Site-neutral payments could reduce healthcare spending by at least $350 billion over 10 years, report finds

• If site-neutral payments were implemented throughout healthcare, the decrease in expenditures could total as much as $672 billion over a decade.
• Consumers’ out-of-pocket costs could be significantly reduced.
• Hospital advocates say some of the justifications for site-neutral payment are off-base.

As policymakers and analysts continue to promote site-neutral payments in Medicare, a recent report attempts to quantify the impact of applying the policy industrywide.

As part of their Health Savers Initiative, the Committee for a Responsible Federal Budget (CRFB), Arnold Ventures and West Health released a report that finds implementing site-neutral payments throughout healthcare would save hundreds of billions of dollars over the next decade.

“We say it’s low-hanging fruit because it’s one of the more obvious perverse incentives,” Josh Gordon, director of health policy with CRFB, said during a panel discussion hosted by the group. “Not because it’s politically easy.”

The hospital industry opposes site-neutral payments, which refer to a policy of paying the same rate for a given service regardless of the care setting

The official position of the American Hospital Association notes that hospitals are relied on “to provide 24/7 access to care for all types of patients, to serve as a safety net provider for vulnerable populations and to have the resources needed to respond to disasters.

“However, these roles are not explicitly funded; instead, they are built into the overall hospital cost structure and supported by revenues received from providing direct patient care. Hospitals are also subject to more comprehensive licensing, accreditation and regulatory requirements than other settings.”

The current status of site-neutral payments

Site-neutral payments have been an area of dispute in the federal court system in recent years.

The Bipartisan Budget Act of 2015 gave the U.S. Department of Health and Human Services (HHS) authority to implement Medicare site-neutral payments for clinic visits furnished at off-campus provider-based departments (PBDs), but it exempted PBDs that already were in operation.

In 2019, however, HHS expanded site-neutral payments to all off-campus PBDs, even those that previously had been exempted. The department claimed it had authority under the Medicare statute to expand the policy.

A federal judge deemed that approach a misinterpretation of HHS’s statutory authority, but an appeals court panel overturned the decision in July 2020, saying HHS acted appropriately. Hospital plaintiffs have asked the Supreme Court to review that ruling.

In a comment letter to CMS about the CY20 Outpatient Prospective Payment System (OPPS) rule, HFMA noted, “Congress expressly chose not to confer on CMS authority to reimburse excepted off-campus PBDs at the reduced rates paid to nonexcepted off-campus PBDs — it clearly intended for there to be a material distinction in payment rates between excepted and nonexcepted PBDs.”

HFMA described the overall policy as “arbitrary and capricious,” adding:

“CMS has no basis to conclude that PBD services have increased unnecessarily, which is the predicate finding necessary to support its proposed policy. Indeed, the agency’s so-called analysis that identifies ‘unnecessary’ shifting of services from physician offices to PBDs completely ignores substantially impactful factors outside of hospitals’ control that also result in increases in OPPS volume and expenditures.”

The financial case for expanding site-neutral payments

Regardless of the outcome in a potential Supreme Court hearing, site-neutral payments wouldn’t apply to settings such as ambulatory surgery centers, stand-alone emergency departments and on-campus outpatient departments. More widespread implementation would “lower Medicare spending, lower premiums and out-of-pocket costs for beneficiaries, and reduce the financial incentives for vertical consolidation,” the Health Savers report states.

The report finds that Medicare is projected to spend an excess of $153 billion this decade due to price variations based on setting. Furthermore, given that commercial health plans generally follow Medicare’s lead on payment guidelines, implementing site-neutral payments across the board could bring a reduction in healthcare expenditures of between $346 billion and $672 billion.

Although site-neutral payments make sense conceptually, said Michael Chernew, PhD, professor of healthcare policy and director of the Healthcare Markets and Regulation Lab at Harvard Medical School, “It’s not always as simple as that narrative lines up because there are differences in what services are bundled in sometimes. There are differences in case mix across different organizations.”

The site-specific payment system is illustrative of an industry that historically has relied on siloed fee schedules, Chernew added.

“We built a system as if there were hospitals and physicians that were completely separate when in fact [for] hospitals now, the fastest growing part is outpatient care,” he said.

The healthcare industry ideally would implement “a broader payment system that doesn’t have so many silos,” Chernew said. “You see some of that through episode-based or population-based payments, where it’s a little bit less clear. For example, if you look at Medicare ACOs, one thing that they do is direct people to different sites of care that might be less expensive.”

The impact of site-neutral payments on consumers

Site-neutral payment is not a topic that resonates with consumers, said Tricia Neuman, executive director of the Program on Medicare Policy at the Kaiser Family Foundation.

Coverage and billing are “very hard to understand from provider to provider and from one year to the next,” she said. “People might be shocked when things are more expensive than they expected, but without a clear sense of what’s really going on.”

The current system “might not be transparent to consumers, but it’s certainly costing consumers,” Gordon said. The Health Savers report finds that savings from lower cost-sharing and premiums would accrue to $94 billion over 10 years for Medicare beneficiaries and between $140 billion and $466 billion for commercial health plan members.

Although the impacts on national spending and on consumers are pivotal, the views of hospital advocates need to be considered in policy debates such as how to institute site-neutral payments, Chernew said.

“Everybody has to understand that we need to support a viable, high-quality hospital system,” he said. “It’s just a question of doing that in a way that we can afford. And so taking money from them in any one of a number of ways to make things more efficient is what you’ll hear a lot of. But we do have to make sure at the end of the day, they can provide and fulfill the mission that they have, because it’s a really important mission.”