Who owes the readiness payment?

We know how to pay for standby. We still have to say who owes it.

A healthy patient has a knee scoped on a Tuesday, and by design almost everything about that morning goes right. The case is done in an ambulatory surgery center a few miles from the hospital, the cost is lower, the recovery is faster, and the patient is home before dinner. The commercial side of the ledger that steered the case, the insurer or the self-funded employer behind it, keeps the difference between what the hospital would have charged and what the surgery center did, and that difference is real money. The surgeon is paid, the center is paid, the patient is well. The only party left holding anything is the hospital a few miles away, which still has to be ready for the version of that case that cannot go to the surgery center, on the night it arrives without warning. Someone captured the savings when the easy case left. Someone still carries the cost of being ready for the hard one. They are not the same someone, and the space between them is the whole subject of this piece.

Last week I argued that the number a hospital and its anesthesia group fight over every year, the subsidy, is not the real problem but the visible proxy for one. The real thing we are paying for is readiness, the standing capacity to handle the case that does not fit the outpatient model, and we pay for it now through a subsidy negotiated in the dark rather than a readiness payment named in the open. The most useful replies to that piece pressed on the question I had put off on purpose. Fine, they said: if readiness is the thing to pay for, who owes the payment? That is a fair question, and it is harder than it first appears. This is my attempt at an honest answer.

Start with why the question resists a clean answer. Readiness is close to a public good, and it behaves like insurance: the thing of value is the availability itself, the option the whole region holds on the chance that one of them needs the hospital that kept its doors staffed. The emergency department that stays lit before anyone knows who will need it, the team that can take the two a.m. complication, the obstetrics unit and the trauma bay and the intensive-care beds holding the patients too sick to be anywhere else, all of it is capacity the whole region draws on and only part of the region pays for. The surgery center a few miles away depends on that standby by law and pays for none of it: even now, a center has to keep a written procedure for transferring its emergencies to a local hospital, which means the low-cost site’s backstop on its worst day is formally the hospital next door, at no cost to the center. The healthy patient who went to the surgery center still benefits from that standby the day a bad outcome sends them back. Their plan benefits from it without buying it on the ordinary Tuesday. A community that has never once used its trauma bay is safer for its being there. When a benefit reaches everyone and the bill reaches only some, arguments about who owes get hard, because everyone at the table has a true reason to say it belongs to someone else.

There are four defensible answers to who owes, and each makes a real case. The commercial payer that steered the profitable case away has captured the savings and left the standby behind, so the party that captured the savings is the intuitive place to send the bill. The whole payer pool has a claim on it too, because Medicare, Medicaid, the self-funded employer, and the uninsured patient all lean on the same capacity, and a benefit that broad points toward a broad payment rather than a single check. The state has a claim, because standby is public infrastructure and a state like Maryland already sets hospital rates and funds capacity directly. And the community itself has a claim, because it is the community that needs the capacity to exist and, in the end, the community that loses when it lapses. Each of those is defensible. That is exactly what makes the question uncomfortable.

The answer that satisfies first is the commercial payer that moved the case. It is the party that made the choice and captured the gain, and the logic that the party who benefited should pay is neither radical nor new. The site-of-service difference that side of the ledger keeps is even larger in the commercial market than it is under Medicare, which is one reason a growing number of states have started writing site-neutral and facility-fee rules of their own. If you benefited when the profitable case left, the argument goes, you owe something toward the standby it left behind.

I find that answer attractive, and I think it is incomplete, for three reasons worth stating clearly. The first is double payment. The commercial payer already pays hospital rates that fold standby cost into every case it does buy inside the building, so a separate readiness charge risks paying twice for the same capacity. The second is the free-rider problem. If Medicare, Medicaid, self-funded employers, and uninsured patients all draw on the standby, singling out the one commercial insurer that happened to steer a given case is arbitrary, and a benefit that reaches everyone is the standard argument for broad public financing rather than a single-payer bill. The third is the perverse incentive. Charging a payer for readiness wherever it moves a case taxes the very migration most of us agree is right for the healthy patient, and it would prop up duplicated capacity that an honest accounting might say should consolidate. An answer that punishes the good outcome to fund the necessary one is not the answer.

The useful part is that we have already built a version of each of these answers, which means the real work is choosing among working models rather than inventing one. The narrowest and clearest sits where the pressure hit first. When rural hospitals began closing because volume alone could not sustain them, Congress created the Rural Emergency Hospital, which gives up its inpatient beds in exchange for a fixed monthly facility payment, roughly two hundred ninety-five thousand dollars in 2026 and adjusted each year, paid for keeping emergency and outpatient capacity available on top of what it bills for the care it delivers. That is the community-and-taxpayer answer, made narrow and explicit: a public payment for being ready, named as such. Maryland runs the broader version. For years the state has paid its hospitals a fixed global budget for a population rather than a fee for each case, which funds capacity instead of throughput, and at the start of this year that all-payer approach carried into a federal model that several more states are now adopting. That is the all-payer answer: everyone who draws on the system pays into the standby through the rates they already pay.

