability of seasonality functions is contingent on sustainable reimbursement. After all, hospitals will have little motivation to build flex capacity if fee-for-service payment incentivizes systems to keep beds filled. Value-based payment, which offers risk-adjusted reimbursement for the full scope of care that a patient experiences for a given condition, presents a path forward.

Under this model, health systems are incentivized to design staffing models that distribute physician time according to patient needs rather than optimizing solely for the volume of services needed to cover fixed costs. In addition, it provides physicians with a disincentive to route patients to higher-margin care sites unless clinically necessary. For example, Maryland’s hospitals were better positioned to weather the ebbs and flows in inpatient volume during the pandemic because of the state’s global budget payment model. By reforming how we pay for care, we can reframe how health systems allocate their capacity at each node of clinical care.

American health care has long suffered from a mismatch between supply and demand. The Covid-19 pandemic has generated opportunities to address this serious problem. Health systems can take advantage of the recent innovations we’ve described and build the means to handle fluctuations in demand for care. After all, if the nature of crisis is unpredictability, then the responsibility of a health system should be adaptability.

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