Congress seems inclined to expand site-neutral payment policies in Medicare (updated)

Momentum is building in Congress toward expanding site-neutral payment in Medicare, a move that could reduce payments to hospitals by billions of dollars per year.

A recent hearing, which lasted 5 ½ hours, focused on various ideas for promoting transparency and competition in healthcare. The hearing included references to 17 bills or discussion drafts, several of which relate to site-neutral payment.

The concept refers to paying physician-office rates instead of outpatient rates for care delivered at freestanding sites, including those that are owned by hospitals and designated as outpatient departments. Policymakers are seeking, in part, to curb incentives for hospitals to buy physician practices, rebrand them as outpatient departments and then increase Medicare billing rates at the acquired practices.

Congress also sees an opportunity to reduce federal healthcare spending. Rep. Cathy McMorris Rodgers (R-Wash.), chair of the House Energy and Commerce (E&C) Committee, referred to potential savings of $94 billion over 10 years from more extensively implementing site-neutral payment, as calculated by the Committee for a Responsible Federal Budget.

Rep. Larry Bucshon, MD (R-Ind.), an influential healthcare policymaker in Congress, issued a warning of sorts to stakeholders, saying implementation of site-neutral payment and proposals to improve transparency among hospitals and pharmacy benefit managers are real possibilities during the current term.

Speaking to a panel of industry representatives during the April 26 hearing of the E&C Committee’s Health Subcommittee, Bucshon said, “The ground has shifted on a lot of these issues, and I would encourage all the witnesses to recognize the shifting of the ground in a bipartisan way. I want to emphasize the resolve of Congress to address these issues on behalf of the people we represent.”

(Update: On May 24, a limited version of the site-neutral payment draft language was included in a larger bill on price transparency that was unanimously approved by the E&C Committee, potentially setting the stage for a floor vote. See the next section of this article for details.)

What the proposals would do

(Note: This section was modified May 25 to focus on the draft language that, as noted above, has advanced out of committee in the House.)

Some of the provisions in the E&C bill would implement site-neutral payment for drug administration services starting in 2025. A four-year phase-in period would culminate with full application in 2028. All such services would be subject to Medicare’s fee schedule for physicians, as opposed to outpatient payment rates.

The proposal is a scaled-down version of the bill drafts discussed during the April subcommittee hearing. One of those drafts would have applied site-neutral payment to a wider array of ambulatory payment classifications (APCs) starting in 2026, with only complex services such as critical-, emergency- and trauma-level care guaranteed to be exempt.

The American Hospital Association (AHA) modeled the impact of site-neutral payment on drug administration services and found it would cut payments to hospitals by $3 billion nationwide over 10 years, including $54.2 million in the first year.

While that amount is significantly less than the level of savings described in more comprehensive site-neutral payment policies, hospital advocates are concerned that the provisions would “negatively impact facilities that provide essential drug administration services for our communities’ most vulnerable patients, many of whom may require a higher level of care than may be offered in other healthcare settings,” according to a letter signed by hospital associations and other stakeholders.

Referring to the negative margins collectively experienced by hospitals in 2022 and early this year, the groups wrote, “Site-neutral cuts have already contributed to the existing shortfalls, and any further expansion of these policies will exacerbate the financial challenges our hospitals and health systems are facing and could ultimately threaten patients’ access to quality care.”

If nothing else, the groups hope site-neutral payment policies don’t expand beyond the bill that passed the E&C Committee. There’s concern that site-neutral payment eventually could be expanded to additional APCs and that all off-campus provider-based departments would be subject to the provisions. Currently, a facility is exempt from site-neutral payment for all services except clinic visits if it was operating or under construction upon passage of the Bipartisan Budget Act of 2015.

Such changes could lead to hospital payment cuts of nearly $212 billion over 10 years, the AHA said.

Another provision included in the E&C-approved bill would require a separate identification number and an attestation every two years for each off-campus outpatient department of a provider.

The impetus for the proposals

Rep. Anna Eshoo (D-Calif.), ranking member of the Health Subcommittee, cited statistics indicating that after a hospital acquires a physician practice, prices for services at the practice increase by 14%.

“It’s the same doctor, it’s the same service, it’s the same site,” she said.

Ashley Thompson, senior vice president for public policy analysis and development with the AHA, articulated the hospital perspective. She pointed to “severe underpayment by Medicare and Medicaid” as a factor already hampering hospitals financially. She said the AHA “strongly opposes” any site-neutral payment legislation and spoke about why higher payment rates in outpatient settings are important.

“Compared to other healthcare settings, hospital outpatient departments treat patients who are often older, poorer, sicker and with more complex medical conditions,” she said. “Hospital outpatient departments also must comply with more comprehensive licensing, accreditation and regulatory requirements. Additionally, hospitals are required to maintain standby capacity for disasters, public health emergencies and unexpected traumatic events, as well as deliver emergency care regardless of insurance status.”

McMorris Rodgers said hospitals are “integral parts of our communities, and we recognize the effects of high labor costs, inflation and ever-increasing government regulation.

“But the question before us is this: Should we support hospitals through a complex and opaque network of cross-subsidies with unintended consequences like consolidation that increase costs for patients, or do we separately work on a transparent, accountable way to support hospitals that need it?”

Mindful of hospitals in need

Implementation of site-neutral payment policies should include accommodations for hospitals that could be endangered by the revenue drain, several members of Congress and industry experts said during the hearing.

Rep. Lori Trahan (D-Mass.) said safety net hospitals should be exempted from far-reaching site-neutral payment policies.

“Any reduction in reimbursement rates could potentially impact their financial sustainability and their ability to provide essential services in their communities,” she said. She mentioned the need to consider “unintended consequences that may limit access to care.”

Sean Cavanaugh, formerly a high-ranking official at CMS and currently chief policy officer with Aledade, which supports independent primary care practices and clinics in value-based payment models, endorsed site-neutral payment as a means to discourage consolidation and preserve independent practices.

In conjunction, a system of subsidies targeted to a subset of struggling hospitals could make sense.

“If you wanted to do site-neutral [payment] and then funnel some of that money back to those facilities through some other mechanism that doesn’t incentivize consolidation, I think that would be fine,” Cavanaugh said.

Loren Adler, associate director with the USC-Brooking Schaeffer Initiative for Health Policy, noted the bill drafts apply to lower-complexity services such as imaging and drug administration, while excluding emergency, trauma and critical care that takes place in an outpatient department. The notion that access to the more routine services would be affected “seems unlikely,” he said.

But if access is an overriding concern, he added, boosting payment rates could help sustain providers. Such a step would reduce savings from implementing site-neutral payment but still would tamp down on incentives to consolidate vertically.