Hospitals slam Medicare’s move toward ‘site-neutral’ payments

Health systems aren’t giving thanks for the Centers for Medicare & Medicaid Services’ plans for paying for outpatient services.

And hospitals are even more frustrated that the CMS is moving forward with “site-neutral” policies, which they say would reduce Medicare payments to health systems for outpatient services. Medicare is also looking to allow more procedures to be done on an outpatient basis and in facilities such as ambulatory surgery centers.

The CMS announced its final 2026 Hospital Outpatient Prospective Payment System rule Friday, which includes a 2.6% increase in payment rates for 2026. It’s an uptick over its initial proposal for a 2.4% increase. The agency also announced a 2.6% increase in payments for ambulatory surgery centers.

Hospital trade groups expressed their frustration with the payment rates.

Ashley Thompson, senior vice president of public policy analysis and development for the American Hospital Association, said the CMS payment rates are adding to the financial challenges for hospitals.

“The agency is exacerbating the challenging financial pressures under which hospitals are operating to serve their patients and communities,” Thompson said.

Soumi Saha, vice president of government affairs for Premier Inc., said the rule doesn’t keep pace with the rising costs hospitals are facing.

“At a time when hospitals are grappling with inflation, workforce shortages, and unprecedented demand for care, these inadequate updates further squeeze already strained budgets threatening access and sustainability,” Saha said in a statement.

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Phasing out ‘Inpatient Only List’

But hospitals and groups representing them voiced their disapproval of the CMS for moving ahead with its emphasis on site-neutral reimbursement rates.

The government has been touting plans to pay the same rate for outpatient services, whether they are delivered in a hospital or an ambulatory surgery center or some other outpatient facility.

With its new role, CMS takes a significant step in that direction, and hospitals say that will mean reduced Medicare payments for outpatient services.

The agency is also finalizing its plans to phase out what is known as the “Inpatient Only List” over a three-year period. The agency is beginning with a group of 285 musculoskeletal procedures in 2026.

In addition, Medicare is allowing an additional 547 procedures to take place at ambulatory surgery centers, the hospital association says.

“CMS believes that the evolving nature of the practice of medicine allows more procedures to be performed on an outpatient basis with a shorter recovery time,” the agency said in its explanation of the final rule.

“This policy allows for these services to be paid by Medicare in the hospital outpatient setting when determined to be clinically appropriate, giving physicians greater flexibility in determining the most appropriate site of service,” the CMS said.

Some lawmakers in Congress have backed the government’s plans to pay for outpatient services at the same rate, whether procedures are done in hospitals or ambulatory surgery centers. They have argued it will be better for consumers and potentially save taxpayer dollars.

Cuts threaten care

Health systems have argued that site-neutral policies aren’t fair to hospitals, which face greater regulatory demands and must also be ready to provide emergency services for all patients.

“The reality is that hospital outpatient departments serve Medicare patients who are sicker, more clinically complex, and more often disabled or residing in rural or low-income areas than the patients seen in independent physician offices,” Thompson said in a statement.

Jennifer DeCubellis, president and CEO of America’s Essential Hospitals, said the change in outpatient payment policy delivers another blow to health systems.

“We disagree with the agency’s decision to implement more so-called ‘site neutral’ cuts,” she said in a statement. “These Medicare cuts threaten hospitals’ ability to deliver high-quality care to their patients and communities.”

The Association of American Medical Colleges denounced Medicare’s new approach in outpatient payments, saying it will hurt teaching hospitals.

“We are deeply concerned about the cuts to Medicare outpatient hospital payment, including so-called 'site-neutral policies,' which will disproportionately impact AAMC-member health systems and teaching hospitals and harm their ability to care for the most complex patients,” the AAMC said.

But hospitals don't have much time to prepare for the new changes. Saha criticized CMS for its "significant delay" in releasing its final outpatient rule for 2026.

"Hospitals have little time to understand finalized changes, adjust systems, update billing processes, revise budgets and train staff," Saha said. "This last-minute scramble creates operational chaos and increases administrative burden, making it harder for hospitals to focus on what matters most: delivering high-quality care for patients."

Hospitals expressed some gratitude that the government is slowing down plans to recoup payments tied to the 340B drug discount program. The agency had floated the idea of accelerating its recoupment in 2026, but is now delaying that move until 2027.

The plans stem from hospitals winning a Supreme Court victory in 2022 related to Medicare payments cuts to providers in the 340B program.

Thompson said hospitals appreciate that CMS is revising its plans, but adds, “We are concerned that it intends to move forward with an accelerated timeline next year.”

America’s Essential Hospitals also welcomed a delay in the recoupment, but DeCubellis said, “We urge CMS not to move forward with it at all.”

Hospitals will be facing enough problems with cuts in Medicaid programs that will begin taking effect in 2027, DeCubellis said. Hospitals say the Medicaid cuts, part of the tax package Congress approved over the summer, will mean millions of Americans will lose coverage and health systems will face more financial pressures that could lead to reducing services or closing facilities.