Hospitals Are All For Value Based Care Until They Aren’t: Site-Neutral Reimbursement

June 26, 2023

Admittedly, the term “value based care” has as many meanings as “fair share”, but one thing is for certain, it focuses on the value of the output as opposed to the “cost” of the inputs.

Hospitals, especially in their rush to spend money acquiring physician practices in order to participate, were all for the concept of value based care. “Our ‘health system’ will provide better value”, after all.

Now picture this: On January 1, Dr. Brown brings Patient Green to Center City ASC for the removal of a ganglion cyst on Green’s right wrist. Medicare reimburses Center City ASC $X dollars. On January 31, Dr. Brown brings the same Patient Green to the Center City Hospital outpatient department for the removal of a ganglion cyst on Green’s left wrist. Medicare reimburses Center City Hospital $X + $Y dollars.

The value to Patient Green is exactly the same. Yet, the total price to Medicare (let alone to Patient Green in terms of the co-pay) was more for the second procedure, the one performed at the hospital outpatient department.

Currently, Congress is considering several bills that would bring site neutrality to reimbursement. As can be expected, the American Hospital Association is kicking and screaming – apparently, their concept of “value based care” has morphed into “cost based care”, their argument being that hospitals are disadvantaged due to their higher costs in comparison to ambulatory surgery centers.

That’s not to say that “cost” isn’t important, but it’s important in an entirely different sense: If the value doesn’t exceed the cost, the supplier (here the hospital) won’t be in that line of business very much longer. And, value is determined outside of the venture, by the one paying, who should have no concern at all over the provider’s cost.

I can’t remember where I read it, and therefore can’t give credit or verify its truth, but it’s said that in the 1960’s a friend of David Brown, the owner of Aston-Martin, wanted to buy one of the company’s cars at “cost.” The car was then selling for something like £5,000. Brown’s reply was that he would be happy to sell it for cost: £7,000. Whether apocryphal or not, I think you get the point.

Cost-plus pricing and the notion of selling your services at a “fair return on cost” are concepts of a bygone era. Actually, of a bygone error. Will American Hospital Association lobbying continue to turn the concept of value on its head?

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