Site-neutral payments: What does it all really mean?

    Posted by Stephanie Boim on Dec 18, 2015 1:27:00 PM

    Experts agree that the days of payment differential are fading. The new and revised place of service codes become effective January 1, 2016. What are your considerations for developing strategies in a site-neutral environment?


    As a revenue cycle leader, one of my most challenging moments was trying to explain to an eighty-six-year-old patient why she had to pay more for her doctor visit. The patient had a great understanding of her deductible and coinsurance. She also had been seeing the same internal medicine physician for more than thirty years, as she reminded me frequently throughout our conversation.

    But things had changed. Her internal medicine physician’s practice had been acquired by the local hospital system. What was once a private practice, owned and operated by the doctors within the group, was now an off-campus hospital outpatient department.

    I asked the patient if she had seen the new signage and if she’d received the written notice describing her potential financial liability with the change in practice ownership. She informed me that she’d had to fill out new paperwork and had been given plenty of documents in return—but in her opinion, it was all a big waste of time. Nothing had changed for her in years. She lived in the same home and carried the same red, white, and blue Medicare card she’d always had. Why, she wanted to know, did she have to pay more money to receive the same care she’d been receiving for years?

    I knew the scripted answer. Her trusted internal medicine physician was now practicing from a hospital outpatient department, which meant this patient would be responsible for a coinsurance liability fee for the outpatient visit to the hospital as well as a coinsurance liability fee for the physician services. Her doctor now had access to an electronic medical record that would help him better coordinate her care. He also had access to more resources than ever before so he could provide her with the very best medical services.

    But did this scripted answer truly provide a reasonable answer to her question?

    From the patient’s perspective, the care provided to her by her physician was no different than it had been throughout their thirty-year relationship as doctor and patient. The patient was experiencing a significant increase in cost with no perceived change in quality. Why should she have to pay more when her care—from her perspective—was the same as it had always been?

    The Medicare Payment Advisory Commission (MedPAC) has been asking that very same question. In the 2013 report to Congress, MedPAC stated,


    “If Medicare pays a higher rate for a service in one setting over another, program spending increases and beneficiaries pay more in cost sharing without a corresponding increase in quality of care.”8


    They have also expressed concerns that more and more evaluation and management services have been shifting from physician practices to hospital outpatient departments (HOPD), resulting in both higher Medicare and beneficiary spending. In the event a patient does not need hospital-level care, MedPAC has recommended adjusting the payment rates.4

    This recommendation caught the attention of the White House and Congress, and the Budget Act of 2015 has introduced some preliminary changes. Medicare payment policies are being developed and implemented to reflect a more site-neutral approach. As explained by Eric Passon and Michele Molden in a recent article,

    “Site-neutral payments—also referred to as ‘equalization of payments’ or ‘[eliminating] site-of-service differential’—is the term for making reimbursement for certain outpatient services the same across hospital and non-hospital-based settings.”6

    Under the new legislation, new off-campus hospital outpatient departments will be paid under other Medicare payment systems (such as the Medicare Physician Fee Schedule or the Ambulatory Surgical Center Fee Schedule) instead of receiving reimbursement under the Outpatient Prospective Payment System (OPPS) as they do today. This new policy will apply to most HOPD services, excluding emergency department services, furnished on or after January 1, 2017, unless either:

    • The HOPD is located within the hospital campus, as defined by Medicare regulations (typically the hospital’s main buildings and areas within 250 yards of the main buildings, as well as other areas designated by Centers for Medicare & Medicaid Services [CMS] as part of the hospital campus) or within 250 yards of a remote location; or

    • The HOPD was billed as an outpatient department prior to the enactment date, November 2, 2015.4

    Practice acquisitions (even if in the pipeline prior to enactment of this legislation) will not have grandfathered status unless outpatient billing began for that location prior to enactment.4

    CMS has issued a transmittal to include billing changes that are required effective January 1, 2016, to help support the upcoming payment changes.

    New and revised place of service codes (POS) have been defined, including POS 19 for off-campus outpatient hospital and POS 22 for on-campus outpatient hospital departments. It is important to note that one- and three- day payment rules still apply to POS 19.1 And to add a bit more excitement to the story, the 2016 OIG work plan also includes focuses on Medicare oversight of provider-based status and a comparison of provider-based and freestanding clinics,7 which we have seen quite frequently in recent years.

    Not everyone is in agreement that site-neutral payments are the solution.

    According to Becker’s Hospital Review, “The American Hospital Association (AHA) and other providers have pushed back against site-neutral payment proposals. In support of their position, hospitals have relied on a 2014 commissioned study prepared for AHA that showed hospital outpatient departments treat sicker and poorer cancer patients in need of more extensive care and resources than do physician offices.”8 Thomas Nickels, the executive vice president for government relations and public policy at the American Hospital Association told Bloomberg that the funding cut for outpatient Medicare services is an “untested idea” that may endanger patient access.3

    Oftentimes there are reasons in addition to OPPS rates that drive the decision of a hospital to pursue hospital outpatient department status for an off-campus site, including Medicare graduate medical education (GME) rules, qualification for the 340B drug program, and implications for Medicaid disproportionate share hospital (DSH) payment limit calculations. It is important to note that the OPPS rates also come with clinical and financial challenges, such as administrative burdens and the costs associated with meeting the requirements of provider-based billing.2

    As payment models continue their evolution away from traditional fee-for-service models, finding the right strategy for hospital-owned physician practices is not a simple process.

    Most experts agree that the days of payment differentials are slowly fading and it will only be a matter of when they will be eliminated completely. The future of fee-for-service payment models is on the path of site neutrality. Some hospitals have marketed the fact that they do not use provider-based billing and that their physician fees are lower than that of their competition. Some hospitals campaign on clinical integration and high quality delivery of care models. Regardless of the competitive differentiation, it is most important to consider pursuing alternative payment models, or shared savings programs, keeping in mind the economic impact of those targeted models while maintaining focus on patient access and quality.

    Hospital-owned physician practices need to take action now to determine the strategy in a site-neutral environment and to begin delivering discernable differences in medical care.

    Understanding the perspectives of those we serve, including our eighty-six-year-old patient that has been in the care of her physician for years, should be one of the driving forces in that decision-making process.

    1. Department of Health & Human Services. (2015). CMS Manual System (Pub 100-04 Medicare Claims Processing, Transmittal 3315) [Data file]. Retrieved from
    2. Mihalich-Levin, L., Luband, C.A., Lutz, H. T., and Cohen, A.M. (2015). Recent provider-based legislative changes: any GME implications? Lexology. Retrieved from
    3. Tracer, Z., and Lauerman, J. (2015). Hospitals face payment cuts at outpatient sites in budget. Retrieved from
    4. McDonald Hopkins. (2015). Budget deal will impact hospital acquisitions of physician practices. Retrieved from
    5. The Joint Commission. (2010). Frequently asked questions about accrediting hospitals in accordance with their CMS’ Certification Number (CCN). Retrieved from
    6. Passon, E., and Molden, M. (2015). Site-neutral payments: The billion-dollar Medicare revenue hit you should plan for now. Retrieved from
    7. Office of Inspector General. (2015). Work Plan Fiscal Year 2016 [PDF]. Retrieved from
    8. Ellison, A. (2015). 25 things to know about site-neutral payments. Retrieved from

    Topics: Revenue Cycle

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