House Site-Neutral Policy Should Save More

House leadership recently introduced the Lower Costs, More Transparency Act, that unifies multiple legislative proposals from the Energy and Commerce, Education and the Workforce, and Ways and Means Committees, aimed at improving transparency and reducing health care costs. Most notably, the bill's provision to move to site-neutral payments in Medicare Part B for physician-administered prescription drugs would save $4 billion over a decade. 

Equalizing payments regardless of whether a drug is administered in an off-campus hospital-owned outpatient department (HOPD) or an independent physician’s office is a step in the right direction and consistent with our broader proposal to fully equalize payments between hospitals and physicians’ offices. However, the policy as written in the legislation is overly narrow and phases in too slowly. To garner higher savings, lawmakers could speed up the four-year phase-in (and the additional one-year delay for certain rural and cancer hospitals) and expand the scope of the policy which currently leaves a substantial amount of drug and hospital spending still subject to inefficient and expensive site-specific payments.

Based on a new analysis by our Health Savers Initiative partners at Arnold Ventures of how Medicare beneficiaries can benefit from site-neutral policies, we estimate that expanding Part B drug site neutrality to encompass drugs administered in on-campus HOPDs could save Medicare $22 billion, even with the same slow phase-in as the current legislation.

If all services in off-campus HOPDs were paid on a site-neutral basis, similar to the policy in the bipartisan Site-based Invoicing and Transparency Enhancement (SITE) Act, Medicare could save between $30 and $40 billion over ten years.

The recent House Fiscal Year (FY) 2024 Budget Resolution passed by the House Budget Committee would go even further by enacting full site neutrality for off-campus HOPDs and substantial site neutrality for the most common on-campus HOPD services (other than at rural HOPDs), saving an estimated $115 billion over ten years.

Our Health Savers Initiative examined a policy option that adds to those on-campus services by including most others that are commonly and safely performed in physicians’ offices or ambulatory surgery centers (ASCs), using criteria developed and recommended by MedPAC. We found it would save Medicare between $150 billion and $180 billion.

Estimated Savings of Site-Neutral Policy Proposals

Provision Ten-Year Savings
Medicare site-neutral for off-campus HOPD drug administration (Lower Costs, More Transparency Act) $4 billion
Medicare site-neutral for on- and off-campus HOPD drug administration (Health Savers Initiative) $22 billion
Medicare site-neutral for all services in off-campus HOPDs (SITE Act)  $30-40 billion
Full site neutrality for off-campus HOPDs and substantial site neutrality for the most common on-campus HOPD services (House FY 2024 Budget Resolution) $115 billion
Full site neutrality (Health Savers Initiative) $150-180 billion

Sources: Congressional Budget Office, Arnold Ventures, American Hospital Association, and Committee for a Responsible Federal Budget. 

All of these policy options for site-neutral payments would save Medicare beneficiaries money by lowering premiums and cost sharing. This is one of the main reasons why site-neutral payment policies make sense and have bipartisan support: they lower Medicare costs without reducing Medicare benefits. It is encouraging to see Congress take up site-neutral payment reform and hopefully this represents a small step forward without dampening enthusiasm and opportunity to garner more savings.