How Medicare calculates site-neutral rates matters, research says

The CMS wants to expand site-neutral payments in Medicare, but just how the agency sets those rates could matter more than it currently does, according to a recent research brief from Johns Hopkins University.

The research published in JAMA Health Forum suggests a true site-neutral payment policy that pays the same rates regardless of where patients receive care.

In a bid to cut costs, Medicare currently Medicare pays hospital outpatient departments a reduced rate for certain services, such as clinic visits and drug administrations, when they can be safely performed in a doctor's office. That rate is generally about 40% of the standard hospital outpatient price.

Th research brief looked at how well Medicare's current method for setting these payments works. The researchers used real 2024 Medicare claims data and 2026 payment rates to compare two methods for calculating site-neutral payments.

The current method would generate the Medicare savings that the CMS intends. The Johns Hopkins researchers found potential savings of $6.6 billion this year across 57 procedure groups studied, including those that are already paid at a site-neutral rate and those the CMS wants to make site-neutral next year.

These savings would be similar to the $6.5 billion in savings if Medicare truly aligned rates between hospital outpatient departments and physician offices, the study showed.

Even though the methods for cutting costs yield similar overall totals, researchers found that they don't align at the level of individual procedures.

For example, paying hospitals at the physician's rate would result in lower payments for 13 of the 23 procedure categories, although the research did not specific which procedure categories would be affected. The true site-neutral payment would exceed the 40%-rate amount in four procedure categories.

Researchers also noted that hospitals would actually get paid more and Medicare would save less with truly aligned payment rates compared to the 40% rate for clinic visits, drug administration, and imaging without contrast. Medicare already pays hospitals at the reduced rate for clinic visits and drug administration, while the CMS has proposed extending those rates to the latter category next year.

Site-neutrality has gained momentum since its humble start in 2015, when policies limited the number of services and hospital outpatient departments subject to the altered rates. Lawmakers are also pushing legislation like the Same Care, Lower Cost Act (S. 1629), introduced by Sen. John Kennedy (R-LA), to more broadly align Medicare rates.

Commercial insurers, like Elevance Health, have also recently implemented policies to curb some payments to hospital outpatient departments.

However, hospital lobbyists have opposed site-neutrality. They argue that the reimbursement cuts could force hospitals to stop some outpatient services, especially since they have higher fixed and operating costs, treat sicker and more vulnerable populations and face stricter compliance requirements.

Still, the findings underscore the savings associated with aligning hospital outpatient and physician rates. The question that remains is: How should Medicare proceed with site-neutrality expansions?

Johns Hopkins researchers suggested it's time for a new approach, considering the implementation challenges of reconciling the different rates. They recommended site-specific rates based on the Medicare Physician Fee Schedule, which would unmask those service-level variations for a more true site-neutral policy.

The CMS has acknowledged these issues, seeking feedback earlier this year on ways for the fee schedule to better reflect resource costs across settings. Researchers said this signals "a longer-term effort to harmonize Medicare payment for ambulatory care."

Jacqueline LaPointe is an Executive Editor at Xtelligent Healthcare Media, covering revenue cycle management, healthcare payers, health policy, and health IT since 2016.