Introduction

In previous pieces in our healthcare series, we explored how site-neutral Medicare payments can reduce healthcare inflation. Currently, Medicare (as well as private insurers) often pays far higher prices to hospitals for the same service than they do to other providers, like independent physician offices or ambulatory surgical centers, without any difference in patient outcomes. Site-neutral Medicare payment reform would align payment rates to hospitals with payment rates to lower-cost physician offices and ambulatory surgical centers for certain medical services.

Changes in Medicare reimbursement policy can be amplified by similar changes in private sector prices because of Medicare’s large role in the healthcare system, resulting in larger changes in overall healthcare prices. Reducing healthcare inflation can meaningfully reduce overall inflation because healthcare comprises a large share of the personal consumption basket. Lower healthcare expenditures would also lower the cost of hiring workers due to the prevalence of employer-sponsored healthcare. In 2023, 60.4% of Americans over the age of 65 were covered by an employer-sponsored plan.

In recent years, there have been a number of legislative proposals to implement site-neutral payments. These proposals have come from across the political spectrum with support from organizations advocating for patients, deficit reduction, and lower overall healthcare costs. In this piece, we will examine the extent to which these proposals would actually affect healthcare inflation and provide rough estimates of the inflationary impact of each legislative proposal.

One theme of our previous pieces is that the scope and scale of site-neutral reforms are crucial in determining the overall impact on healthcare inflation. This will play prominently in our analysis: these proposals differ in the degree to which they implement site-neutral payments, and as such, the disinflationary impact of these proposals varies. Proposals that implement site-neutral payments on a larger scale will similarly have a larger effect on healthcare and overall inflation.

Table 1: Summary of the Inflation Effects of Site-neutral Payment Reforms

* The disinflationary impact of the Act would be larger if the Secretary expands site-neutral payments beyond the 66 services.
**The disinflationary impact of the reforms would be weakened by the hospital reinvestment model, since bonus reimbursements to certain hospitals would raise measured healthcare prices.

Lower Costs, More Transparency Act

In December 2023, the House passed the Lower Costs, More Transparency (LCMT) Act. The goal of this Act was to increase price transparency throughout the healthcare system while lowering costs for patients, supporting healthcare workers, and improving access to healthcare data. As part of the bill’s effort to lower costs for patients, the House passed two measures aimed at ushering in site-neutral Medicare payments for certain services. The first measure ensures that Medicare reimbursement rates for physician-administered drugs (e.g., chemotherapy and arthritis injections) are consistent across independent physician offices and off-campus hospital outpatient departments (HOPDs). The second measure requires separate, unique identifiers for all off-campus HOPDs, making it easier to compare costs between off-campus and on-campus settings.

The first measure addresses the site of service payment differentials in drug administration, which comprises the largest category of Medicare Part B drugs. Under the Bipartisan Budget Act (BBA) of 2015, newly-established off-campus HOPDs were reimbursed for medical services at the same rate as physicians. However, existing off-campus HOPDs were excepted from this legislative change. The LCMT Act would remove this exception for drug administration reimbursements, equalizing the payment rate for this service at all off-campus HOPDs with the reimbursement rate for independent physicians’ offices, not just those at newly-established HOPDs. This would more than double the volume of drug administration services that are subject to site-neutral Medicare payments.

The LCMT Act’s second measure requires off-campus HOPDs to obtain a unique national provider identifier (NPI), separate from the main hospital.^[1] Unique NPIs for off-campus HOPDs enable public and private payers to accurately identify the site of service for billing, paving the way for site-neutral payments through a more transparent reimbursement process.

The scope of site-neutral payment reform in the LCMT Act is relatively narrow, so the effects of this Act on inflation are likely to be small relative to a more comprehensive bill. 

One estimate of the expenditure reduction from site-neutral drug administration payments projects an expenditure reduction (from both Medicare spending and beneficiary cost-sharing) of $5.59 billion from 2025 to 2034. By comparison, annual national health expenditures on healthcare services^[2] are projected to average $4.57 trillion from 2025 to 2032. If the entirety of Medicare spending and beneficiary cost-sharing reductions are attributable to lower prices for drug administration (and not lower volumes of services provided), then the reduction in the healthcare services price index from site-neutral payments in off-campus HOPD drug administration would be approximately a single basis point.

The second reform, requiring off-campus HOPDs to have separate unique identifiers or NPIs, would not directly affect prices. However, it is possible that commercial insurers could implement their own site-neutral payments if they were able to identify off-campus HOPDs. Because that reform is limited to off-campus HOPDs, the effect on inflation here is again likely to be small. In our previous piece on the inflation effects of site-neutral reforms in the commercial market, we found that requiring site-neutrality payments for off-campus HOPD services alone would translate into a 0.2% reduction in the healthcare services price index.

