Site-Neutral Medicare Payments Could Save $170 Billion

Why It Matters

Expanding Medicare's site-neutral payment policy could save the federal government more than $170 billion over a decade, according to a new Congressional Research Service report. It comes as Congress is actively hunting for ways to offset the cost of sweeping tax legislation.

Medicare currently pays significantly more for the same medical service depending on where it is delivered. Because Medicare beneficiary coinsurance is generally 20 percent of Part B services, a clinic visit at a hospital outpatient department costs both Medicare and the patient considerably more than the identical visit at an independent physician's office, even when the care is clinically equivalent.

That gap exists because hospital outpatient departments are reimbursed under the Outpatient Prospective Payment System, which builds in higher overhead costs, while physician offices are paid under the lower Medicare Physician Fee Schedule. The site-neutral payment policy is designed to collapse that difference, setting equivalent rates regardless of the care setting.

The Big Picture

Congress first moved on this in the Bipartisan Budget Act of 2015, which excluded newer off-campus hospital outpatient departments from the higher outpatient payment system and directed that those services instead be paid under the physician fee schedule. Facilities already operating before November 2, 2015 were grandfathered in, allowing them to continue receiving the higher rates.

The Centers for Medicare & Medicaid Services (CMS) built on that statutory foundation through rulemaking. The calendar year 2019 Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Final Rule extended site-neutral rates to clinic visits at the grandfathered, or "excepted," off-campus hospital outpatient departments. The calendar year 2026 OPPS and ASC Final Rule, effective January 1, pushed further, applying site-neutral rates to drug administration services, including chemotherapy and infusions, at those same facilities.

CMS has stated its intent to continue expanding the policy and has solicited public comment on additional services to be considered.

The policy's rationale rests on two pillars, namely cost and market structure. On cost, the Supplementary Medical Insurance Trust Fund, which draws on general revenues to fund roughly 75 percent of Part B expenditures, faces added pressure every time a service is billed under the higher outpatient payment system rather than the physician fee schedule.

On market structure, the Government Accountability Office found that at least 47 percent of physicians were consolidated with hospital systems in 2024, up from less than 30 percent in 2012. The Medicare Payment Advisory Commission, the independent congressional advisory body known as MedPAC, has identified the payment differential as a driver of that consolidation, as hospitals and corporate entities, including private equity firms, acquire independent physician practices and then bill for their services at the higher outpatient rate.

MedPAC first recommended aligning payments for evaluation and management services across settings in 2012, and expanded those recommendations in 2015 to include post-acute settings. Not every proposed expansion has cleared the bar. MedPAC's June 2024 report concluded that patient populations in inpatient rehabilitation facilities and skilled nursing facilities were not sufficiently comparable to justify site-neutral payments between those two settings.

The Legal Landscape Shifted

The American Hospital Association challenged the 2019 clinic visit rule, but the U.S. Court of Appeals for the D.C. Circuit upheld it, relying on the Chevron deference, the legal doctrine requiring courts to defer to reasonable agency interpretations of ambiguous statutes.

That doctrine no longer exists. The Supreme Court overruled Chevron deference in Loper Bright Enterprises v. Raimondo. The D.C. Circuit's prior ruling in AHA v. Azar remains intact, as the Supreme Court stated its decision does not call into question prior cases that relied on the Chevron framework. But future legal challenges to CMS site-neutral rules will face courts that are no longer required to defer to the agency's interpretation of its own statutory authority.

Political Stakes on the Site-Neutral Payment Policy

For the Administration

CMS has moved aggressively on healthcare reimbursement policy through rulemaking, and the calendar year 2026 rule signals that the administration intends to keep pushing. Site-neutral payment expansion aligns with broader administration goals around competition and pricing in health care.

For Republicans

A December 2024 Congressional Budget Office (CBO) analysis estimated that full expansion of site-neutral payment rates could save more than $170 billion over the 2025 to 2034 window. The largest share of those savings, estimated at $156.9 billion, would come from applying site-neutral rates to most services at all hospital outpatient departments, both on-campus and off-campus. Additional savings of $7.6 billion from imaging services and $5.6 billion from drug administration services round out the CBO estimate. As Republicans search for offsets to finance tax legislation through budget reconciliation, site-neutral payment expansion has become one of the most prominent tools on the table.

For Democrats

Expanded site-neutral payments would lower out-of-pocket costs for Medicare beneficiaries, a goal Democrats have long championed. But the hospital industry's warnings about financial stress, particularly for rural and safety-net facilities, resonate in districts where hospital closures are already a political flashpoint.

For the Public

Lower Medicare payments for hospital outpatient services would translate into lower coinsurance obligations for the roughly 67 million Americans enrolled in Medicare.

The Bottom Line

According to the report, Medicare's site-neutral payment policy is one of the most consequential levers available to Congress for reducing federal health care spending without formally cutting benefits. The fiscal case is substantial. The legal path has become more complicated following the Supreme Court's rollback of Chevron deference. And the political window, with reconciliation negotiations underway, may be narrowing.

Hospital groups will continue to argue that lower reimbursements threaten access to care, particularly in rural areas and for a health care workforce already facing recruitment and burnout pressures. What the report makes clear is that Congress cannot avoid this fight much longer. The question is whether the savings get locked in through legislation, or remain contested through a series of regulatory battles that the courts may increasingly be willing to second-guess.

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