Blue Cross Blue Shield Association is an association of independent Blue Cross and Blue Shield companies.
DELIVERING LOWER COSTS FOR PATIENTS AND
TAXPAYERS THROUGH SITE-NEUTRAL PAYMENT REFORM
Medicare pays more for services provided in hospital outpatient departments (HOPDs)
than it does when the same services are provided in a doctor’s oce or another setting
outside of the hospital. That disparity aects payment rates under private health
insurance plans, which typically use Medicare’s reimbursement rates as a basis for
paying doctors and hospitals—though generally at higher average rates of payment.
In 2015, Congress passed the Bipartisan Budget Act of 2015 (BBA), which established
“site-neutral” payments under Medicare for services received at o-campus HOPDs,
unless the location was already billing as a hospital department prior to the date of
enactment. This policy restricted new HOPDs from charging patients more for the same
medical services that cost less in other care settings. However, current o-campus
HOPDs as of 2015, as well as those under construction, were grandfathered into
receiving higher rates that are applicable to hospital settings, even though the services
are not rendered at a hospital. This exemption also applies to physician practices that
are purchased and then incorporated into pre-existing, grandfathered HOPDs.
While the 2015 law made progress on site-neutral payments, these exemptions result
in patients and Medicare paying more for the same services without evidence of
improvements in the quality of care. Patients who receive services from physician
practices pay a lower out-of-pocket (OOP) cost-sharing amount based on Medicare
rates for physicians but would pay higher OOP costs should that physician practice be
acquired by a hospital and start charging higher rates set for hospitals.
To lower health care costs and generate a combined $471 billion in savings over
ten years for the federal government, private health insurance premiums and—
most importantly—consumers’ OOP costs, BCBSA recommends that:
• Policymakers enact federal legislation to eliminate the grandfathering
provision of the BBA, which exempts certain hospital outpatient
departments—except emergency departments—from billing limits established
under the 2015 law.
• Medicare adopt site-neutral payment policies for services that are commonly
delivered outside the hospital—excluding rural facilities—at the lower payment
rates applicable in non-hospital settings.
– Medicare’s move to expand site-neutral payments will smooth the way for
private plans to also implement site-neutral payment policies.
OVERVIEW
BCBSA
RECOMMENDS
ISSUE BRIEF
FEBRUARY 2023
HOPDS OVERCHARGE MEDICARE AND BENEFICIARIES FOR OUTPATIENT SERVICES
• Medicare pays more at an HOPD even when the exact
services can be provided in a physician oce without
any appreciable dierence in quality or customer
experience. For example, over a three-year period,
Medicare paid an additional $2.7 billion on services,
and patients spent $411 million more in out-of-pocket
costs, when four specific cardiology, orthopedic, and
gastroenterology services were delivered in a hospital-
owned setting.
1
• These overpayments extend to commercial insurers,
who often contract with providers based on traditional
Medicare rates, although at much higher levels. According to a 2019 study, the average price for a given
service was always higher when performed in the HOPD setting, and average prices rose faster in the
outpatient setting compared to the physician oce setting.
2
CURRENT POLICY ENCOURAGES ACQUISITION OF PHYSICIAN PRACTICES BY HOPDS
• The HOPD payment policy creates a strong financial
incentive for hospitals to continue purchasing physician
practices and for physicians to sell their practices, which
gives these newly merged entities a stronger hand when
negotiating payment rates with commercial insurers. In
fact, the share of physician practices owned by hospitals
more than doubled from 2012 to 2018.
3
In many cases,
the same physician is still providing the same services to
the same patients at the same location—but that location
is now an HOPD and is eligible for a higher payment.
• This payment practice has led to a shift in the locus of
care away from physician oces to HOPDs with higher billing rates. MedPAC’s March 2018 report stated
the hospital outpatient setting has had higher growth in program spending than any other sector in
Medicare, and a large source of that growth “appears to have been the shift of services from (lower cost)
physician oces to (higher cost) HOPDs.”
4
HOPDS CHARGE HIGHER PRICES, BUT DO NOT DELIVER HIGHER QUALITY CARE
• For many services, there is little or no evidence that
the quality of care is higher when they are provided in
a hospital setting, and MedPAC has found that patient
severity has little eect on the costs incurred by HOPDs
for services that can safely be provided in physician
oces.
