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Amid rising concerns about health care spending and voters’ worries about health care affordability, there is growing, bipartisan interest in proposals to align Medicare payments for outpatient services across care settings, otherwise known as “site neutral” payments. The goal of this approach would be for Medicare to pay the same rate for the same service, whether it is provided in a hospital outpatient department (HOPD), ambulatory surgical center (ASC), or freestanding physician office, subject to patient safety and quality safeguards. Private payers could also achieve savings if they adopt similar payment policies. Policymakers have been focusing recently on site-neutral payment reform in response to concerns about health care costs and the rapid pace of consolidation, given that the differences in payment across settings for the same service create a financial incentive for hospitals to acquire physician practices.
Site-neutral payment reforms would lower costs by reducing the amount Medicare pays for certain services when conducted in more expensive settings and could also lower costs by reducing incentives for hospitals to buy up physician practices, a pattern which has also been associated with higher commercial prices. Through legislation and rulemaking, Medicare has moved incrementally forward by aligning payments for clinic visits provided at off-campus HOPDs and for all other services provided at off-campus HOPDs that started billing on or after November 2, 2015, with some exceptions. Some policymakers are pressing to broaden the reach of site-neutral payment reforms to include additional settings, such as on-campus HOPDs and off-campus HOPDS that were grandfathered and exempted from certain site-neutral payments under current law. In December 2023, for example, the House of Representatives passed the Lower Costs, More Transparency Act on a bipartisan basis, which would align Medicare payments for drug administration services in off-campus HOPDs, including those exempt under prior reforms.
Opponents, principally in the hospital industry, argue that site-neutral payment reforms would adversely affect patients’ access to services by reducing hospital revenues, raising particular concerns about access for rural and low-income populations. They also suggest that the higher payments for services in hospital outpatient settings are justified by the level of care patients need, the higher costs of providing care in hospitals (e.g., due to regulatory requirements), and the costs of maintaining emergency care and standby capacity.
This issue brief describes five things to know about Medicare site-neutral payment reforms for outpatient services. It does not discuss a related set of proposals to regulate outpatient facility fees charged by hospitals and other institutional providers in commercial markets, such as a bill introduced in the Senate. Those options are intended to achieve similar policy goals but are more complicated, in part, because prices in commercial markets are determined through negotiations between payers and providers rather than being set by the government.