In 2015, site-neutrality payment policies for Medicare Part B were passed to promote payment parity between off-campus hospital outpatient departments (HOPDs) versus physician offices and ambulatory surgical centers (ASC). However, many of the off-campus physician practices that were previously purchased by the hospitals were grandfathered in, therefore exempted from site-neutrality payment rates. These HOPDs were able to incorporate additional physician practices and expand their services by leveraging their grandfather status and retaining their HOPD payment rates.

Based on an analysis published in February 2023, “Estimated Savings from Adopting Site-Neutral Payment Policies for Medicare”  by Philip Ellis, PhD, commissioned by the Blue Cross Blue Shield Association (BCBSA), the estimated savings were as follows:

Highlighting the combined savings of $471 billion, BCBSA recommended to policymakers to expand site-neutral payment rates by dissolving grandfather status, except for emergency departments and rural hospitals.

However, in response to the site-neutrality expansion proposal, the American Hospital Association (AHA) published its estimated financial impact on hospitals

The AHA also highlighted the 2020-2022 negative annual operating margins for hospitals due to the sub-optimal Medicare reimbursements, and if additional reductions in payments due to expansion of site-neutrality policies were implemented, the financial instability for hospitals would worsen. Additional arguments were stated on how site-neutral payments can risk patient access since HOPDs and their hospitals play critical roles in the communities they serve, such as supporting public health emergencies and emergency care services to patients regardless of their insurance status.

With bipartisan support and CMS focus on reducing its expenditure, as well as insurance plans seeking to reduce cost, including leveraging the new Medicare payment rates for their commercial rates negotiations, the probability of site-neutral expansion is likely.

Other potential impacts may need to be noted if site-neutrality policies were to expand:

  • Deceleration of consolidation of physician group practices as hospital-based. In 2020, an American Medical Association (AMA) Physician Practice Benchmark Survey reported only 49.1% of physicians worked in physician-owned practices compared to 54% in 2018.
  • During the Covid-19 pandemic hospitals experienced negative profit margins. Many hospitals experience net losses due to staffing shortages, which resulted in utilizing higher-rate staff from temporary staffing companies (eg, travel nurses). They were also experiencing supply shortages and inflationary pressures, including 28.2% higher drug expenditure in 2021 compared to pre-pandemic levels. Additional reductions in reimbursement may have a greater impact than anticipated on hospitals’ financial stability.

The opinions and requests between policymakers, plans, and hospitals highlight the importance of cost implications associated with health care resource utilization (HCRU). For manufacturers, when positioning a product’s value message, the efficacy and safety of the product should be woven into its economic value story, which should include HCRU. This will better position the product’s efficacy and its impact on payers’ and health systems’ economic pain points.

Additional factors for the manufacturers to consider are that, given the various financial pressures hospitals are facing—including potential expansion of site-neutrality—these hospitals with HOPDs will be much more focused on identifying and creating new opportunities to increase their profit margin. With increased pressure, the likelihood is that these hospitals will want more control. Therefore, their current health care delivery structure may evolve closer to an integrated delivery network (IDN) model. They may consider implementing or expanding their specialty pharmacy infrastructure to take greater advantage of their 340B pricing and apply tighter control in utilization management within the specialty drug space. EHR interoperability and population health management will likely be enhanced to ensure value-based care outcomes result in optimal reimbursement. When clinically appropriate, there may be an increased shift of these organizations’ current inpatient procedures to outpatient sites to manage expenses in relation to reimbursement. Other site of care strategies, such as in-home care, telemedicine, and technology such as remote patient monitoring may be incorporated into their care delivery model. Manufacturers should continue to be aware of how these hospital systems may evolve to take advantage of who to connect with and how to position the product’s value story.