We even price standby in small, explicit pieces inside our own walls. The on-call stipend and the trauma-activation fee are readiness payments named for what they buy, and the fixed cost of trauma readiness alone, the coverage a center has to staff before the first patient ever arrives, runs into the millions of dollars a year at a busy center before anyone is billed for a single injury. The clearest evidence that the gap is real is the one place the law mandates readiness and declines to fund it: the federal requirement that hospitals keep an on-call panel available for emergencies arrives with no payment attached, and hospitals bridge it with stipends that rarely cover the cost.

Other industries are less shy about pricing the same thing. Electricity markets pay generators a separate capacity price for the promise to be available on the worst day, apart from the power they sell on an ordinary one, and in its most recent auction that promise cleared at a record price across the largest grid in the country as demand climbed. The principle is old and unremarkable everywhere except the hospital: standby is worth paying for on its own, and the parties that depend on it are the parties that owe.

I want to be careful not to suggest a tidy answer, because I distrust them, and because the record is candid about how hard this is. Pennsylvania put eighteen rural hospitals on all-payer global budgets for exactly this reason, to pay for the capacity a community needed rather than the volume it could no longer generate, and the results so far have been mixed, with margins that did not clearly improve and avoidable use that did not clearly fall. That is not an argument against naming who owes. It is a reminder that naming the payer is the first move rather than the last, and that a readiness payment built carelessly can be captured and padded like any other line by the same executives I have watched profit from a patient’s worst day. The case for building it in daylight is exactly that risk.

If I have to force an answer, and I think the question is worth forcing, it is this. Readiness is a public good, and public goods are paid for by everyone who draws on them, not by the single party that happened to move one case. That points toward the all-payer shape Maryland uses or the public facility payment the Rural Emergency Hospital uses, both of which spread the cost across the people who actually depend on the capacity. The satisfying answer, that the commercial payer who captured the savings should write the check, is the honest second-best, the cleanest stand-in when no all-payer mechanism exists, and it should be used with its flaws admitted rather than hidden. What we should stop doing is the thing we do now, which is to leave the bill on the hospital by default and call it a subsidy. The hospital does not simply swallow that bill, either; it recovers part of it by charging the commercial payers more on everything it still does, so a readiness payment is already being made, opaquely, folded into next year’s negotiated rates instead of named on its own line. We pay for it in the dark because the hospital is the one party in the arrangement that cannot walk away from the promise.

I lead an anesthesia company, so let me be clear, because a careless reading turns this into an argument for my own line item. It is not. My group is inside the same loss the hospital is, and the readiness I am pointing at is the hospital’s whole standby function, most of which sits far from my clinicians. Pricing it honestly, and naming who owes it, would end the annual ritual, repeated now at more than eight in ten hospitals that write some version of that check, in which a group and a hospital argue over a number that was never really about either of them, and would replace a private fight with a public accounting. That is worse for the negotiation, meaning worse for my group’s leverage inside it, and better for the institution, which is the trade I would make.

Here is the part that belongs to anyone who has done the work, whether that is the trauma bay at two in the morning, the clinic that holds the complex patient other settings turn away, or the floor team absorbing a surge of admissions on an ordinary Tuesday afternoon. Standing ready is the whole of that contribution, and it stands on its own without having to be justified upward; the institution is only poorer when it fails to listen to the people who carry it. The finance team can watch the subsidy line climb for years and read it as a cost to be managed between two parties in a room. The clinician who has carried the readiness knows what the line is actually buying, and can say what the ledger cannot: that it is not a courtesy and not a market distortion, but the price of a promise the community is counting on, currently billed to the wrong party because we lack the nerve to ask who really owes it. What each of us can do with that depends on where we sit. At the bedside, it is refusing the language of courtesy where the standby actually lives, and naming the readiness plainly in how the work gets described and defended. For anyone with a seat where the number is set, it is refusing to let the subsidy be argued as last year’s figure plus a percentage between a hospital and a group, and putting the real question on the table instead: who benefits from this capacity, who depends on it, and who therefore owes it, measured against the true cost of keeping the doors open. And it is carrying that question up to the level that can answer it, the system board, the payer at contract renewal, the state that sets the rate, rather than settling it in the annual room where a group and a hospital split a number that was never only theirs.

The healthy patient is still home before dinner, and that is still the right outcome; I would argue for it again tomorrow. The person who needs the hospital at two in the morning still needs someone ready, and someone still has to pay for that readiness whether or not we are honest about who. We can keep leaving the bill on the one party that cannot refuse it and calling that a subsidy, or we can do the harder thing and say the word out loud: who owes. Until we answer it, the standby stays an accident waiting on the night it finally fails, and the case that arrives that night will not care whose line item it was.