Why Are Hospitals Fighting Site-Neutral Payments So Fervently?

Standardizing Medicare payments for outpatient services, regardless of the healthcare facility in which they’re delivered, is a hot issue on Capitol Hill. In the past couple years, a few bipartisan efforts to establish site-neutral outpatient payments have been introduced in Congress, but it’s uncertain if these bills will ever become law — especially as hospitals increasingly lobby against them.

That is not a surprise given that site neutrality carries the potential to reduce costs for both patients and taxpayers, as well as Medicare and private insurers, by billions of dollars. However, it would result in significant payment cuts for hospitals. 

Last week, site-neutral payments were a key topic of discussion during the House Energy and Commerce Committee’s first healthcare hearing of 2024. This is because the House passed two bills seeking to establish site-neutral payments for outpatient care last year. There has been furious opposition from hospitals, which say they can’t afford payment cuts for care provided at their outpatient facilities. Other organizations — those that represent payers, as well as lobbying groups that advocate for patients and lower taxpayer costs — support legislative efforts to establish site-neutral payments. They argue that these policies would decrease overall healthcare spending and protect the affordability of patients’ out-of-pocket healthcare costs.

But the fight is not simply about lost revenue.

Equally concerning is the potential that such laws may result in service line closures that jeopardize patients’ access to care. The American Hospital Association (AHA) has cautioned that site-neutral payments may cause hospitals to shutter some outpatient services, such as imaging or physical therapy , as well eliminate other service lines that the community needs.

In May, the House passed a health cost transparency package consisting of six bills — one of which seeks to enact site-neutral payments. The bipartisan bill, called the PATIENT Act, argues that Medicare should not have to reimburse off-campus hospital outpatient departments at higher rates than physician offices or ambulatory surgery centers for providing the same services. The legislation states that this occurs because hospitals acquire physician practices off-site and then utilize their national provider identification (NPI) number to bill both government and private insurance at hospital rates. 

The PATIENT Act aims to address this issue by mandating that all hospital-owned off-campus outpatient departments obtain separate NPIs. Over the past couple years, lawmakers have introduced a few other bipartisan bills that seek to do the same thing. Some examples include the FAIR Act, SITE Act and Lower Costs, More Transparency Act — the last of which passed a House vote in December.  

Hospitals fiercely oppose

Hospital groups, most notably the AHA, have been vocal in their opposition to legislative proposals seeking to put site neutral payments in place. They argue that  site-neutral payment policies would reduce their reimbursement rates during a time when many hospitals continue to struggle financially. 

The PATIENT Act alone could cut hospital reimbursement by $4.1 billion over 10 years, the AHA estimates. These payment cuts could cause some hospitals to shut down outpatient programs or other service lines, which would diminish patients’ access to care, pointed out Jason Kleinman, director of federal relations at the AHA.

“We know that hospital outpatient departments are important points of access for patients to receive care in our communities, so we want to make sure that that stays viable and that those access points stay open and available to patients,” he said in an interview. “Certainly as hospitals face a variety of challenges — from things like workforce issues, supply costs, drug shortages, and all the issues that have increased costs for hospitals of any magnitude — these cuts will really have an impact on hospitals’ ability to continue to provide that access to care.”

Kleinman noted that it’s important to remember that the current payment rate structure recognizes that there are fundamental differences between hospital-owned outpatient facilities and other outpatient facilities. 

Patients who are more medically complex — and therefore most expensive to treat — are often referred to hospitals’ outpatient sites for care, he explained.

“They are choosing to get their care at a hospital outpatient department because they feel like that facility is more or better equipped to handle sicker and more complex populations,” Kleinman said.

If hospitals face payment cuts for the care provided at their outpatient facilities, it may become financially untenable for them to keep the doors to those care centers open, he remarked. He added this financial pressure may make it hard to keep other vital services available — such as emergency care, pharmacy assistance programs, and specialty care service lines.

In Kleinman’s view, hospitals simply can’t withstand more underpayments from federal payers. 

“Hospitals receive only 82 cents for every dollar that they spend caring for Medicare patients. In 2022, Medicare underpayments totaled about $100 billion. We know that there’s already this huge shortfall from the public payers, so if you impose site neutral payment codes at a time where these shortfalls are already there and costs continue to increase for hospitals, the concern is that access to care will be jeopardized moving forward,” he declared.

Proposed site-neutral policies would hit rural hospitals the hardest, Kleinman added. This is a consideration that could play a big role in killing site-neutral legislation in the Senate, he said.

The more rural a community is, the more likely it is that its patients rely on hospital outpatient departments rather than physicians’ offices, Kleinman explained. He argued that the financial impact of site-neutral payments would make it much more difficult for rural hospitals to provide a wide range of services to the community.