If private insurers do not fully impose site-neutral payments on off-campus HOPDs with the unique identifier, the reduction in inflation is likely to be even lower. A CBO estimate of a similar measure in the Bipartisan Primary Care and Health Workforce Act found that unique identifiers for off-campus HOPDs would reduce health insurance premiums by less than 0.1%. Even if all healthcare prices fell by 0.1%—a generous assumption—the overall effect on core PCE prices would be minimal.

In total, the reduction in the healthcare services PCE price index under the LCMT Act is likely to be no larger than 0.11% (0.01% from the drug administration reform and 0.10% from the unique identifier reform), even given very generous assumptions. Given healthcare services’ 18.4% share of the core PCE basket, this would amount to no more than a 0.02% reduction in the core PCE price index.

Site-based Invoicing and Transparency Act

In June 2023, Former Senator Mike Braun, along with Senators Maggie Hassan and John Kennedy, introduced the Site-based Invoicing and Transparency (SITE) Act. The SITE Act goes further than the LCMT Act on site-neutral reform.

 The SITE Act removes the exception for off-campus HOPDs under the BBA and requires all off-campus HOPDs to be paid at the equivalent physician rate.^[3] In addition, the SITE Act also requires every off-campus HOPD to adopt unique billing identifiers, similar to the LCMT Act. 

What is the scale of the inflationary impact of ending Medicare’s exemption to site-neutral payments for grandfathered off-campus HOPDs? Bulat and Brake (2024) estimate that this would result in a reduction in Medicare and beneficiary expenditures of $32.2 billion over the next ten years. Using the same back-of-the-envelope method we used to estimate the effect of implementing site-neutral payments for drug administration services in off-campus HOPDs under the LCMT Act, this would amount to no more than a 0.07% reduction in the healthcare services price index.

Like the LCMT Act, the SITE Act calls for off-campus HOPDs to use a unique identifier for transparent billing practices. As with our estimates from the LCMT Act, this would result in a reduction in the healthcare services PCE price index of approximately 0.10% under very generous assumptions (that all private insurers implement site-neutral payments for off-campus HOPDs). 

The total impact of the SITE Act would therefore be no more than a 0.17% reduction in the healthcare services price index, which would lower the core PCE price index by 0.03%.

The Primary Care and Health Workforce Expansion Act

In July 2023, Senator Bernie Sanders unveiled a legislative package that included the Primary Care and Health Workforce Expansion (PCHWE) Act, which would fund a range of healthcare programs that supported community health centers and other medical initiatives. The Act mandated site-neutral provisions for the commercial healthcare market as well as unique provider identifiers for off-campus HOPDs, similar to the LCMT Act and the SITE Act. In addition, the bill required that off-campus HOPDs only bill one fee for any medical services performed. On-campus HOPDs are also subject to the single fee but only for applicable services such as evaluation and management, telehealth, and low-complexity services.^[4] This provision of the bill essentially eliminated the ability of hospitals to charge facility fees for on- and off-campus medical services that can be safely performed in an independent physician’s office. 

The original form of the PCHWE Act is the most impactful and direct implementation of site-neutral payment reform. Notably, the Act imposes site-neutral payments in the commercial market for all services provided at off-campus HOPDs and a broader range of services provided at on-campus HOPDs than the bipartisan version. 

For our estimates of the Act’s inflation estimates, we will assume that the services identified by MedPAC would be subject to site-neutral payment reform, since MedPAC’s methodology used data on where services were most frequently performed. In that case, the site-neutral proposals in the PCWHE Act are exactly those outlined by a proposal from the Committee for a Responsible Federal Budget for site-neutral payment reform in the commercial sector. In our prior work, we found that implementing site-neutral payments in the commercial market would decrease the core PCE Price Index by 0.21% and the medical services PCE price index by 1.16%.

Because of its partisan approach and high projected costs, the PCHWE Act failed to gain significant support. In response, lawmakers collaborated across party lines to introduce a revised proposal, the Bipartisan Primary Care and Health Workforce Expansion Act. The Bipartisan version included the same site-neutral provisions but with significant restrictions. It also requires off-campus HOPDs to have unique health identifiers to encourage transparent billing practices and bans hospitals from charging facility fees. However, the bipartisan version only prevents hospitals and hospital-owned facilities (on and off-campus HOPDs) from charging facility fees for three types of services: outpatient evaluation and management, outpatient behavioral health services, and telehealth services. CBO found that these services only account for 2% of private payers’ spending on outpatient services; so while the site-neutral measures for both texts are the same, the bipartisan version of the bill is much smaller and limited in scope. 

Same Care, Lower Cost Act

In May 2025, Senator John Kennedy introduced the Same Care, Lower Costs Act. Senator Kennedy’s bill is more expansive than any of the other site-neutral payment reforms for Medicare. Unlike other bills that focus solely on off-campus HOPDs—which accounted for just 5.2% of Medicare outpatient spending in 2022—Senator Kennedy’s bill authorizes the Secretary of Health and Human Services (Secretary) to apply MedPac’s recommendations and implement site-neutral payments to at least 66 outpatient services across both on-campus and off-campus HOPDs.^[5] This includes previously grandfathered off-campus HOPDs. If fully implemented, the bill could subject nearly 62% of Medicare’s outpatient spending to site-neutral payments. We previously estimated the inflation effects of implementing MedPac’s recommendations and found that implementing site-neutral payments could decrease the core PCE Price index by 0.15% to 0.32%, depending on the policy's effect on private prices.

