CMS is taking a stab at site-neutral payment. Here’s what to know

Modern Healthcare – Wednesday, July 23, 2025
By Bridget Early

Medicare may soon test a plan to equalize reimbursements for outpatient services regardless of where the care is provided.

This foray into so-called site-neutral payment would begin next year and focus on physician-administered medications such as chemotherapy drugs. Hospitals would get paid less than they are now for providing those services.

The plan, contained in the Hospital Outpatient Prospective Payment System proposed rule for 2026 that the Centers for Medicare and Medicaid Services issued last Tuesday, reflects growing interest in setting uniform Medicare rates for services across settings.

Under current rules, health systems can charge extra fees for care provided in offsite locations they own that other outpatient providers don’t demand. That drives up costs for patients and payers, which has attracted the attention of lawmakers and regulators.

Here are three key things to know about the CMS plan for site-neutral payment for physician-administered drugs:
Lower reimbursements for some

Hospital-owned outpatient facilities would be paid the same to administer medications as physicians. CMS projects that Medicare spending would be $210 million lower and that beneficiaries would save $70 million in out-of-pocket costs next year through this policy.

The policy would apply to off-campus hospital outpatient departments that Congress and President Barack Obama “grandfathered” in the Bipartisan Budget Act of 2015. That includes outpatient departments built before 2015, along with physician practices that hospitals have purchased and designated as off-campus outpatient locations since that year.

CMS also seeks input on broadening site-neutral payments to clinic visits at on-campus outpatient departments. That would expand on a 2019 regulation that instituted site-neutral payments for clinic visits at off-campus outpatient locations.

Congress is working on a similar policy

Congressional Republicans have already begun discussing site-neutral payment policies as a budget-cutting option for a healthcare package the majority party may advance later this year.

The CMS proposal is noteworthy because it mirrors provisions in the bipartisan Lower Costs, More Transparency Act of 2023, which the House overwhelmingly approved two years ago. At the time, the nonpartisan Congressional Budget Office projected the site-neutral payment provisions would save $4.1 billion over 10 years.

There are a slew of other site-neutral payment ideas circulating on Capitol Hill, including those that would apply to a broader set of services than the new proposed rule.

The Medicare Payment Advisory Commission, which counsels Congress, published a report two years ago recommending that nearly 60 outpatient services be reimbursed at Physician Fee Schedule rates regardless of setting. That includes laboratory work, ultrasounds and some behavioral health services.

Implementing site-neutral payment for all those services would reduce Medicare spending by about $150 billion over 10 years, said Mark Miller, executive vice president of healthcare at the philanthropy Arnold Ventures and former executive director of the Medicare Payment Advisory Commission.

Congress could go even further by eliminating the “grandfather” clause from the 2015 budget law, which would save about $30 billion over a decade, Miller said.

Hospitals will fight it

Hospitals strenuously insist that higher payments for outpatient care performed at their facilities are appropriate because of critical differences in patient population, acuity and demographic factors.

“Hospital outpatient departments serve patients who are sicker, more clinically complex, and more likely to be disabled or living in medically underserved and rural communities than patients treated in independent physician offices,” American Hospital Association Vice President for Policy Molly Smith said in a statement. “Hospitals must also adhere to far higher regulatory and safety requirements than other sites of care, including for drug-administration services.”

The hospital industry also maintains health systems need the revenue to remain in operation, especially in rural areas.

“These cuts disproportionately impact essential hospitals that are already facing financial challenges,” Beth Feldpush, senior vice president of advocacy and policy at the safety-net provider trade group America’s Essential Hospitals, wrote in an email.

Supporters of site-neutral payment dismiss these arguments and contend that the status quo creates incentives to direct patients to higher-cost settings and that the 2015 grandfathering rules accelerated health system acquisitions of independent medical practices, driving up spending.

The hospital industry’s fights with CMS and Congress extend beyond its long-standing campaign against site-neutral payment.

President Donald Trump’s tax law slashes healthcare spending by $1.1 trillion, nearly all of which comes from Medicaid. Hospitals expect their uncompensated care expenses to skyrocket after an estimated 10 million become uninsured. States also likely will respond to the Medicaid cuts by reducing provider reimbursements.

In addition, CMS has proposed toughening hospital price transparency requirements and cutting payments for some non-drug hospital outpatient services.

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