Implications of Site-Neutral Rate-Setting Methods for Medicare Spending

Importance Medicare pays more for some procedures in the hospital outpatient department (HOPD) setting than it does for the same procedures in physician offices because of the facility fees paid to HOPDs under Medicare’s Outpatient Prospective Payment System (OPPS). In recent years, Medicare has reduced facility fees for some services and certain types of HOPDs to make reimbursement site neutral, both to rein in Medicare spending and to avoid incentivizing the migration of services from physician offices to HOPDs. Objective To quantify Medicare payments and savings under 2 approaches of setting site-neutral payment rates for HOPDs. Design and Setting In this cross-sectional study, outpatient claims from 2024 and payment rates for 2026 were used to model Medicare payments using 2 rate-setting approaches. Overall payments and payments by service type were then assessed to investigate whether the payments were similar between the 2 approaches, and the savings generated by each approach were compared with payments made under current OPPS rules. The study used HOPDs paid under Medicare’s OPPS and included Medicare beneficiaries in the 20% sample of 2024 HOPD claims paid under Original Medicare’s OPPS. Main Outcomes and Measures The primary outcome was Medicare payment amounts for select Ambulatory Payment Classification (APC) groups under 2 alternative approaches of determining site-neutral payment amounts and the savings that were associated with each payment approach, calculated as follows: (1) a fixed discount that pays 40% of the OPPS rate, and (2) applicable Physician Fee Schedule (PFS) rates for practice expenses inclusive of packaged services. Results Savings were calculated for 57 APC groups in 23 categories. Across all 57 APCs, combined savings relative to current Medicare OPPS rates would total 58.7% at PFS rates vs 60.0% at the discounted OPPS rate. Across the 23 APC categories examined, 13 had PFS-equivalent payments below the discounted OPPS payments, whereas 10 categories had PFS payments above the discounted OPPS payments. Conclusions and Relevance Results of this cross-sectional study suggest that as policymakers consider expanding Medicare site-neutral policy to additional services provided in HOPDs, payment rates deserve more attention. An approach that considers service-specific PFS-equivalent rates inclusive of packaged services may better serve the policy goal of equalizing payments for the same services across settings.