Last month, Senator John Kennedy (R-LA) introduced the Same Care, Lower Cost Act, which would direct the Secretary of Health and Human Services to implement site-neutral Medicare payments. Due to the breadth of services where payments could be made site-neutral under the Act, it is one of the most ambitious and impactful Medicare site-neutral payment proposals to date in terms of anti-inflationary and macroeconomic impact.
Senator Kennedy’s bill directs the Secretary of Health and Human Services to implement site-neutral Medicare payments for certain outpatient services across facility types. Currently, Medicare pays different rates to providers for the same services depending on the site of care (e.g., hospitals, ambulatory surgical centers, and physician offices). This is true even for services like colonoscopies and mammograms, which can be provided safely at lower-cost physician offices and ambulatory service centers (ASCs) instead of higher-cost hospital outpatient departments (HOPDs). Under this Act, Medicare would pay providers at hospital-owned facilities the same, lower rate as providers at physician offices or ambulatory service centers for certain services.
The Act directly instructs the Secretary to consider MedPAC’s recommendations on site-neutral payments when identifying which services should be subject to site-neutral payments. Unlike previous site-neutral legislation, this Act would not exempt on-campus hospital-owned facilities from site-neutral payments, where most hospital outpatient services are provided. In a previous piece, we found that implementing MedPAC’s site-neutral recommendations would result in a 15 to 32 bp decrease in the core PCE price index, depending on the extent to which the site-neutral Medicare payments impact private payment rates.1
However, this estimate understates the Act’s potential anti-inflationary effect because the Act also grants the Secretary the authority to identify and apply site-neutral payments to additional services where “clinically appropriate.” If the Secretary expanded site-neutrality beyond the MedPAC recommendations, the reduction in inflation could be even larger.
To determine if a given service should be paid at site-neutral rates, MedPAC measured how often the service was provided at ASCs, HOPDs, and physician’s offices. If the service was most commonly provided at either ASCs or physician offices, payments to HOPDs for that service were reduced to match the lower payment rates at those settings. If the services were most commonly provided at HOPDs, the higher payment at HOPDs was maintained.
However, there may be services that can be safely provided in lower-cost, non-hospital settings, even if they are currently provided at HOPDs the most. In Sahni, et. al (2024), researchers surveyed medical professionals (physicians, nurse practitioners, radiology and imaging technicians, etc.) and presented respondents with a list of medical services relevant to their specialty. Respondents were then asked to estimate the portion of each service that could be provided “without compromising clinical outcomes” in different settings (e.g. hospital, physician's office, ambulatory surgical center).The volume of services that are currently provided in hospitals that could be performed elsewhere (in generally lower-cost settings) is substantial. Respondents indicated that nearly 30% of the services that Medicare covers in hospital-based facilities could be provided elsewhere.
The authors estimate that shifting sites-of-care according to the respondents’ recommendations could lower overall healthcare spending by $113.8 to $147.7 billion (relative to 2019 health expenditures).2 By comparison, the cost savings from implementing site-neutral Medicare payments using the more limited MedPAC recommendations were $11 billion and $32.53 billion in the Medicare and the commercial sector, respectively, for a total of $43.53 billion (relative to the 2022 baseline). The magnitude of potential reductions in healthcare expenditures identified by Sahni, et. al (2024) is therefore about three times as large as the estimated reductions from the MedPAC recommendations.
One reason for the larger cost savings estimate is that some procedures currently provided primarily in hospitals could, based on the opinions of practitioners, be safely provided elsewhere. These procedures are good candidates for site-neutral payments, but would not have been identified under MedPAC’s methodology. MedPAC itself acknowledges that its methodology has limitations; for example, chemotherapy may be able to be provided safely outside of hospital settings, but has gradually moved from physician offices to HOPDs due to hospital acquisitions of physician offices.
Going beyond the MedPAC recommendations to identify site-neutral services has the potential for additional cost savings and inflation reduction effects. By opening the door to including more services for site-neutral payments, the Act enhances its potential to reduce healthcare services inflation (as well as overall inflation) while providing larger cost savings for the federal government.
However, not all services should be equally compensated in hospital and non-hospital settings. Medicare should only equalize payments for a given service between sites of care if the service can be provided at both locations without compromising clinical outcomes. Differential payments should be maintained to the extent that there exists a differential in clinical outcomes.
Controlling healthcare costs is an effective lever that could help achieve the last mile of disinflation. Doing so would help give the Federal Reserve the confidence it needs to cut interest rates, and could yield significant macroeconomic benefits in the form of higher employment and stronger wage growth. The Same Care, Lower Cost Act represents a significant step in that direction.
1Sahni, et. al (2024) report the estimated cost savings that would transpire if care were provided in settings matching the survey responses. This is not exactly the same as implementing site-neutral payments, but it is similar; the cost savings from lowering the payment rate for a clinic visit at a hospital to that of a physician office is the same as moving the service to a physician office. Just because some portion of a service could be shifted from hospitals to physician offices or ASCs does not necessarily mean that site-neutral payment would be appropriate; for example, if currently 95% of a given service is provided in HOPDs but practitioners believe that only 90% should be provided in HOPDs, there would be some cost savings from shifting 5% of those services away from HOPDs, even though it would not be appropriate to pay a site-neutral rate for the service.
2Sahni, et. al (2024) report the estimated cost savings that would transpire if care were provided in settings matching the survey responses. This is not exactly the same as implementing site-neutral payments, but it is similar; the cost savings from lowering the payment rate for a clinic visit at a hospital to that of a physician office is the same as moving the service to a physician office. Just because some portion of a service could be shifted from hospitals to physician offices or ASCs does not necessarily mean that site-neutral payment would be appropriate; for example, if currently 95% of a given service is provided in HOPDs but practitioners believe that only 90% should be provided in HOPDs, there would be some cost savings from shifting 5% of those services away from HOPDs, even though it would not be appropriate to pay a site-neutral rate for the service.
