Hospitals say site-neutral policies could cost health systems billions

Hospitals are pushing against proposals to change Medicare payment policies for some outpatient services, even as Congress seems to express more interest.

Hospitals and health systems could lose billions of dollars in “site-neutral” funding policies, according to a new report from the American Hospital Association released Monday.

Some members of Congress have floated the prospect of reducing Medicare payment for hospital outpatient services, arguing that some physician offices and ambulatory surgical centers are offering similar services and receive lower reimbursements.

Hospitals say site-neutral policies are misguided and could deal another financial blow to health systems at a time when they can’t afford it. Hospitals are facing serious financial difficulties as they face higher costs and labor shortages.

The American Hospital Association contends that a proposal to shift to site-neutral payments for some services in ambulatory settings, starting in 2026, would cost hospitals $11.6 billion in the first year and $180.6 billion over 10 years.

Health systems argue that site-neutral proposals stem from the faulty premise that hospitals are being overpaid by Medicare, the hospital association says. Hospitals say Medicare isn’t paying enough for the outpatient services they provide.

“The federal government significantly underpays hospitals for outpatient services, resulting in consistent negative Medicare margins – a staggering negative 17.5% in 2021,” the AHA report stated.

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The report acknowledges that Medicare reimbursement rates for hospital outpatient serivces rose 7.2% between 2019 and 2022, but the AHA says hospital costs rose 17.5% in that same span.

The hospital association also argues that hospitals are more likely to treat patients with more serious health issues and require more complex care.

Hospital outpatient departments “are twice as likely to provide care to patients who are dually eligible for Medicare and Medicaid,” the AHA report states.

In addition, hospital outpatient departments, since they are linked to hospitals, face different regulatory demands, including the need to have around-the-clock standby capacity for emergencies and greater emergency treatment requirements.

Some lawmakers are wary of increasing healthcare consolidation and are pointing to the need for site-neutral policies to deter hospitals from acquiring practices.

In response, the AHA says hospitals haven’t been the leader in the acquisition of physician practices. Private equity groups have acquired the majority of physician practices in the past five years, followed by physician groups and health insurers, the AHA said in a separate report issued Monday.

“Private equity entities account for the vast majority of physician practice acquisition deals, as well as the largest number of individual providers that are a part of the deal, according to an AHA analysis of Levin Associates data,” the AHA said.

Some lawmakers are backing site-neutral policies. U.S. Rep. Cathy McMorris Rodgers, a Republican from Washington state, offered support for the idea at a House subcommittee hearing in April.

“Patients and Medicare pay more at hospitals than outpatient centers or physician offices for the same services,” McMorris Rodgers said at the hearing. “Several proposals would advance ‘site-neutral payments’ for certain services that can be routinely done safely in a doctor’s office, such as drug administration, diagnostic tests, imaging procedures, to name a few.

“For these services, Medicare and patients would pay the same amount, regardless of where they are performed,” she said.

Several advocacy groups are  pressing Congress to advance site-neutral policies.

The Alliance for Site Neutral Payment Reform, which includes America’s Health Insurance Plans, Blue Cross Blue Shield Association, the American Academy of Family Physicians, and the US Oncology Network, is calling on lawmakers to reduce Medicare payments to outpatient departments