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Optimizing Alternate Sites of Care in Support of Value Based Contracting Strategy

June 2023 Consumers, payers, and providers all have an interest in lowering cost and improving clinical outcomes and quality in healthcare. The shift of hospital-based care to alternate sites represents a preferred “go to” strategy that has the potential to align the interests of all parties. Advances in medical and surgical technologies will continue to accelerate the scope of services appropriately performed outside the hospital setting. The lower unit cost profile offered by ambulatory sites, related lower out of pocket costs to consumers and convenience for both consumers and providers represent a formidable value proposition. For payers, partnering with risk bearing entities (RBE’s) and providers in shared savings/risk arrangements implementing strategies to reduce medical cost, alternate site of care optimization directly supports medical cost objectives, margin opportunity and ultimately competitive premium and benefit setting.

The direct relationship of optimizing site of service to value-based care (VBC) goals and objectives nicely aligns with preferential utilization of appropriate and cost-effective sites of service that demonstrate reportable enhanced outcomes. CMS and health plans have already paved the path to designating services that must be or should be performed at an ambulatory site of service, supported by value-based payments and influence of prior authorization medical necessity gates.

As payers and RBEs seek opportunities to reduce total medical cost, it is critical to successfully engage consumers, providers, and payers in expediting the transition to ambulatory sites of service. Design and implementation of plan benefits, network participation criteria, network adequacy and aligned provider incentives are all critical elements of a successful initiative.

Whether working within the construct of a Clinically Integrated Network (CIN), RBE, Hospital Outpatient (HOPD) migration strategy, or a direct physician incentive program, an effective VBC that includes a site of service optimization strategy will bend the medical cost curve. While there should be a natural alignment for payors and providers to collaborate on optimizing the use of low-cost, high-quality sites of service, the challenge is the detailed work to put this opportunity into practice. We recommend the following site of service optimization strategy elements:


  • Network development strategies should ensure adequate access to alternate sites, offering low-cost, high-quality care.

  • Physician incentives and utilization management systems should be expanded to alternative sites to achieve better outcomes at lower cost.

  • VBC and FFS contracts will need to be updated to address the reorientation of hospital-based service line offerings to freestanding sites of service.

  • Plan benefit designs should offer material out of pocket differentials to consumers.

  • Engaging with consumers on the benefits of these emerging care options is critical.

  • Finally, due to myriad ownership models, the potential conflicts of interest and related risks associated with ambulatory facilities must be understood and managed.


Shawn Fitzgibbon, MPH

Managing Director

New York 332.373.5546 shawn.fitzgibbon@bdcadvisors.com

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