Mike Moody is Special Advisor, Manatt Health Strategies. Mike previously was SVP Partnerships and Business Development, and Chief Financial Officer, John Muir Health. Tom Enders is a Senior Managing Director with Manatt Health Strategies.
Overview:
Based on recent policy proposals and emerging federal budget requirements, health systems should prepare for the possibility for expanded site-neutral payment policies, particularly for E&M visits, basic drug administration, imaging and low-complexity services.
In this note we present a framework of analysis, potential policies and a framework for offsetting potential reductions in Medicare payments.
Background
Site-neutral payment refers to the potential for Medicare to pay the same rate for a service, regardless of whether that service is provided in a hospital outpatient department (HOPD), an ambulatory surgery center (ASC) or a physician office. For the past decade, Republicans and Democrats have sought to implement site-neutral payments policies as a means of reducing Medicare costs. These efforts include a 2015 bipartisan budget and a 2019 Centers for Medicare and Medicaid Services (CMS) Final Rule. Well-founded arguments raised by hospitals that payment differentials are justified and concerns that site-neutral policies would result in potentially crippling revenue losses—with devasting effects on rural hospitals and low-income populations—have slowed and narrowed adoption of these proposals. Now, as the Trump Administration and Congress evaluate various options to reduce Medicare spending, outpatient payments are once again in the crosshairs.
Previously Enacted Policies
Bipartisan Budget Act of 2015 Summary:
- Focused on reforming payments to off-campus hospital outpatient departments (HOPDs), defined as being located more than 250 yards from the main hospital building.
- The Act introduced site-based differential payments for outpatient services, which lowered payments for services at new off-campus HOPDs (Section 603).
- If an off-campus HOPD was established after November 2, 2015, the effective date of the 2015 Act, the services provided in that off-campus HOPD were to be paid using the Physician Fee Schedule (PFS).
- HOPDs existing before or at the November 2, 2015, date were grandfathered and continue to be paid using the Hospital Outpatient Prospective Payment System (OPPS) at higher rates.
- The OPPS payment system is used for HOPDs and ambulatory service centers (ASCs), with the ASC payment system being derived from Outpatient Prospective Payment System (OPPS) relative weights.
- Additionally, certain services were excluded, including dedicated emergency department, even if it is considered an "off campus" department for licensing purposes.
The 2019 CMS Final Rule Summary:
- CMS argued that hospitals were driving volume to HOPDs because of their higher reimbursement.
- To compensate, CMS expanded Medicare site-neutral payments using their "unnecessary increases in volume" authority. They capped payment rates at "PFS equivalent" rates for clinic visit services furnished at all off-campus HOPDs, even those HOPDs that were previously grandfathered in the 2015 Act.
- CMS also argued that beneficiaries faced higher co-payments for the same type of service in an HOPD compared to a physician office.
- Despite a lawsuit brought by The American Hospital Association (AHA), the policy was upheld on appeal.
Recent Policy Recommendations
June Medicare Payment Advisory Commission (MedPAC) Report to Congress recommended that "Congress align payment rates across ambulatory settings for selected services that are safe and appropriate to provide in all settings and when doing so does not pose a risk to access."
House Lower Costs, More Transparency Act of 2023, which didn't pass the Senate, sought to:
- Reduce Medicare Part B payment rates for drug administration services provided at off-campus HOPDs to the rate paid in physician offices using the PFS fee schedule.
- Require separate identification numbers and periodic attestation for each off-campus HOPD by the licensed provider. This would allow for focused transparency of the existing site-neutral payment polices.
Senators Bill Cassidy (R-LA) and Maggie Hassan (D-NH) released a framework for reforming site-neutral payments by:
- Eliminating the grandfathering exception from the 2015 BBA.
- Establishing site-neutral payments using the 2023 MedPAC recommendation.
- Providing provisions for rural and high-needs hospitals to partially offset the revenue reductions.
The December 2024 Congressional Budget Office report "Options for Reducing the Deficit: 2025 – 2034" recommendations included:
- Pay site-neutral rates for most services for all on- and off-campus HOPDs. This idea would generate the vast proportion of savings.
- Apply site-neutral payment rates for all off-campus HOPD drug administration services.
- Apply site-neutral payment rates for all off-campus HOPD imaging services.
The House Budget Committee also released spending reduction options that included equalizing Medicare payments between HOPDs and physician offices.
How Health Systems Can Prepare
While there is not yet a legislative proposal on the table to further implement site-neutral payments, we recommend preparing for that eventuality.
Site-neutral payment options can be classified into three categories:
- Implementing site-neutral payments for Drug Administration and Imaging services.
- Eliminating the Grandfathering for off-campus departments that was included in the 2015 Act.
- Aligning the Medicare payment rates based on the most common setting, most likely some derivative of MedPAC's recommendation.
Site-neutral proposals which appear to have the greatest support have targeted E&M visits, basic drug administration, imaging, and low-complexity services.
Preparing for policy reforms that impact current sites:
- Health systems should ensure that they have a granular analysis of their current HOPD sites (on- or off-campus department, grandfathered or not and what services are provided at each HOPD by OPPS or Ambulatory Payment Classifications [APC] groupings).
- This should be done for all payor categories separated by payor type (e.g. Medicare, Medicare Advantage, Commercial, etc.). Identify those services which are less complex (more likely to be included in site-neutral policy) and those that are more complex and require hospital-level infrastructure such as advanced imaging, interventional radiology, complex infusions, endoscopy and others.
- Each health system should also evaluate their current Medicare Advantage (MA) and commercial contracts to determine if the current Medicare Part B payment methodology (e.g. APCs) is being used as the payment model and how the payment is calculated from the health plan.
- This underlying data can then be used to estimate the potential revenue losses for each of the categories.
Priority mitigation recommendations include:
- Restructure costs at high exposure sites (high cost/low complexity), with a focus on staffing levels and space costs, including the assessment of joint venturing the delivery of these services.
- Restructure commercial and MA contracts to specify unique pricing methodologies rather than linking prices to OPPS rates.
- Maximize access and rationalize acuity across your system to ensure that services are delivered in optimal locations.
- Support AHA to push for advocacy and exemptions and maintain grandfathering.
Forward planning for new sites:
- New sites which rely on current OPPS rates will likely result in significant negative margins if additional site-neutral policies are enacted.
- In the short term we recommend utilizing a scenario model (for instance, a "MedPAC-ready" set of assumptions) and prioritizing complex services.
- Off-campus services should be geared to services which have the highest likelihood of remaining OPPS-reimbursed, such as complex procedures, advanced diagnostic imaging and interventional specialties.
- Leases should be preferred over capital outlays.
Conclusion
The net impact of site-neutral payment policies will depend on the outcomes of the current budget negotiations and the final legislation. In the meantime, completing this analysis will allow you to develop strategies to offset potential revenue reduction while continuing to grow the ambulatory services. These strategies will take time and focused effort, therefore being prepared is essential to a successful implementation. Additionally, the analysis will inform and influence planning for the future expansion of outpatient services at your health system.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
