Site-neutral payments would slash hospital funds by $182B

Expanding site-neutral payments would put nearly 1,200 hospitals at risk of financial distress, according to a new analysis of Medicare payment proposals.

The analysis conducted by FTI Consulting on behalf of the Coalition to Strengthen America’s Healthcare reviewed policy proposals from the Medicare Payment Advisory Committee (MedPAC) aimed at reducing healthcare spending. Specifically, MedPAC has proposed extending site-neutral payments, which align reimbursement rates for outpatient care with ambulatory prices.

Medicare already leverages site-neutral payments for some outpatient services, including certain physician-administered drugs. CMS expects to save $6 billion over 10 years from this policy and has indicated that it would apply it to additional services in the future.

However, if expanded, site-neutral payments would reduce hospital revenue by almost $12 billion in one year for all facilities reimbursed under the Outpatient Prospective Payment System (OPPS), the analysis found. Over a decade, hospitals would lose over $182 billion, researchers reported.

Hospitals can't weather further Medicare cuts, the researchers continued. Hospitals already operate under razor-thin margins, with financial performance currently under pressure from workforce challenges, rising drug costs and more uncompensated care. An expansion of site-neutral payments would translate to an 8% cut to total Medicare payments for the average hospital, they stated. For hospitals with 100 beds or fewer, the cuts jump to an average of 12%.

Medicaid-dependent hospitals would also be particularly at risk of financial distress, with researchers estimating a nearly $4 billion annual cut.

With more than a third of hospitals already unable to cover the costs of providing services, enacting additional site-neutral payments in Medicare could force some facilities to scale back services, threatening patient access to care. This consequence would likely hit rural areas the most, with total cuts to rural hospitals exceeding $1.7 billion in 2026 and $26.3 billion over ten years.

Services most likely to be at risk include maternity care, emergency care and mental health care since these service lines often operate at extremely low or negative margins, researchers added.

"As lawmakers continue to consider these Medicare cuts, it is important to understand the impact of implementing this policy at both the national and local levels for their constituents and communities," the analysis concluded.

Momentum behind site-neutral payments is building in Congress. In parallel with CMS, Senator John Kennedy (R-LA) introduced the Same Care, Lower Cost Act (S.1629) in May 2025, which aims to implement site-neutral payments in Medicare for at least 66 common outpatient services, including some imaging and biopsies, by 2027. The bill has since been referred to the Senate Finance Committee for review.

Site-neutral payments attract the attention of federal regulators and lawmakers because they can dramatically reduce healthcare spending. However, hospitals have long opposed the cost-cutting strategy.

A vocal opponent and founding member of the Coalition to Strengthen America's Healthcare, the American Hospital Association has urged Congress to vote against site-neutral payment cuts. The cuts ignore the level of care and patient mix within hospital outpatient departments, the hospital group says, while endangering access to critical, oftentimes 24/7 services.

However, site-neutral payments may be one piece of the puzzle. CMS seems to be shifting how Medicare pays for outpatient services in the long term, according to attorney Travis Llyod.

The recent government spending bill signed into law on Feb. 3 requires hospitals to obtain and use separate National Provider Identifiers (NPIs) for each off-campus outpatient department by 2028. Hospitals failing to comply will not be able to bill Medicare for outpatient services, Lloyd of Bass, Berry & Sims PLC explained.

The real financial consequences signal CMS' commitment to reforming outpatient reimbursement, he continued. The data generated by these NPIs could also inform site-neutral expansions through future rulemaking or legislation.

Jacqueline LaPointe is a graduate of Brandeis University and King's College London. She has been writing about healthcare finance and revenue cycle management sinc