Congress is considering several bills that would impose additional site-neutral payment reductions to services provided in hospital outpatient departments (HOPDs). A description of the legislative proposals, AHA’s take on the proposals and the potential impact these proposals would have on Medicare reimbursement to hospitals and health systems follow. Each analysis and estimated impact should be taken on its own, and they should not be combined because there is overlap in the proposals.
- Off-campus Cut for Grandfathered Drug Administration Services (included in in H.R. 3281, passed by the E&C Health Subcommittee): Starting in 2025, and phased in over four years, drug administration services furnished in grandfathered off-campus HOPDs would be paid at a site-neutral rate. The site-neutral rate is expected to be the same as the current site-neutral rate of 40% of the outpatient prospective payment system (OPPS) rate. This proposal would result in a cut to hospitals of $54.2 million in the first year and $3 billion over 10 years.1
- Off-campus Cut for Grandfathered Non-E&M Services (included in the 4/26 E&C Health Subcommittee Legislative Hearing): Starting in 2025, all services furnished in grandfathered off-campus HOPDs, other than evaluation and management (E&M) services, which are already paid at a site-neutral rate, would be subject to site-neutral payment. This would include off-campus HOPDs and items and services that Congress had previously exempted from site-neutral payment under Medicare, including dedicated emergency departments, Centers for Medicare & Medicaid Services approved “mid-build” off-campus PBDs, and off campus HOPDs in dedicated cancer centers. This proposal would result in a cut to hospitals of $2 billion in the first year and $31.2 billion over 10 years.2
- All HOPDs MedPAC Site-neutral Proposal (included in the 4/26 E&C Health Subcommittee Legislative Hearing): This proposal is a legislative version of the Medicare Payment Advisory Commission’s (MedPAC’s) recent site-neutral recommendation to Congress. It would require that, starting in 2026, payment for services provided in ambulatory settings, including both on-campus and off-campus HOPDs, ambulatory surgery centers (ASCs) and independent physician offices (IPOs) would be determined as follows:
- In 2026 and every year after, the Department of Health and Human Services (HHS) Secretary would specify ambulatory payment classifications (APCs) that include services that can only be furnished in HOPDs. These services would be excluded from site-neutral payment.
- The Secretary would be required to create comprehensive APCs (C-APCs) for ED visits, critical care visits and trauma care visits. These C-APCs would be excluded from site-neutral payment.
- For all other APCs, the Secretary would determine which setting over the previous four years had the highest volume of these services.
- If HOPDs had the highest volume of services for an APC, then these services would continue to be paid at the rate of their usual Medicare payment system. That is, HOPDs would be paid at the OPPS rate, ASCs would be paid at the ASC payment system rate, and IPOs and non-grandfathered off-campus HOPDs would be paid at the physician fee schedule (PFS) rate.
- If ASCs had the highest volume of services for an APC, then HOPDs and ASCs would be paid at the ASC rate for these services and IPOs and non-grandfathered off-campus HOPDs would continue to be paid at the PFS rate for these services.
- If IPOs and non-grandfathered off-campus HOPDs had the highest volume of services for an APC, the payment rate for the services in HOPDs and ASCs would be the weighted average of the difference between the PFS non-facility rate and the PFS facility rate, adjusted to reflect the higher packaging of ancillary items and services paid under the OPPS. This payment rate would remain in place for each subsequent year, unless the Secretary, through rulemaking, indicates that extenuating circumstances warrant another payment rate. Services in IPOs and non-grandfathered off-campus HOPDs would continue to be paid at the existing PFS rate.
- Further, the Secretary would be required to adjust payments in a year for certain disproportionate share hospitals (DSH) with DSH percentages greater than the median. For these hospitals, if their total payments in a year is expected to fall below a percentage cap of what their payment would have been in the absence of this site-neutral policy, CMS must adjust the hospital’s payment up to the percent cap. For 2026-2027 the cap is 95.9% and for 2028 and beyond the cap is 95.9% or higher, as specified by the Secretary.
