Congress is reviewing legislation to expand site-neutral payment policies, setting up a battle between hospital lobbying groups and policymakers if lawmakers remove the payment premium for some services provided at hospital outpatient departments.
Health systems have continued to grow their outpatient networks to expand their reach, draw referrals and boost physician recruitment, among other goals. The fragmented ambulatory reimbursement structure, which includes three different payment mechanisms for hospital outpatient departments, independent clinics and surgery centers, has incentivized hospitals and health systems to acquire physician practices and bill at a higher payment rate.
Here’s what you should know about site-neutral payments.
What are site-neutral payments?
For more than a decade, industry watchdog groups have questioned why hospital outpatient departments receive higher reimbursement—and patients have higher copays as a result—than independent physician offices and ambulatory surgery centers for low-acuity care that requires minimal overhead. The debate led to a multi-year legal battle that ended in 2021, and ultimately lowered hospital outpatient facility payments for clinic visits, which are the most common services billed under the Outpatient Prospective Payment System, the inflation-adjusted payment structure that Medicare uses to pay hospital outpatient facilities.
The Medicare Payment Advisory Commission has recommended equating reimbursement for care provided at hospital outpatient departments, ambulatory surgical centers and physician offices for dozens of additional low-acuity services. Congress is considering a bill spurred by the recommendations.
What’s a facility fee?
Patients at independent physician clinics receive a single bill that bundles a professional services fee for the doctor as well as overhead costs. But those who receive care at a hospital-owned clinic are generally billed for the doctor’s fee and a facility fee, which are flat rates that cover hospitals’ added expenses related to providing around-the-clock care, specialized equipment, additional regulatory requirements and licensing costs. Facility fees are unregulated, so hospitals can charge whatever they want, and they vary widely as a result.
Facility fees account for only part of the payment differential between hospital clinics and independent doctors' offices. Hospital outpatient departments are reimbursed based on the Outpatient Prospective Payment System, which on average pays roughly twice the rate of the Medicare Physician Fee Schedule—the reimbursement mechanism for independent clinics and one that factors into the professional services fee for hospital outpatient-based care. Doctors have long lobbied the federal government to increase the physician fee schedule, which typically has not kept up with inflation.
There’s also a payment system for ambulatory surgery centers, which is adjusted for inflation, but remains lower than the Outpatient Prospective Payment System rate.
What’s the focus of the site-neutral policy debate?
Hospital associations generally oppose any site-neutral policies, arguing that hospital-based care requires a payment premium to offset its higher overhead. Site-neutral payment cuts have already dented hospital operating margins and any further expansion of the policies would threaten patients’ access to care, the American Hospital Association said in a May issue brief on the legislative proposals.
Supporters of the site-neutral policy argue there shouldn't be a payment premium for low-cost, low-acuity services. The relatively higher reimbursement for hospital outpatient facilities has lured more physicians to health systems, decreasing competition, supporters contend.
“In theory, Medicare pays more for hospitals to have the emergency room at the ready, consulting specialists around and so forth,” said Loren Adler, associate director of the USC-Brookings Schaeffer Initiative for Health Policy. “That is a good argument for why you’d pay more for an emergency visit or complex surgery, but doesn’t make a lot of sense for an office visit or a scan.”
What site-neutral policies are Congress considering?
The legislation that would unify the three disparate payment systems for 66 services largely follows MedPAC’s recommendations, which are based on utilization trends.
Starting in 2026, the Health and Human Services Department secretary would set reimbursement for each ambulatory payment classification based on the setting that provided the largest share of that care over the previous four years. For 57 of the classifications, the Outpatient Prospective Payment System and ambulatory surgery center reimbursement rates would be reduced to match the physician fee schedule rates. For the other nine classifications, the payment rate would equal the ambulatory surgery center rate.
While the Medicare program and beneficiaries would spend less for the services that qualify for payment alignment, Medicare payments and beneficiary cost-sharing would have to increase for the other services under the budget-neutral structure. Budget neutrality ensures that Medicare spending is no greater or less under the new payment system than it would have been under the previous structure.
The proposal includes a stop-loss policy that would limit Medicare revenue loss for hospitals that shoulder a disproportionate amount of care for low-income and indigent patients. Critical-access hospitals would be exempted from the policy, as would certain services involving emergency department visits, critical care and trauma care. Each year, the HHS secretary would draft a set of services that could only be provided in hospital outpatient facilities.
Why would Congress expand site-neutral policy now?
Federal regulators have taken a tougher stance on hospital and physician consolidation, and expanding site-neutral policy may increase competition by reducing the incentives for hospitals to acquire doctors.
“There is a lot of interest in antitrust issues in Congress,” said Paul Ginsburg, health policy professor at the University of Southern California and senior fellow at USC's Schaeffer Center for Health Policy and Economics. “Congress doesn’t want to provide artificial incentives for hospitals to go overboard in hiring physicians.”
The price transparency law for hospitals, which as of 2021 required hospitals to publish a machine-readable file of rates they negotiated with payers, and the No Surprises Act, designed to limit surprise billing practices, have given momentum to the site-neutral debate, said Lynne Rinehimer, manager of compliance editors and sales engineers at Symplr, which provides healthcare software and consulting services.
Will hospitals stop acquiring physician practices?
Expanding site-neutral payments may slow hospitals’ acquisition of physicians, but reimbursement is a relatively small factor in the rationale behind hospital-employed physicians.
Hospitals can build provider networks in underserved, low-income areas to access the 340B drug discount program, which gives some 2,600 eligible hospitals that treat low-income and uninsured patients drug discounts as steep as 50%. Employing doctors also adds referral sources for specialty care and gives health systems negotiating leverage with insurers and employers. Fewer physicians, meanwhile, strive to grapple with the administrative burden of running an independent practice.
If site-neutral policy is expanded, it remains uncertain whether private insurers would follow suit and lower hospital outpatient reimbursement rates for low-acuity care.