Should Hospitals Be Paid the Same as Doctors’ Offices for the Same Service?

The idea of requiring site-neutral payments in Medicare — in which providers would be reimbursed at the same rate for performing the same service, regardless of where it’s performed — appears to be gaining steam on Capitol Hill.

“We are decreasing the out-of-pocket expense for someone receiving the exact same care at the same doctor’s office with the same equipment and the same nurse” in cases where the cost of the service increased after the hospital bought the doctor’s practice, Sen. Bill Cassidy, MD (R-La.), said Wednesday at a site-neutral payment event sponsored by Politico and the Leukemia & Lymphoma Society. Cassidy, ranking member of the Senate Health, Education, Labor, & Pensions (HELP) Committee, was referring to a bill which he and Sen. Maggie Hassan (D-N.H.) are developing.

Hospitals, which have been receiving higher payments for services performed at physician practices they own, as compared with independent physician practices, “have been concerned about the impact of these reforms on their finances,” Zachary Levinson, project director of the KFF Project on Hospital Costs, said during a separate panel at the event. “Hospitals have argued that the higher rates that they receive are commensurate with the higher costs of providing care in hospitals, as well as the costs of providing certain essential services, like 24/7 emergency care. And there’s also a concern that just as these reforms would save money for the government, they’d also be reducing revenues for hospitals, and that could have implications for patient access to care.”

Under the bill framework that Cassidy and Hassan released last month, options for increasing site-neutral payment for services provided to Medicare beneficiaries include:

• Removing “grandfathered” facilities from current site-neutral laws. The Bipartisan Budget Act of 2015 included a provision that implemented site-neutral payment in some hospital outpatient departments at rates comparable to physician rates, but the legislation contained an exemption for existing facilities. The law appeared to have little effect on Medicare outpatient spending, according to recent estimates, the framework noted. Cassidy and Hassan suggest eliminating the exemption.
• Establishing site-neutral payment rates for services performed outside the hospital. The framework cites a 2022 report from the Medicare Payment Advisory Commission (MedPAC) that proposed to reimburse services commonly provided outside of the hospital at one rate under Medicare; the current payment system uses different rates based on the site of care. “This reform would impose the lower non-hospital rate — physician or ambulatory — for services that are most commonly performed in either a physician [office] or ambulatory setting,” according to the framework. The provision, if adopted, would require the HHS secretary to identify procedures that are safely and commonly performed in a hospital setting, ambulatory surgical center, or physician’s office, and to set a single rate for each service according to where it was most commonly performed as reflected in 4 years of data.
• Reinvesting in rural and safety-net hospitals. The framework presents several options for ensuring that rural and safety-net hospitals won’t be too badly hurt financially under a site-neutral payment policy that would lower payments to hospitals for some procedures. The options include giving Medicare payment bonuses to hospitals that operate Level I or II trauma centers, obstetrics departments, burn units, neonatal intensive care units, and emergency psychiatric services — many of which generate less revenue than they require to operate — and giving financial incentives to hospitals to encourage them to move into payment models involving both upside reward and downside risk. “We go to site-neutral payment, but for those rural hospitals, we plow money back into you,” Cassidy said. “If you’re an urban safety-net hospital, we put money back into you.”

The Cassidy-Hassan framework is not the only site-neutral payment effort in Congress right now. In December 2023, the House passed the Lower Costs, More Transparency Act, which would lower Medicare payments for drug administration provided at off-campus hospital outpatient departments, said Levinson. The bill, which was sponsored by Rep. Cathy McMorris Rodgers (R-Wash.) and co-sponsored by Rep. Frank Pallone (D-N.J.) has yet to see action in the Senate.

Beth Feldpush, DrPH, senior vice president of advocacy and policy for America’s Essential Hospitals, a trade group for safety-net hospitals, said she often talks about financing for her member hospitals as “looking sort of like a Jenga tower” in which the hospitals piece together funding from a variety of sources, including Disproportionate Share Hospital funding, graduate medical education funding, 340B drug discounts, and other sources. “You get a structure and it stands and it’s not sturdy, but what happens is, when you start to pull out all of those little planks — it could be just one plank — but it all starts to wobble, and eventually it will fall down,” she said.

“We use this terminology — ‘site-neutral’ cuts — but I think that’s a false equivalency, because there’s nothing neutral about this,” she continued, noting that of the site-neutral cuts currently in place, 5% of hospitals take 12% to 14% of the cuts. “This is money coming out of the healthcare system, and it has this disproportionate impact on those safety-net hospitals. I prefer that we focus really on value and making sure that every patient is getting the best care in the right setting. For many, many patients, that’s their physician’s office … but some patients, particularly those that are more medically complex or low income and have these higher social needs, they need those services like social workers, language interpreter services, and integrated lab radiology that integrated health system clinics can provide.”