This summer, Medicare proposed expanding its push toward “site-neutral” payments, which seek to eliminate some of the differences in what Medicare pays for the same outpatient care depending on where it’s delivered.
But there’s a catch. What looks cheaper on Medicare’s ledger can prove far more expensive over the course of a patient’s care.
A lower-priced procedure isn’t much of a bargain if complications lead to another hospital stay and weeks of additional treatment. And care that fails to solve the patient’s problem can be costlier still.
That’s why policymakers should distinguish between lowering the price of care and lowering the cost of care.
That distinction should guide the growing push for site-neutral payment. Today, Medicare can pay substantially more for the same service when delivered in a hospital outpatient department rather than a physician’s office or ambulatory surgery center.
Take a routine colonoscopy. Medicare pays a hospital outpatient department 60% more than it pays a surgery center for the procedure. When the underlying care is genuinely identical, that difference is difficult to justify.
Site-neutral reform is right to close gaps such as these. The danger is assuming that every higher-priced setting delivers the same value.
At some highly specialized hospitals, outpatient departments are part of a larger clinical system connecting diagnosis, nonsurgical care, surgery, rehabilitation, and follow-up. The payments these facilities receive are part of a larger system that ensures access to specialized staff and expertise, putting patients on the right treatment path from the start.
Consider a 70-year-old with worsening knee pain. An X-ray shows arthritis, and knee replacement seems like the obvious next step. But a specialist determines that much of her pain is actually coming from her hip — or that her knee can still be managed without surgery.
Avoiding an unnecessary knee replacement doesn’t show up as a cheaper knee replacement on Medicare’s ledger. It doesn’t show up at all. Neither does the hospital stay that never happens, nor the months of recovery the patient dodges.
Now suppose surgery is appropriate. Careful planning, precise implant positioning, and well-coordinated rehabilitation can mean the difference between walking comfortably weeks later and returning to the hospital for more care.
At Hospital for Special Surgery, where I practiced for a number of years, Medicare spending per inpatient episode is below the national median, translating into roughly $6 million less in Medicare spending annually. HSS has also generated $24 million in Medicare savings through a federal program that rewards hospitals for controlling costs and delivering high-quality joint-replacement care.
HSS is hardly alone. At Memorial Sloan Kettering Cancer Center, about one-third of patients in one study had their treatment plan meaningfully changed after receiving a second opinion. Of those patients, nearly 3 out of 4 received a plan projected to cost less.
And the evidence extends beyond individual institutions. A Medicare initiative that holds hospitals accountable for the cost and quality of joint-replacement care saved nearly $113 million from 2021 through 2023 while maintaining quality for more than 98,000 patients.
That’s the direction Medicare should be heading — rewarding providers for delivering better patient outcomes at lower overall cost.
A one-size-fits-all approach to site-neutral payment works against that goal. By focusing on the price of an individual service, Medicare can overlook the value created by providers that prevent unnecessary care, avoid complications, and reduce spending over the course of a patient’s treatment.
That doesn’t mean specialty hospitals deserve a blanket exemption. Instead, Medicare should value the test. Hospitals should be able to maintain their current reimbursement and system of care if they demonstrate that they provide value by lowering Medicare spending, delivering consistently high-quality care, accepting financial accountability for their performance, and serving patients with complex conditions.
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The bar should be high. HSS’s analysis suggests that criteria along these lines would initially qualify only about 1% of acute-care hospitals nationwide. And hospitals should have to keep proving they deserve it.
Medicare is right to eliminate payment differences that exist only because of where a service is delivered. But paying less for individual services isn’t the same as paying less to make a patient well. The better approach is to eliminate unjustified price differences while rewarding providers that can demonstrate better outcomes at lower overall cost.
Steve O’Brien, MD, MBA, is the Medical Advisor for Ecosystem Development at the Hospital for Special Surgery.