What The Government Doesn’t Know About Value
The Business of Healthcare Value

What The Government Doesn’t Know About Value


A diamond and a rock, sitting side by side. Both discovered near the bottom of the Udachny diamond mine in the Sakha Republic region of Russia, one of the world’s ten deepest open-pit diamond mines.

But are they of the same value?

The cost, in materials, labor and equipment of retrieving the two stones, the diamond and the rock, are identical.

Yet, the value of each stone is tremendously different. The diamond might be valued in the thousands to the millions, while the rock is just tossed aside as junk.

Value does not follow cost. Cost has nothing to do with value.

But in healthcare today, the trend is to base “value,” on cost. This is very curious. The technical term for this is “ass backwards.”

Take, for example, the findings of a new study published in January 2021 in the journal Health Services Research. It shows that, on average, Medicare pays $114,000 more per physician per year for the same bundle of services when that physician is hospital employed as opposed to physician practice employed.

The study reveals that primary care physician services are paid at a 78% increase and surgeon services at 224% of physician office levels.

So let’s play this out. Andy Administrator, CEO of Arbitrage Hospital of Cashtown, pays Sally Surgeon, M.D. $500,000 for her practice and turns her office into a hospital outpatient clinic. Starting the very next day, Medicare pays more than 200% more for Sally Surgeon’s same services. If I were Andy, I’d be buying as many practices as I could and capturing all of the newly employed physicians’ referrals, because Medicare is financing the deal. It’s almost too good to be true. Who says welfare is only for the poor! Sheesh, it’s a better corporate welfare deal than selling Teslas!

To Medicare, the higher “cost” of providing services inside a hospital justifies a higher price for those services. Even if the day before, the exact same physical location was outside of a hospital.

What the government calls healthcare economics, I call healthcare fraud. 

Unfortunately, the government is not about to call the OIG, the FBI, the Postal Inspectors, and 17 other agencies plus the U.S. Attorneys Office, indict themselves, and then call a press conference.

[A stealthy shoutout to “Jay” for letting me know about the study.]

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