When the House of Representatives overwhelmingly passed the Cost Reduction and Greater 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 eliminated the same provisions of the law designed to impose site-neutral bills, which would have benefited the patient-consumer and saved Medicare billions of dollars. Site-neutral bills ensure that reimbursement is tied to a particular procedure or service than the location where the care is provided. The American Hospital Association has vehemently opposed this questionable policy for years, and its withdrawal from the law largely reflects a victory 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 at the reimbursement center. Typically, this is done in a hospital, not in an outpatient care facility 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 sometimes less than inpatient reimbursement. Hospitals want staff and supplies for more complex (and expensive) care, and those prices have been factored into hospital procedure fees. But if in fact, patient-centric healthcare organizations deserve to provide the right care to a given patient in the right setting, without worrying about cost-effectiveness 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 term, this strategy is not a winner. Hospital systems have engaged in contortions to adapt to a disappearing fee-for-service business style 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 medical practices. and clinics for many years. This leads to a stable increase in prices for patients, while delaying the adjustments that eventually want to occur.
Today, more than half of physicians are employed by hospitals and health systems. As I warned, this significantly affects patients who have fewer options than ever before. They are increasingly being forced into large hospital systems where they are suddenly paying more money for the same services. When a physician’s office is acquired by a hospital system, costs increase by an average of 14.1%, with no 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 eating place is purchased through a larger franchise. The next time you order your regular bottle of wine, it will suddenly be a much more expensive one. The décor is the same, you have the same waiter as last week and the wine still has the same label and vintage. So why are you paying more? Unfortunately, this is precisely the scenario that patient-consumers find themselves in when they see the same doctor, but are charged more when they leave because it has been acquired. The site’s neutral payment policies would protect them from this.
If healthcare players had replaced their style of business several years ago, they would have done well financially during the Covid-19 pandemic, when elective surgeries dried up and related revenue evaporated. Since these surgeries generated revenue, there was still evidence that the pay-for-service style as conceptualized lately was linked to enormous risks. Unfortunately, many of those systems were rescued and continued to cling to the old style instead of adopting a new one. Site-independent invoices are a detail of this new style.
The elimination of site-neutral payment provisions from this law is just the latest symptom of a disease that has plagued physical care for decades. Which is certainly a value-based approach, and site-neutral invoices would be a step in the right direction. It is time for the AHA to stop blocking the path to progress and work with its stakeholders to adopt a new model.