When the House of Representatives overwhelmingly passed the Cost Reduction and More Transparency Act last December, it seemed like an important step toward fixing the damaged component of our nation’s physical care style that, after all, might have gained some momentum. Now it looks like it’s at a standstill.
A few weeks ago, the Senate stripped the Act of the very provisions designed to enforce site-neutral payments which would have benefited the patient-consumer and saved Medicare billions of dollars. Site-neutral payments ensure reimbursement is tied to a given procedure or service rather than to the site where care is delivered. The controversial policy has been vehemently opposed by the American Hospital Association for years and its removal from the Act largely reflects a win for hospitals.
The resolution to reduce site-neutral bills partially addresses the AHA’s argument that higher overhead costs for hospitals require higher fees, and warns that site-neutral bills can also be minimized to provide care through additional cuts in hospitals’ operating margins. While this is arguably true, the root of the challenge lies not in site-neutral billing, but in the misaligned incentives and improvised responses of the existing pay-for-service style that has brought us this far.
Unfortunately, this is just the latest example in a decades-long story: Stakeholders are reluctant to make adjustments that would reduce physical care costs, outcomes, and the patient and provider experience. But they swim against the current of an increasingly difficult tide. As we’ve written before, it’s undeniable that the existing style is disappearing. Ultimately, fitness systems will want to adapt to upcoming adjustments or stick to the old style.
The advent of neutral invoices is a long-awaited reform of the existing payment style and some would possibly be surprised to learn that this is not the case. My previous columns explain how, under the existing style, a specific procedure that can be performed in a variety of settings, such as a doctor’s office, outpatient clinic, or hospital, and the costs vary depending on the place of care. But if it’s the same procedure, why is it worth the difference?
Under the existing fee-for-service system, organizations that provide physical care and many physicians are incentivized to perform procedures in the maximum reimbursement environment. This is usually done in a hospital, outpatient center, or doctor’s office.
As I noted in Adding Value to Healthcare, the adjustments we see today in where care is delivered have evolved over the decades. Thanks to advances in technology, care has moved away from the classic hospital setting for many procedures and can be safely delivered in less extensive settings. For example, general knee and hip arthroplasty is now a minimally invasive procedure, and a recent report from the National Institutes of Health found that outpatient surgeries for this procedure have comparable or even better clinical outcomes than hospital operations. However, health care stakeholders, adding that the AHA, which represents hospitals, have continued to push for those procedures to be performed in hospitals, where the client will pay a higher copay that reflects the maximum value allowed to cover overhead, facilities and other related costs. .
For example, my ebook notes how “when ambulatory surgery centers became more prevalent, hospitals lamented that ‘easy patients’ (those in need of endoscopy, cataract surgery, etc. ) were ‘eliminated. ‘”These procedures were related to smart reimbursement and few complications, so it’s no surprise that healthcare delivery organizations, rooted in a transactional pay-for-service mindset, sought to achieve as many as possible in a hospital setting.
Outpatient reimbursement is typically less than inpatient reimbursement. Hospitals must be staffed and equipped for more complex (and expensive) care, and those costs have historically been factored into charges for inpatient procedures. But if they are truly patient-centered, healthcare delivery organizations should provide the right care for a given patient in the right setting, without regard for profitability based on where the procedure is performed.
Site-agnostic payment imposes a unique value for a procedure, no matter where it is performed. This removes any incentive for healthcare organizations to exploit the differential by pushing patients to the most expensive locations for the procedure. For organizations committed to a capitated payment style that ties pay to vital outcomes, a site-neutral payment makes sense. For stakeholders who are committed to the existing fee-for-service formula and focused on maximizing profits in the short term, their resistance is understandable.
However, in the long run, this strategy is not a winner. Hospital systems have engaged in contortions to adapt to a pay-for-service business style that is disappearing rather than adopting a new one. To cope with building regulations, declining reimbursements, and emerging prices, hospitals have attempted to maintain profitability through consolidation. Between 1998 and 2022, there were more than 1,800 hospital mergers in the United States. This isn’t just limited to hospitals: giant hospital systems have been buying up small, independent doctors’ offices. and clinics for many years. This leads to a stable increase in prices for patients, while delaying the adjustments that ultimately want to happen.
Today, more than a portion of doctors are hired through hospitals and fitness systems. As I warned, this especially affects patients who are less functional than ever. They are increasingly forced to enroll in giant hospital systems where they suddenly pay more money for the same services. When a medical consultation is purchased through a hospital system, prices increase by an average of 14. 1%, without a corresponding increase in quality.
Imagine going to the same place to eat every week for years and receiving the same bottle of wine. One day, the restaurant bought it through a larger franchise. The next time you order the same bottle of wine as always, it will suddenly be a lot more expensive. The décor is the same, you have the same waiter as last week and the wine is still the same label and the same vintage. So why do you pay more? Unfortunately, this is precisely the scenario in which patient-consumers find themselves who consult the same doctor, but who are charged more when they leave because they have been acquired. Neutral payment policies on the site would protect them from this.
Had healthcare stakeholders changed their business model even several years ago, they would have done well financially during the Covid-19 pandemic when elective surgeries dried up and associated revenues evaporated. Given that these surgeries drove revenue, there was finally proof that the fee-for-service model as currently conceptualized was associated with enormous risk. Unfortunately, many of these systems were bailed out and have continued to cling to the old model rather than embrace a new one. Site-neutral payments are an element of this new model.
Cutting the site-neutral payment provisions from this Act is just the latest symptom of an illness that has plagued healthcare for decades. What is so badly needed is a value-based approach, and site-neutral payments would be a step in the right direction. It’s time the AHA stopped blocking the road to progress and worked with its stakeholders to embrace a new model.