Hospitals say site-neutral policies could cost healthcare systems billions

Hospitals are pushing against proposed changes to Medicare payment policies for some outpatient services, even as Congress appears to be expressing more interest.

Some members of Congress have expressed a growing interest in site-neutral policies. Hospitals say such policies could cost them billions. (Image credit: Pierrette Guertin – stock.adobe.com)

Hospitals and health care systems could lose billions of dollars on site-independent funding policies, according to a new report from the American Hospital Association released Monday.

Some members of Congress have floated the prospect of reducing the Medicare payment for inpatient outpatient services, arguing that some doctor’s offices and outpatient surgical centers offer similar services and receive lower reimbursements.

Hospitals say site-neutral policies are misleading and could deal another financial blow to healthcare systems at a time when they cannot afford it. Hospitals are facing severe financial difficulties due to higher costs and manpower shortages.

The American Hospital Association says a proposed shift to site-independent payments for some outpatient services starting in 2026 would cost hospitals $11.6 billion in the first year and $180.6 billion over 10 years .

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

The federal government significantly underpays hospitals for outpatient services, resulting in Medicare’s consistently negative margins, a staggering negative 17.5 percent in 2021, the AHA report said.

The report acknowledges that Medicare reimbursement rates for inpatient outpatient services increased 7.2 percent between 2019 and 2022, but the AHA says hospital costs increased 17.5 percent in the same time frame.

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

Inpatient outpatient departments are twice as likely to provide care for patients who are doubly eligible for Medicare and Medicaid, the AHA report said.

In addition, hospital outpatient departments, because they are connected to hospitals, face different regulatory requirements, including the need for 24-hour standby capacity for emergencies and increased emergency treatment requirements.

Some lawmakers are wary of increased healthcare consolidation and stress the need for site-independent policies to dissuade hospitals from acquiring cases.

In response, the AHA says hospitals have not been the leaders in acquiring medical practices. Private equity groups have acquired the most medical practices in the past five years, followed by physician groups and health insurers, the AHA said in a separate report released Monday.

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

Some lawmakers are advocating site-neutral policies. U.S. Representative 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 in hospitals than outpatient centers or doctor’s offices for the same services, McMorris Rodgers said at the hearing. Several proposals would advance site-independent payments for certain services that can be routinely performed 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, he said.

Several advocacy groups are lobbying Congress to promote neutral policies on the site.

The Alliance for Site Neutral Payment Reform, which includes US health insurance plans, the 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