Recently, with some help from a reader and others, I exerted great effort (you have no idea!) to recreate the early history of Medicare hospital payment methodology. Meanwhile, Uwe Reinhardt is masterfully explaining how hospital’s are paid today, both by Medicare and private payers. It’s worth a full read. About Medicare’s current hospital payment system, Reinhardt concludes,
Although this system can and does accommodate adjustments for local market conditions and sometimes even rewards what policy makers value – extra payments for services provided to underserved areas – it is primarily cost-based rather than value-based, which I and other policy analysts would prefer.
The only consolation is that the prices in the private health care market do not seem to be value-based, either. Because they are not transparent, it is hard to know what they actually reflect.
That payment is related to cost and not value is a problem. I’ve discussed it before with respect to the physician pay schedule, though it applies to hospital payments too. Why should we pay for something that has little value? How do we even know what has value or what value means? The answer is more comparative effectiveness research and reform of the payment system to use the results of that research. This is something I’ve discussed before. Moreover, one can imagine how provisions of the ACA would support such developments.