Hospitals mount response as site-neutral payment policy progresses

Hospitals and their advocates think the concept of site-neutral payment is gaining enough traction in policy circles that a strategic response is warranted.

One step in attempting to stanch the apparent momentum of site-neutral policies is the release of a new report that finds recommended approaches would cut hospital payments by $182 billion over 10 years, including nearly $12 billion in the first year. At rural hospitals, the 10-year impact would be $26.3 billion.

The cuts amount to 8% of total Medicare payments for the average hospital and 12% for hospitals with 100 or fewer beds. Clinical care that could take a hit includes maternity care, emergency services and mental healthcare, based on projected losses for hospitals that offer those services.

The report was conducted by FTI Consulting with support from the Coalition to Strengthen America’s Healthcare, an advocacy group consisting of hospitals, health systems and organizations such as the American Hospital Association. FTI notes that the projections assume immediate and full implementation of a site-neutral policy rather than a gradual phase-in.

MedPAC recommendations pose concerns for hospitals

To determine the financial impact, FTI analyzed claims data for the 66 ambulatory procedure codes that were categorized in a 2023 report by the Medicare Payment Advisory Commission (MedPAC) as being candidates for site-neutral payment. MedPAC identified services for which hospital outpatient department (HOPD) volumes are comparable to those at physician offices and ambulatory surgical centers (ASCs).

In the 2023 analysis, MedPAC recommended that Congress establish site-neutral payment for an array of low-complexity services, citing office visits, X-rays and drug administration as prime candidates.

MedPAC noted that such action would not directly lower Medicare spending because CMS would be obligated to increase the payment rate for other hospital outpatient services under budget-neutrality requirements.

“However, this recommendation could have an indirect effect on program spending, as it would reduce incentives for hospitals to acquire physician practices, which would lower the extent to which the billing of the services with aligned payment rates shifts from the PFS to the OPPS,” MedPAC stated, referring to the Medicare Physician Fee Schedule and the more expensive Hospital Outpatient Prospective Payment System.

The site-neutral payment policy picture

One opportunity to advance site-neutral payment would be a 2026 reconciliation bill in Congress, a follow-up to the 2025 legislation known as the One Big Beautiful Bill Act (OBBBA). Republicans have been compiling policy recommendations for such a bill, including the introduction of site-neutral payment in Medicaid.

President Donald Trump, however, recently seemed to suggest that another reconciliation bill is not needed. A year removed from passage of the OBBBA, narrower bills should be priorities leading into the midterm elections, Trump indicated during an interview that aired Feb. 10 on Fox Business News.

“In theory, we’ve gotten everything passed that we need,” Trump said.

Site-neutral payment has expanded incrementally since 2015, when sprawling legislation established the policy for off-campus HOPDs, albeit with a substantial grandfather clause: Facilities were exempt if they already were billing Medicare as of November 2015.

For 2019, CMS expanded the policy to include clinic visit services at all off-campus HOPDs, with no grandfathering. Evaluation and management services at those facilities were expected to be paid at roughly 40% of the Medicare outpatient payment rate.

For 2026, CMS has added drug administration codes to the services subject to site-neutral payment, with an exemption for designated sole-community hospitals. The agency estimates that Medicare spending on those services will drop by $220 million this year, with another $70 million in reduced beneficiary cost-sharing.

On the legislative side, the newly signed FY26 appropriations bill for HHS does not address payment under site neutrality, but it includes a provision requiring all off-campus HOPDs to bill Medicare under their own national provider identifier (NPI) starting in 2028. The idea is to gain more clarity about the billing patterns of off-campus departments, including how they charge facility fees.

Support and opposition as site-neutral payment moves forward

With Congress considering future action to expand site-neutral payment, Rep. Andy Bean (R-Fla.) hosted a forum this month on Capitol Hill to analyze the key points in favor and against.

The logic behind site-based payment differentials is to help hospitals finance the care of high-complexity patients in the outpatient department, said Anna Bonelli, director of health policy with the Committee for a Responsible Federal Budget.

“There’s a lot of sense to that, but over time, it’s been exploited,” Bonelli said.

“It’s being used to finance other portions of hospital systems, which it was never intended to do,” she added.

Trickle-down effects can be seen in out-of-pocket costs for beneficiaries and in payment rates of commercial health plans, which tend to follow Medicare’s lead. Higher commercial rates are a boost for providers but also affect the affordability of healthcare, Bonelli said.

But Mary Mayhew, president and CEO of the Florida Hospital Association, said imposing site-neutral payment would be a “simplistic approach” that does not account for broader implications.

Another panelist, Asmita Mishra, MD, MBA, medical director of payer strategies at Moffitt Cancer Center, illustrated that point by noting that more than 70% of oncology care at the medical center is delivered on an outpatient basis.

“With site neutrality, that would all have to be curtailed,” she said, and for many hospitals, that would mean shifting care to the inpatient setting.

“That would further balloon costs,” Mishra said. “I think that has to be taken very seriously.”

Panelists on both sides of the argument agreed that Medicare’s current cost trajectory is unsustainable, including from an affordability standpoint. And even those in favor of site-neutral payment said it should be targeted rather than applied as a blunt instrument.

Hospitals may reexamine their investment portfolios

The more that site-neutral payment policies take hold, the more such policies can be expected to impact the strategic investments of hospitals and health systems, said David Brueggeman, managing director with BRG.

“A lot of these hospital systems have made significant investments over the last few years in making sure that services are performed in the most revenue-effective location,” Brueggeman said during an interview in January. “With a site-neutrality policy in place, I think that’s really sped up a lot of thoughts about how they engage with ASCs [and] are they investing in imaging centers or whatever the case may be, other sites of service that may be lower overhead?

“Ultimately, if everything is being paid the same, then that’s where they can potentially realize a few gains.”