Site-Neutral Payment for Outpatient Care: Why It Matters for People with Medicare

Outpatient care, which is covered by Medicare Part B, refers to a broad range of services, including routine medical visits, treatment of certain illnesses and injuries, minor surgical and medical procedures, preventive care, chronic disease management, physical therapy, and diagnostic procedures. In 2021, nine out of ten people with traditional Medicare (about 33 million individuals) used Medicare Part B-covered services. These services have also grown as a share of Medicare’s spending. In 2013, Part B services accounted for 43 percent of Medicare spending; in 2023, it had grown to 49 percent of total spending. It is expected to reach 53 percent in 2033.  

Although the care received is equivalent across settings, in general, the amount traditional Medicare pays health care providers for that care is not. Providers typically receive different payment rates for the same outpatient service in different settings depending on whether Medicare applies the Physician Fee Schedule, the Outpatient Prospective Payment System (OPPS) methodology, or the Ambulatory Surgical Center Payment System.

This Spotlight report explores the implications of these “site-based” provider payments on the Medicare program’s spending, the increasing costs across the health care system, and out-of-pocket spending for the millions of people who rely on the program for their health care. It highlights the importance of outpatient care in Medicare, explains Medicare’s site-specific payments for outpatient care, and describes policy solutions to mitigate their effects on consumers.

Site-based payments: More than a provider payment issue

Medicare total payment for the same outpatient service is typically higher in hospital outpatient departments (HOPDs) or ambulatory surgical centers (ASCs) than it is in a provider’s office. This has significant implications for both how much consumers pay out of pocket for outpatient care and for overall costs to Medicare and the health care system. For example, in 2023, physicians and hospitals received $1,015 for performing a colonoscopy in a HOPD—almost three times the amount the physician receives for delivering the same service in an office setting ($345), and over 60 percent more than a physician and ASC receive for a colonoscopy performed in an ASC ($616).

See the report for additional examples.

Beyond affecting payments for providers, Medicare’s site-specific payments significantly affect consumer health care spending. Under Medicare Part B, consumers are typically responsible for 20 percent of each outpatient service cost, after meeting a deductible. In fact, people with traditional Medicare often pay two to four times more for a service delivered in an HOPD than for one delivered in an office setting. For example, in 2023, the out-of-pocket cost for a skin biopsy procedure was $128 in an HOPD, $35 in an ASC, and $32 in a provider’s office.

See the report for more examples of out-of-pocket costs.

System-wide, Medicare’s site-specific payments affect health care costs in several ways. 1) They unnecessarily increase Medicare spending.  2) They indirectly increase health care costs across the health sector because commercial health insurers typically set their provider payments as a percentage of traditional Medicare rates. 3) They may incentivize providers to take advantage of the highest rate for outpatient services.

Mitigating the effects of Medicare’s site-specific payments: Site-neutral payment reforms

Policies that seek to address the negative impacts of site-specific payments are commonly referred to as “site-neutral” policies. By updating reimbursement methodologies so that outpatient provider payments are based on the type of service, these polices aim to align provider payments for the same or similar services regardless of setting. Site-neutral policies vary from broad ranging to narrowly focused, depending on several factors, including which outpatient services are covered and which sites of care are affected. This report discusses existing site-neutral policies in Medicare and additional reforms being considered.