Site-neutral payment has backing in healthcare policy circles, but its efficacy as a cost restraint is unclear

The concept of site-neutral payment continues to receive support from members of Congress and healthcare policy analysts, as demonstrated during a recent hearing.

The Jan. 31 hearing of the House Energy and Commerce Committee’s Health Subcommittee was intended, in part, to promote pending legislation that would strengthen price transparency and implement other policies designed to address healthcare costs.

Among those policies is a provision that would require site-neutral payment for drug administration services. The Medicare payment rate for those services as delivered in off-campus hospital outpatient departments (HOPDs) would be reduced to match the rate paid to physician offices.

If the bill known as the Lower Costs, More Transparency Act passes the Senate, as it did the House by a 320-71 vote in December, payment parity for those services would take effect in 2025 for most hospitals and 2026 for facilities in rural markets and areas with a health professional shortage.

“One can argue for a much more expansive policy, but this is a subset of services for which the arguments for site-neutral payments are particularly compelling,” Benedic Ippolito, PhD, senior fellow in economic policy studies with the conservative-leaning American Enterprise Institute, said during the hearing.

That’s because such services are unlikely to require hospital resources and, based on clinical evidence, can be safely delivered in nonhospital settings, Ippolito explained.

A relatively muted impact

For policymakers and analysts who espouse site-neutral payment, the idea is both to save money for the Medicare program, beneficiaries and U.S. taxpayers and to reduce incentives for hospitals to buy physician practices and convert them to HOPDs. That trend can lead to consolidated, higher-priced markets for healthcare delivery.

A comprehensive site-neutral policy “could have some dampening of the incentives to consolidate, and that could spill over to what commercial insurers pay and [affect] negotiating leverage,” said Chapin White, PhD, director of health analysis with the Congressional Budget Office (CBO), which does not advocate for or against policies.

The American Hospital Association (AHA), however, has published data suggesting most purchases of physician practices during a recent four-year period were by private equity firms.

The impact of site-neutral payment on healthcare costs may not be profound. For example, the provision on drug administration services would save the government about $3.7 billion over 10 years, according to the CBO’s estimate.

In a 2022 report, the CBO projected that a hypothetical set of policies to promote competition among healthcare providers would lower the prices paid by commercial insurers by 1% to 3% over 10 years. The subset of those policies designed to reduce incentives to consolidate — including site-neutral payment — would have a lesser short-term impact.

A more substantial impact — 3% to 5%, possibly higher — would be realized from actions to cap the level or growth of prices, the CBO noted (the report does not examine the feasibility of legislating such policies).

Meanwhile, healthcare price transparency policies, which make up much of the Lower Costs, More Transparency Act, would bring down costs by 1% at most.

Pushing back on the idea

One concern for hospital advocates is that the provision about drug administration services could be a gateway to a more wide-ranging site-neutral payment policy.

Last spring, for example, the same House subcommittee discussed legislative language that would apply site-neutral payment to an array of ambulatory payment classifications starting in 2026. The financial impact could be damaging especially to rural and other safety-net providers, hospital advocates have said.

In written comments to the subcommittee ahead of last month’s hearing, the AHA said the site-neutral payment policy for drug administration services “disregards important differences in patient safety and quality standards required in [HOPDs]. Unlike other sites of care, hospitals take additional steps to make certain that drugs are prepared and administered in a safe manner for both patients and providers.”

The AHA cited the presence of hospital-based pharmacists and the provision of comprehensive wrap-around services and multidisciplinary care coordination, along with compliance with stringent federal and state safety standards, as differentiators in the caliber of care received at HOPDs.

In an academic context, a possible concern is that the legislation’s provisions on site-neutral payment are hard to square with the sections on price transparency, a healthcare economist wrote before the bill was passed by the House last year.

“Legislation compelling the results of the Law of One Price [defined here] in a setting that differs from the competitive ideal is in effect an abandonment of the idea that buyers can search effectively when price variation is transparent,” Mark Pauly, PhD, professor emeritus in healthcare management at the University of Pennsylvania’s Wharton School, wrote in a commentary.

Accommodations would be needed

Rep. Cathy McMorris Rodgers (R-Wash.), chair of the Energy and Commerce Committee, said the conversation around site-neutral payment “is not an exercise in cutting hospitals. It’s really about how to more efficiently structure Medicare so that patients and taxpayers are not overpaying for the same services to subsidize loss leaders.”

If a site-neutral payment policy jeopardizes the sustainability of some hospitals, Ippolito said, “It would be far better to go ahead and do site-neutral payments and come up with a policy that directly addresses those hospitals you are concerned about — not keep the current policy that overpays everybody for these services in an attempt to help this subset.”

Such backstops could include subsidies for certain categories of hospitals or caps on the losses incurred by those hospitals through site-neutral payment.

Some of the savings from site-neutral payment policies should be redirected to subsectors such as primary care and behavioral healthcare, thereby directly bolstering struggling parts of the industry, said Sophia Tripoli, MPH, senior director for health policy with the healthcare consumer advocacy group Families USA. That step would boost the payment rates for those specialties as designated in the Medicare Physician Fee Schedule (MPFS).

Given that more care provided at HOPDs would be subject to MPFS rates under site-neutral payment, increasing some MPFS rates at least could mitigate the financial impact on hospitals, Ippolito noted.

Next steps uncertain

A few members of the House subcommittee used the hearing to urge the Senate to take up the bill soon.

“I hope the Senate passes this bill quickly,” said Rep. Anna Eshoo (D-Calif.), ranking member of the subcommittee. “Now, Senate and quickly is an oxymoron, but we can hope.”

The immediate priority for both chambers is to try to agree on appropriations for the remainder of FY24 before federal funding starts to run out in March. Last month, a Politico report cited Rodgers as saying negotiations between the House and Senate on the Lower Costs, More Transparency Act are down to mere “technical differences.” She said the prospective budgetary bills could be a mechanism for getting the provisions all the way through Congress.

The report seemed to suggest that site-neutral payment discussions are a heavier lift in the bicameral negotiations than are the price transparency provisions, however.

There has been support for site-neutral payment in the Senate as well. For example, a 2023 bipartisan bill would nullify the clause in the Bipartisan Budget Act of 2015 that exempted HOPDs from the initial set of Medicare site-neutral payment regulations if they were operating before November 2015.