- This proposal would result in a cut to hospitals of $11.6 billion in the first year and $180.6 billion over 10 years.3
View the tables at the end of this document for additional information that includes national and state-level impact estimates.
The AHA strongly opposes site-neutral payment cuts, which would reduce access to critical health care services. These legislative efforts would expand existing site-neutral payment cuts, which have already had a significantly negative impact on the financial sustainability of hospitals and health systems and have contributed to Medicare’s chronic failure to cover the cost of caring for its beneficiaries.
According to MedPAC, overall Medicare hospital margins were negative 6.3% in 2021 after accounting for temporary COVID-19 relief funds. Without these funds, the overall Medicare margin for 2021 remained depressed at negative 8.2% after hitting a staggering low of negative 12.3% in 2020. On average, Medicare only pays 84 cents for every dollar hospitals spend providing care to Medicare beneficiaries. Moreover, overall median hospital operating margins were negative throughout 2022 and into the beginning of 2023. Site-neutral cuts have already contributed to these shortfalls and any further expansion of these policies would exacerbate this situation and threaten patients’ access to quality care.
These proposals also fail to account for the fundamental differences between HOPDs and other sites of care. The cost of care delivered in hospitals and health systems takes into account the unique benefits that they provide to their communities. This includes the investments made to maintain standby capacity for natural and man-made disasters, public health emergencies and other unexpected traumatic events, as well as deliver 24/7 emergency care to all who come to the hospital, regardless of ability to pay or insurance status. This standby role is built into the cost structure of hospitals and is supported by revenue from direct patient care – a situation that does not exist for any other type of provider. Expanding site-neutral cuts to HOPDs and the outpatient services they provide would endanger the critical role they play in their communities, including access to care for patients.
Additionally, HOPDs treat patients who are sicker and have more chronic conditions than those treated in IPOs or ASCs. This is because hospitals are better equipped to handle complications and emergencies, which often requires the use of additional resources that other settings do not typically provide. Hospital facilities also must comply with a much more comprehensive scope of licensing, accreditation and other regulatory requirements compared to other sites of care.
View the detailed Fact Sheet Below.
1The “Off-campus Cut for Grandfathered Drug Administration Services” bill did not identify which specific drug administration services would be subject to site-neutral payment. There was no formally defined list from the Secretary regarding which HCPCS codes qualify as drug administration codes. Therefore, for our modeling purposes, in the absence of a defined list, an AHA coding expert identified the list of drug administration HCPCS codes used based on the HCPCS CPT codes that are available in the 2023 CPT book and the Medicare April 2023 Addendum B. - OPPS Payment by HCPCS Code for CY 2023 specific to drug administration. Further, we estimated the site-neutral payment rate to be 40% of the OPPS payment rate.
2 In AHA’s modeling of this “Off-campus Cut for Grandfathered Non-E&M Services” bill, we did not model the impact of imposing site-neutral payment cuts to those off-campus PBDs that Congress previously exempted from site-neutral payment under Medicare. These include the exemption for off-campus dedicated emergency departments, CMS-confirmed “mid-build” off-campus PBDs and off-campus PBDs in dedicated cancer centers.
3 In AHA’s modeling of this “All HOPDs MedPAC Site-neutral” bill, rather than recreating the process reflected in the bill to identify the impacted APCs, we used a list of APCs previously identified by MedPAC and modeled the site-neutral payment rate for services in those APCs at 40% of the OPPS rate. Further, although the bill uses four years of data to identify the impacted APCs, in our modeling, we used one year of data for the impact analysis using the aforementioned list of APCs previously identified by MedPAC. We were also unable to estimate the payment adjustments the bill would require be made for certain DSH hospitals. Finally, our modeling does not include the bill’s updated provisions that would consider non-grandfathered off-campus PBDs to be in the same category as IPOs for the purposes of both determining in which setting services in APCs were most commonly furnished, as well as for calculating the PFS-based rate that would be used for these services.