Congress is actively considering several bills related to site-neutral payment that has hospitals across the U.S. significantly concerned.¹ The proposed legislation would lower the price that Medicare pays hospitals for common outpatient services, such as x-rays and general checkups, and match what it pays outpatient facilities such as physician offices.² Facilities that are owned by hospitals (known as hospital outpatient departments, or HOPDs) earn more than twice what an independent outpatient facility earns for providing the same services.³ This Health Capital Topics article will review the changes that are being considered by Congress, as well as the responses from stakeholders. 

Medicare pays a substantially higher amount for services provided in an HOPD than it does when the same service is provided in a physician’s office or another setting outside of the hospital, such as an ambulatory surgical center (ASC).⁴ For example, Medicare’s allowed payment amounts for a colonoscopy was 67% higher in an HOPD, and 62% higher in an HOPD for an MRI.⁵ To sidestep the lower payment rates, some physician offices were purchased and relabeled as an off-campus component for the HOPD, resulting in higher payments.⁶  For many services, there is very little evidence to demonstrate that the quality of care is higher in a hospital setting.⁷ Medicare’s payment disparity also affects the rates of payment under private health insurance plans, since these plans typically use Medicare’s system as a basis for the payment of physicians and hospitals.⁸

The federal government has been discussing site-neutral payments for nearly a decade, and the newer policies will build off previously drafted legislation that never passed.⁹ An April 26, 2023 congressional hearing focusing on the promotion of competition and transparency in healthcare referenced 17 bill drafts, several of which relate directly to site-neutral payments.¹⁰ Two of the bill drafts build on provisions in the Bipartisan Budget Act of 2015, eliminating current exceptions by 2025, with a third bill draft building on previous regulations that had required all clinic visits to receive the same lower payment rate, including at grandfathered facilities.¹¹ A fourth bill draft would require, beginning in 2026, separate national provider identifiers (NPIs) for each HOPD at which a provider works.¹²

Adopting site-neutral payment policies would result in estimated savings of over $471 billion to the Medicare program and Medicare beneficiaries over the next decade.¹³ Medicare’s savings would be approximately $202 billion for the first year, while enrollees would save approximately $67 billion on cost sharing and an additional $67 billion on Part D premiums.¹⁴ Further, private health insurance plan premiums would be reduced by 0.75% in aggregate (due to the link between private insurer payment rates and Medicare payment rates).¹⁵ The reduction in private insurance premiums would increase federal tax revenues by $29 billion, meaning that adopting this site-neutral payment policy would result in total federal government savings of $231 billion in the first year alone.¹⁶ Moreover, private plan enrollees would save $18 billion on cost sharing from the payment of lower rates, resulting in total out-of-pocket savings of $152 billion for enrollees in both private and Medicare plans.¹⁷

Despite the proposed policy’s potential savings for both Medicare and private health insurance plans, hospital advocacy groups and stakeholders are voicing clear opposition to such a payment adjustment. The American Hospital Association (AHA) stated that it “has repeatedly opposed additional site-neutral payment cuts to hospital outpatient departments, which would harm beneficiaries, especially those in rural and vulnerable communities.”¹⁸ The AHA also argues that site-neutral payments would “would result in a cut to hospitals of $11.6 billion in the first year and $180.6 billion over 10 years.”¹⁹ The Federation of American Hospitals (FAH) sent a letter to the House Energy and Commerce Committee’s Health Subcommittee, asserting that:

“Site-neutral payments do not consider one simple fact: hospitals and physician offices are not the same. Hospitals provide critical services to entire communities, including 24/7 access to emergency care and disaster relief. They need to maintain the ability to treat high acuity patients who require more intense care, and therefore require a different payment structure.”²⁰

Experts expect that hospitals and lobbying groups will go to great lengths to stop any new legislation from moving forward.²¹ Eliminating the higher payments to hospital-owned facilities could even result in hospitals reducing the services provided or access to care for patients.²² However, the impact of such a proposed policy is yet to be seen, as it is still just a consideration – for now.