Site-Neutral Payments

Site-Neutral Payments

Controlling health care costs and addressing vertical consolidation in health care is a bipartisan priority in this Congress. As a result, lawmakers are considering a wide range of ideas that would address these issues. Recently, lawmakers have begun to focus on one option: expanding site-neutral payments for services provided in off-campus Hospital Outpatient Departments (HOPDs).

The purpose of “site-neutral payments” is to pay the same reimbursement amount for a service regardless of the setting in which it was provided. Hospitals are typically paid a higher Medicare reimbursement for a service than if that same service were provided in a physician’s office. This is because hospitals receive a larger reimbursement for their overhead costs than a physician’s office. This created an incentive for hospitals to purchase physician practices, which would redesignate them as an off-campus outpatient department of the hospital, thus allowing that office to bill the higher Medicare rate, even though the only substantive change that resulted from the acquisition was a new sign on the door.

Eventually, Congress acted to stop this trend. The Bipartisan Budget Act of 2015 implemented site-neutral payments for services provided at off-campus HOPDs. Under this policy, HOPDs subject to the law will be paid at a rate that aligns with the Medicare Physician Fee Schedule (PFS) rate. “Grandfathered” off-campus HOPDs not subject to this law are still reimbursed at higher rates than independent physician offices. However, the 2021 Hospital Outpatient Prospective Payments System (HOPPS) rule expanded site-neutral payments for E&M services at all off-campus HOPDs (grandfathered and non-grandfathered).

Advocates for site-neutral payments endorse completely removing the “grandfathering” provision to subject all off-campus HOPDs to reimbursement rates aligned with the PFS. The idea is being embraced by a bipartisan group of lawmakers looking to generate savings in the Medicare program without reducing Medicare benefits or raising taxes.

MedPAC estimates that aligning reimbursement for services provided at all off-campus HOPDs and physicians’ offices could have saved the Medicare program $6.6 billion, and reduced cost-sharing obligations by $1.7 billion if the policy was in place in 2019. The Congressional Budget Office (CBO) also projects that aligning PFS rates with reimbursement for all off-campus HOPDs would reduce the federal deficit by $140 billion over 10 years. Lawmakers who support site-neutral payments also argue that paying clinicians in HOPDs at a higher rate encourages consolidation between independent physician practices and hospitals.

Several bills have been introduced that would eliminate the grandfathering exemption so all off-campus HOPDs are subject to site-neutral payments. The Preventing Hospital Overbilling of Medicare Act and the Healthcare Fairness for All Act would also remove the grandfathering provision for all services beyond E&M services.

Expanding site-neutral payments has received significant pushback from the American Hospital Association (AHA) and its allies. An AHA study, released in March, found that Medicare patients treated in HOPDs exhibit higher levels of illness and poorer social determinants of health compared to those receiving care in physician offices and ambulatory surgical centers.

While there is bipartisan support for applying site-neutral payments for all services provided by off-campus HOPDs, Congress seems to be embracing a more targeted approach. Some members of Congress also raised concerns that implementing site-neutral payments may impact access and quality of care for patients at rural and safety-net hospitals in their districts.

The PATIENT Act would implement site-neutral payments only for prescription drugs administered under Medicare Part B in off-campus HOPDs. The CBO projects that this policy would save the federal government $3.8 billion over 10 years. This proposal was included in the Lower Costs, More Transparency Act, which advanced through the House Energy and Commerce Committee earlier this year. Patient advocates, along with supporters of the concept in Congress, are hoping that this proposal is included in a year-end health care package.

However, the Senate has not included site-neutral provisions in various health care proposals that have advanced through their committees of jurisdiction, raising questions about whether site-neutral reforms will be passed through Congress by the end of this year.

While it remains to be seen if Congress will pass legislation expanding the site-neutral payment policy either broadly or in a targeted way, momentum for an expansion is clearly growing. In addition to the policy arguments in support of this policy, the savings generated from site-neutral payments make it an attractive concept for offsetting the cost of other health care priorities – such as mitigating physician fee schedule reductions and enacting prior authorization reforms in the Medicare Advantage program. Despite concerns from the powerful hospital industry, the cost-saving opportunity, along with bipartisan interest in addressing rising health care costs, could lead to more site-neutral payments to off-campus HOPDs in the near future. We will continue to monitor and update members on this issue.