Background
The healthcare payment landscape continues to face uncertainty as support grows for additional “site neutrality” in reimbursement, with the policy goal of reducing or eliminating payment differentials between hospital-based outpatient departments (HOPDs) and freestanding physician offices or ambulatory care sites for the same services.
Following the Bipartisan Budget Act of 2015, which provided site-neutral policy for new, excepted off-campus provider-based departments (PBDs), in 2019, the Centers for Medicare & Medicaid Services (CMS) implemented a different method to significantly reduce Medicare reimbursement rates for some services in excepted off-campus PBDs. CMS recently expanded the policy to include drug administration services furnished in excepted off-campus PBDs in the Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center Final Rule for 2026. CMS estimates the change, which is not budget neutral, will reduce OPPS spending by $290 million for CY 2026.
Current and future site-neutral policies have the potential to materially affect reimbursement rates, revenue streams and competitive positioning, particularly in markets with a high volume of outpatient services delivered in hospital-based settings.
Considering these potential developments, health systems need to urgently prepare. In this blog, we elaborate on three phases of preparation and action for health systems:
- Impact assessment
- Strategy formulation
- Strategy execution
Impact assessment
The starting point of preparation is impact assessment. Health systems need to get a handle on the range of financial impacts from potential site-neutral payment policies. However, this is not as straightforward as it may sound. While the concept of site neutrality is clear, how it will manifest itself is not. For example, what other services is CMS likely to move to site-neutral payments for Medicare Fee-for-Service (FFS) and when? Will there be tranches of services that CMS moves to site-neutral payments? Which other services are more likely to be front-loaded for transition (e.g., imaging, surgical services)? Could on-campus services be impacted? Will Congress pass legislation? How and when will CMS actions influence what private payers do on this front, with the benefit of “aircover” from CMS actions? How will private payer actions vary by Medicare Advantage, managed Medicaid and commercial types of coverage?
While definitive answers to many of these questions may be unknowable at this point, skillful and strategically astute scenario analysis can define a reasonable range of potential outcomes. To make that specific to a particular health system, market data would need to be combined with the health system’s service/site-of-care mix, contribution margin and payer contract terms to offer custom insights into the likely range of impacts for a particular health system.
For example, some health systems may have Medicare Advantage payer contracts that link payments directly as a percentage of Medicare. In these situations, it is likely that a move by CMS for Medicare FFS has a direct and immediate impact on the health system’s Medicare Advantage payments as well. Where not directly linked, it is likely a matter of time before payers make payment policy changes and/or ask to renegotiate health system contracts to mirror CMS site-neutral rules for Medicare FFS.
Furthermore, health systems in some states are concerned about potential changes in their Certificate of Need (CON) laws – a combination of site-neutral payments and CON removal is a potential “worst case” scenario that may also be worth accounting for in some markets. A thoughtful and comprehensive scenario modeling effort can help estimate the financial impact on the health system and understand where it is most vulnerable in the future, considering all these factors.
Strategy formulation: defend, extend, manage, pursue
Armed with the results of the impact assessment above, health systems can strategize their response. This will likely be a mix of education, revenue retention and growth, and cost restructuring strategies. Health systems may consider educating policymakers on both the financial impact of site-neutral payments as well as potential unintended consequences to patient care, particularly if aiming to prevent future site neutral policies from advancing.
Scenario planning that includes expanded site neutral policies mean revenue retention and growth strategies will likely involve revamping the health system’s ambulatory strategy, selling the value proposition of care delivered in the HOPD setting for targeted services, and proactively preparing for payer negotiations, among other considerations.
Health systems would be well-advised to craft these strategies to best meet the needs of patients and payers (health plans and employers) who would all be interested in lower cost, more convenient care options. Cost restructuring strategies will need to be tightly linked to the revenue strategies as any new ambulatory services may need to be delivered at a radically lower cost structure from HOPD sites to be competitive in the market, which may require health systems to pursue partnerships and necessitate changes in the health system’s overall services portfolio. The revenue and cost strategies constitute the manage-and-pursue aspects of our strategy formulation framework. The right portfolio of responsive initiatives will vary by health system, depending on their specific situation.
Everything outlined among the potential response categories above need not be a brand-new initiative for health systems. Some could involve acceleration of in-flight or planned strategic initiatives or dusting off ideas that now have a stronger business case considering impending site-neutral payments. For example, my colleague, Lauren Clementi, recently published a blog making the case for an ambulatory-focused strategy for health systems. Finally, health systems should outline a holistic investment and business case that can be taken to executive leadership and Board members to communicate and secure support for the holistic strategy for site-neutral payments.
Strategy execution
With impact assessment and strategy formulation accomplished, health systems need to be organized to execute in a cross-functional team, including Strategy, Finance, Mergers & Acquisitions, Managed Care, Operations, Physician Enterprise, Government Relations and others. Communication and change management will be key with both internal and external stakeholders. For example, operating at a lower cost structure necessitated by lower reimbursement will require a new business and operating model. Future site-neutral payment changes could result in shifts in the site of care to more off-campus facilities or ambulatory facilities—and the need for providers to support clinicians as they transition to new facilities and roles.
Active engagement will also be needed externally with payers and state governments to mitigate the spillover effect from actions on site-neutral payments for Medicare FFS on other types of coverage, including Medicaid. Health systems will also need to figure out how to coordinate the execution of their portfolio of responsive initiatives. For example, should there be a separate Results Management Office (RMO)-like function for site-neutrality or should these responsive initiatives be part of the larger enterprise RMO? In any case, health systems will need mechanisms to ensure the portfolio of responsive initiatives lead to projected business case benefits.
A word for payers
While this blog is largely addressed to health systems, there are significant implications for payers. Payers have been advocating for site-neutral payments for a long time. This is natural, given their focus and incentives to lower costs of care. Any future actions by CMS or Congress to increase the scope of site-neutral payments would be a vindication of payer efforts over the years. While it would be logical for them to press their advantage upon health systems once CMS or Congress acts on site-neutral payments, payers would be well-advised to balance those motivations with their provider partnership agenda. Productive provider partnerships are essential to payer economics, especially in areas like Medicare Advantage, so payers need to be thoughtful about how hard to push on any perceived “win” on site-neutral payments.
Conclusion
Given the growing support for site neutral payments, including CMS’s changes for 2026, it increasingly feels like a matter of when, not whether further site-neutral payments will become a reality. During our recent Healthcare Leadership Conference, panelists with leading rating agencies noted that hospital leaders are concerned that future site-neutral payment changes will cause financial pain.
While this comes at a time when health systems are already confronted with a large set of strategic challenges, looking away from this impending change or hoping it will go away is increasingly untenable. Moreover, these changes could come sooner than later. As such, health systems need to act with urgency to be prepared, especially since the execution of some of the strategies noted above can take time.
The good news is that there are thoughtful ways to crank up health system strategic and financial planning to a higher gear to proactively address the issue, as presented in this blog. Ambling in neutral is no longer an option when it comes to site-neutral payments.
The author would like to thank Brian Ball, Webster Macomber, John Poziemski, Shoshana Krilow, Jenna Stern, and Haydn Bush for their insights and comments on this blog.