5
ISSUE BRIEF FEBRUARY 2023
Delivering Lower Costs For Patients And Taxpayers Through Site-Neutral Payment Reform
2
1. Physicians Advocacy Institute. “Implications of Hospital Employment of Physicians on Medicare & Beneficiaries.” November 2017. http://www.
physiciansadvocacyinstitute.org/Portals/0/assets/docs/PAI_Medicare%20Cost%20Analysis%20--%20FINAL%2011_9_17.pdf.
2. Hargraves, John and Rei, Julie. Health Care Cost Institute. “Shifting Care from Oce to Outpatient Settings: Services are Increasingly Performed in Outpatient
Settings with Higher Prices.” April 2, 2019. https://healthcostinstitute.org/hcci-research/shifting-care-oce-to-outpatient
3. Physicians Advocacy Institute. “Updated Physician Practice Acquisition Study: National and Regional Changes in Physician Employment 2012-2018.” February
2019. http://www.physiciansadvocacyinstitute.org/Portals/0/assets/docs/021919-Avalere-PAI-Physician-Employment-Trends-Study-2018-Update.pdf.
4. MedPAC. “March 2018 Report to the Congress: Medicare Payment Policy.” March 15, 2018. https://www.medpac.gov/document/http-www-medpac-gov-docs-
default-source-reports-mar18_medpac_entirereport_sec_rev_0518-pdf/.
5. For example, see Marion Aouad, Timothy T. Brown, and Christopher M. Whaley. “Reference Pricing: The Case of Screening Colonoscopies.” Journal of Health
Economics, vol. 65 (May 2019). https://www.sciencedirect.com/science/article/abs/pii/S0167629618306209. Also see Medicare Payment Advisory Commission
Report to Congress, June 2022, Chapter 6. https://www.medpac.gov/wp-content/uploads/2022/06/Jun22_MedPAC_Report_to_Congress_v2_SEC.pdf.
Medicare paid an additional
on services, and patients spent
more in out-of-pocket costs.
$2.7 BILLION
$411 MILLION
The share of physician
practices owned by hospitals
from 2012 to 2018
MORE THAN
DOUBLED
Beginning of 2021,
of physicians in the United
States were practicing medicine
independently.
ONLY 30%
• In a study for PAI, Avalere examined the impact of the COVID-19 pandemic on physician practice
acquisition in 2019 and 2020, finding that 48,400 additional physicians left independent practice during the
two-year study, and, by the beginning of 2021, only 30% of physicians in the United States were practicing
medicine independently.
SITE-NEUTRAL POLICIES SIGNIFICANTLY LOWER COSTS
BCBSA commissioned a cost impact analysis by former Congressional Budget Oce (CBO) economist Phil
Ellis. In total, Ellis estimates
6
that expanding site-neutral payment policies as BCBSA recommends would
yield a combined savings of $471 billion over the 2024-2033 period for the Medicare program, private
insurance premiums and enrollees’ out-of-pocket costs as noted in the table below.
ISSUE BRIEF FEBRUARY 2023
Delivering Lower Costs For Patients And Taxpayers Through Site-Neutral Payment Reform
3
The Blue Cross Blue Shield Association (BCBSA) is a national federation of 34 independent, community-based and locally operated Blue Cross and Blue Shield companies that collectively
provide healthcare coverage for one in three Americans.
Estimated Savings from Adopting Site-Neutral Payment Policies Under Medicare
($ Billions by Calendar Year)
2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2024-2033
Federal Savings 13.4 15.1 16.5 18.4 20.1 22.2 25.3 28.9 33.1 38.0 231
Private Premium
Savings
8.0 8.8 9.5 10.2 11.1 12.0 12.9 13.9 14.9 16 117
Enrollees’ OOP Savings 8.8 9.9 10.9 12.1 13.3 14.7 16.7 19.0 21.8 25.1 152
ISSUED ON 02/2023
6. Philip Ellis. “Estimated Savings from Adopting Site-Neutral Payment Policies for Medicare,” Ellis Health Policy, February 2023. https://www.bcbs.com/sites/
default/files/file-attachments/aordability/Phil_Ellis_Site_Neutral_Payment_Cost_Savings_Report_BCBSA_Feb_2023.pdf.
