Understanding Medicare Site-Neutral Payments and The Potential Impacts for Self-Funded Employers

Site-neutral payments, meaning the same services are reimbursed at the same rate no matter where they are performed, are not widely utilized in our healthcare system. Rather, patients are charged different amounts for the same services depending on the type of facility in which they are performed.   

Almost a decade ago, Congress passed legislation to standardize Medicare payments across different settings in certain situations. There is now growing interest in implementing broader site-neutral payment reforms.  

Medicare’s site-neutral payments policy has emerged as a strategy to influence the costs and operations of healthcare providers and payers. For self-funded employers—those who bear the financial risk of their employees’ healthcare costs—understanding the implications of this policy is crucial to establishing their benefit plan design.  

What Are Medicare Site-Neutral Payments? 

Traditionally, Medicare has reimbursed healthcare providers at different rates depending on where the service was provided. For example, a procedure performed in a hospital outpatient department (HOPD) often received a higher reimbursement than the same procedure performed in a physician’s office or an ambulatory surgery center (ASC). This discrepancy created financial incentives for healthcare systems to deliver services in higher-cost settings, leading to increased overall healthcare spending.  

Medicare site-neutral payments seek to address this issue by leveling the playing field—paying the same rate for certain services regardless of the setting in which they are provided. The goal is to reduce unnecessary healthcare spending and encourage more efficient, cost-effective care delivery.  

This policy was implemented in phases, with the first major step being the Bipartisan Budget Act (BBA) of 2015. This act introduced site-neutral payment reforms for services delivered at newer off-campus hospital outpatient departments (HOPDs). In 2019, Centers for Medicare & Medicaid Services (CMS) expanded Medicare’s site-neutral payments to include clinic visits at all off-campus HOPDs that submit claims under the Outpatient Prospective Payment System (OPPS). In 2023, the House of Representatives passed legislation to extend Medicare site-neutral payments to drugs administered in outpatient settings. However, given the still limited reach of current site-neutral payment policies, CMS and other stakeholders are urging Congress to implement additional payment reforms to broaden site-neutral payments for outpatient services.  

Why Was the Policy Introduced? 

The Medicare site-neutral payment policy is driven by the broader goals of reducing healthcare costs, enhancing efficiency, and fostering fair competition among healthcare providers. 

Cost Containment

The rising cost of healthcare has been a major concern for both public and private payers. By equalizing payment rates across different settings, CMS aims to reduce financial incentives that drive up costs without improving patient outcomes. While proposals vary in scope, the Congressional Budget Office (CBO) estimates savings from site-neutral payments ranging from less than $5 billion to more than $100 billion over ten years.   

Promoting Fair Competition

Higher reimbursement rates for hospital-based services can create a competitive advantage over independent physician practices and ASCs. Site-neutral payments aim to create a more balanced environment. This would allow smaller providers to compete more effectively and creating more choice for patients. When smaller providers can sustainably operate, they can offer high-quality care that attracts more patients and increases their market share. Healthy competition can drive down costs and improve quality of care. 

Encouraging Efficient Care Delivery

Site-neutral payments aim to align financial incentives, encouraging providers to deliver care in the most appropriate and cost-effective setting. This approach can lead to better resource utilization and potentially improved patient outcomes. 

The Impact on Self-Funded Employers 

Self-funded employers are responsible for paying the healthcare claims of their employees and their families. As such, they are particularly sensitive to changes in healthcare costs and payment policies. Medicare site-neutral payments have several implications for self-funded employers, including potential savings, increased transparency, and contracting challenges.   

Potential for Cost Savings 

One of the most significant potential benefits of site-neutral payments for self-funded employers is lower healthcare costs. As providers shift services to lower-cost settings to align with Medicare’s reimbursement structure, self-funded employers may see lower charges for certain procedures and treatments. This is particularly relevant for high-cost services that were previously incentivized to be delivered in HOPDs. 

For example, the cost of common outpatient procedures, such as colonoscopies or cataract surgeries, may decrease as providers increasingly perform these procedures in lower-cost settings like ASCs. Over time, these cost savings can accumulate, reducing employers’ overall healthcare spend.  

Increased Price Transparency 

Site-neutral payments can also contribute to increased price transparency. By standardizing payment rates for the same service across different settings, employers and employees can have a clearer understanding of expected healthcare costs. This predictability would help self-funded employers manage their healthcare budgets and make more informed decisions about their benefit plan designs. Additionally, greater price transparency can empower employees to make more cost-conscious choices about where they receive care.  

Provider Contracting and Network Challenges  

While site-neutral payments offer potential cost savings and increased price transparency, it could also present challenges with provider contracting. As Medicare reimbursement rates for certain services decrease, some providers may seek to offset their losses. They do this by negotiating higher rates with private payers, including self-funded employers.  

Employers may find themselves in a position where they need to negotiate to avoid absorbing these cost increases. The Alliance contracts with providers on behalf of our employer-members. We contract on a percentage of Medicare – Reference-Based Contracting by The Alliance^® (or Medicare-based pricing) in over 80% of our contracts. This methodology provides the benchmark to pay a fair price for services rather than focusing on savings of total charges. Paying providers based on a percentage of Medicare not only gives us an appropriate benchmark to measure relative value, but it also enables employers to use benefit plan design to incentivize employees to utilize low-cost, high-quality providers.  

Employers may also need to reassess their provider networks and ensure they include facilities that offer high-quality care at competitive rates. The Alliance helps self-funded employers create custom provider networks with our Smarter Networks^SM. Our Comprehensive Network features over 39,000 medical professionals across the Midwest, including 9,700 clinics, 150 hospitals, and 395 home health providers and covers 91% of Wisconsin. This broad coverage minimizes out-of-network charges and protects employees from surprise bills. Our Premier Networks offer customized options tailored to meet employees’ geographic and healthcare needs. We include a range of independent providers, and health systems to make sure employees have access to quality care.  

Reach out to us to learn how The Alliance can help you offer a broad range of choice for your employees while managing healthcare costs.