Additionally, the bill empowers the Secretary to apply site-neutral payments to more than 66 services as long as the Secretary deems it clinically appropriate. Due to this expanded scope and authority, the bill could generate far greater cost savings than prior proposals. Research by Sahni, et. al (2024) uses a survey of medical professionals to show that nearly 30% of all the services that Medicare covers in hospital-based facilities could be performed in a lower-cost setting, potentially lowering overall healthcare spending by $113.8 to $147.7 billion (relative to 2019 health expenditures). By comparison, the cost savings from following MedPAC’s recommendations and implementing site-neutral payments for 66 outpatient services would reduce healthcare expenditures by $49 billion (including Medicare and private spending). If the Secretary were able to identify more services where site-neutral payments were appropriate, the effect on inflation could be even larger.

Cassidy-Hassan Framework

In November 2024, Senators Bill Cassidy and Maggie Hassan released a legislative framework to support site-neutral Medicare payments. While the Cassidy-Hassan framework is not a fully-fledged piece of legislation, the proposed reforms are promising. Similar to the SITE Act, the framework also recommends removal of the BBA’s grandfather clause requiring site-neutral payments for all off-campus HOPDs. It acknowledges that there are outpatient services that can be performed in a non-hospital setting, including on-campus and off-campus HOPDs, and follows MedPAC’s recommendation for a site-neutral payment policy where Medicare would pay the same rate for certain services, regardless of the site of care. Specifically, services commonly performed outside hospitals, like in physician offices or ambulatory surgical centers, would be reimbursed at the lower, non-hospital rate. As such, the framework proposes that the Secretary  build a system that would use four years of data to identify where common outpatient services are safely performed most often and set payment rates based on that setting. The final policy in the framework proposes to use the savings from the site-neutral provisions to reinvest in rural and safety net hospitals.

The first reform proposed by the Cassidy-Hassan framework, extending site-neutral payment policy to previously grandfathered off-campus HOPDs, is likely to have a small effect on inflation. This is because of the same reasons why the SITE and Lower Costs, More Transparency Acts have a minimal impact on inflation: the volume of service provided at off-campus HOPDs is not very large.

The second reform is more promising. Citing MedPAC’s site-neutral proposal, the Cassidy-Hassan framework proposes that the Secretary identify procedures that could be subject to site-neutral payments—including at on-campus HOPDs. Assuming that this process identifies a similar set of procedures as the MedPAC study, the inflationary effect of this reform should also be similar (a reduction of the PCE Price Index between 0.15% and 0.32%, depending on the extent of pass-through to private-sector prices). However, the actual effect could be either larger or smaller if the Secretary chooses a different set of procedures to apply site-neutral payments to.

However, the disinflationary effect of these reforms is likely to be attenuated by the framework’s hospital reinvestment model. Under this model, certain types of hospitals (rural hospitals, hospitals in high-need areas, and hospitals with certain lines of service) would receive bonus reimbursements for Medicare services. Since healthcare prices are measured (in PCE) using the value of reimbursements for services, the addition of these bonuses would raise measured healthcare inflation. The precise effect depends on the scope and size of these bonus payments; the more hospitals that bonuses apply to and the larger these bonuses are, the smaller the reduction in healthcare inflation.

Conclusion

There have been a number of reforms around site-neutral Medicare payments, but they vary widely in their scope and ambition. That variation also means that there is a range in the proposals’ effectiveness in reducing measured healthcare (and overall) price inflation. Some proposals—those that limit their reforms to particular services or do little to enforce actual site-neutrality—are unlikely to reduce overall inflation by less than a handful of basis points. Other proposals—those that enforce site-neutral payments in a broader range of services—can be more impactful.

Footnotes

1. The LCMT Act requires the NPIs specifically for Medicare billing, but because Medicare reimburses hospitals through two separate prospective payment systems the NPI provision will not drastically change the way off-campus HOPDs bill Medicare. However, requiring an NPI for Medicare billing is likely to impact the commercial market by improving transparency and discouraging facility fees.
2. Constructed from Table 2 using Personal Healthcare less Retail Outlet Sales of Medical Products; this subset of healthcare expenditures is broadly similar to the Healthcare Services category of Personal Consumption Expenditures in the National Income and Product Accounts table.
3. The SITE Act also reduces payments to off-campus emergency departments by 30% to prevent them from charging higher rates than on-campus emergency departments.
4. Services that are not included are emergency or trauma services and the Secretary of Health and Human Services will determine what low-complexity services are eligible through rulemaking process. 
5. The bill excludes emergency department visits, critical care, and trauma care services from the site-neutral provision.