“In communities that are more than 90% rural, upwards of 40% of all physician visits happen in a hospital outpatient department as opposed to other outpatient facilities. So we’re very concerned that these cuts are going to have a disproportionate impact on rural and other vulnerable populations,” he said.

What would the immediate impact be for hospitals?

An expert not affiliated with a health system or AHA also believes that site-neutral billing for outpatient care could result in some very unwanted consequences for hospitals.

Site-neutral payments could put hospitals’ ability to cross-subsidize at risk, meaning it would make it harder for them to use revenue from higher-paying services to offset the costs of lower-paying services, explained Beth Mosier, director of health and life sciences M&A for West Monroe.

Additionally, if site-neutral payments are established, hospitals seeking to acquire physician groups and other operators of outpatient facilities can no longer tell them that they will be reimbursed at a higher rate if they sell their business, Mosier added. This will make it difficult for hospitals to continue buying outpatient assets.

Site neutrality could also negatively affect the degree of flexibility in treatment plans at hospital-owned sites, Mosier pointed out.

“It removes the ability for hospitals to build more flexible care plans or treatment plans. They’re locked into a price and that price has somewhat been negotiated without considering the patient’s complexity or the various things that can happen. So at the end of the day, they’re kind of locked into what they’re going to deliver at a certain price,” she remarked.

In other words, if hospital-owned outpatient facilities get reimbursed at the same rate as every other outpatient care site, they are not really incentivized to provide high-quality care that addresses all the needs of their complex patients. This means that patients might not be getting the best level of care, Mosier noted.

For instance, a patient with diabetes and high blood pressure might require a robust care team, including a primary care physician, endocrinologist, dietician, psychiatrist. Hospitals may not be able to connect the patient to all these providers if they face outpatient reimbursement cuts.

Why others are pro-site neutrality 

In another example of the gulf that separates payers and providers in this post-Covid world, site-neutrality is cheered on by insurance companies.

Insurers support proposals to establish site-neutral outpatient reimbursement because it would help them contain costs and ensure they’re not overpaying for services simply because they are provided in a hospital outpatient department. 

“No one should have to pay more for healthcare because of where they received it. The costs of routine healthcare services, like X-rays and colonoscopies, are significantly higher when they’re provided in a hospital outpatient department compared to a doctor’s office. This has exacerbated the trend of corporate hospital systems buying physician practices to give them greater negotiating power to charge higher prices — which raises premiums for patients,” David Merritt, Blue Cross Blue Shield Association’s senior vice president of policy and advocacy, wrote in a statement sent to MedCity News.

In addition to BCBSA, site-neutral payment legislation has received support from other groups representing payers and employer-sponsored health plans, including AHIP and the American Benefits Council. Dozens of lobbying groups that advocate for better healthcare affordability and lower taxpayer spending also support site-neutral payments, such as Alliance to Fight for Health Care, PatientRightsAdvocate.org and Better Solutions for Healthcare.

Adam Buckalew — a former congressional aide who now serves as a lobbyist for Better Solutions — said that payers, employers and unions that pay for their workers’ healthcare have been concerned about rising healthcare costs for quite some time.

“They have a growing frustration with the cost of healthcare services. And they’ve seen a trend of corporate hospital systems purchasing off-campus outpatient departments or purchasing physician offices — nothing changed other than the name on the door, but they start billing as if the services were taking place at an inpatient hospital,” he explained.

Given that payers are reimbursing hospital outpatient departments at a higher rate than other facilities for providing the same services, it begs the question whether care provided at hospital-owned sites is actually higher quality. Research says that it’s not.

For instance, one Yale study published last year shows that there is no evidence that outpatient care provided in hospital-owned facilities results in better outcomes than care provided in physicians’ offices.

Ultimately, these “dishonest billing policies” are passed on to the patient, Buckalew argued. When payers face higher costs, these get reflected higher health insurance premiums, which the patient then has to bear through their monthly out-of-pocket expenses, he said.

Buckalew pointed out that hospital outpatient departments’ prices are significantly more expensive — as much as five times higher — than the prices for care provided in physicians’ offices and ambulatory surgery centers. This comes at a time when more than 100 million Americans are grappling with medical debt, and health systems continue to consolidate at an increasing rate.

Last year, proponents of site neutrality celebrated the House’s passage of the PATIENT Act and the Lower Costs, More Transparency Act, while hospitals decried the proposals. Lawmakers are currently preparing these bills for their Senate votes, and the Congressional Budget Office is reviewing these policies.

Photo: TimAbramowitz, Getty Images