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Every year the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds issue a report, and every time – for a few days, anyway – Washington, DC, is abuzz about getting Medicare on solid financial footing. This year was no different, as the Trustees’ annual report detailed only slightly better news than last year – estimating Medicare Part A will be unable to pay scheduled benefits after 2028, just two additional years past last year’s report.

Medicare’s long-term sustainability is clearly in jeopardy. Is site-neutral payment reform the answer?

Equalized Medicare Payments Regardless of Site

Now and again a proposal pops up that might have a salutary effect on Medicare’s financial health, and then the fun begins. One of the more intriguing ideas has been to create a policy that Medicare will pay one fee for a Medicare Part A service regardless of where the service is performed. Sounds simple, right?

In a fictional example, let’s say having a procedure done in a hospital outpatient department costs $300, while the same procedure performed in a physician’s office costs $200. Since it’s the same procedure, shouldn’t the cost be the same? This policy concept is called site-neutral payments.

Background on Site-Neutral Payments

Congress passed the Bipartisan Budget Act of 2015, giving CMS authority to implement site-neutral payments between hospital outpatient departments and off-campus settings. The hospital industry filed suit against the policy after the Department of Health and Human Services expanded the program in 2019. A federal judge halted the program, but the decision was overturned by an appellate court in 2020.

Understanding the Opposition

Hospital advocates argue that paying a fixed rate regardless of site of service fails to consider the costly burden hospitals carry because they are required to be available 24 hours a day, have higher staffing and equipment costs, and operate under a more extensive regulatory structure. They believe the policy serves to handicap hospitals and drive down reimbursement unreasonably.

What about Site-Neutral Payments in Long-Term Care?

Many policy groups, including the Medicare Payment Advisory Commission (MedPAC), would like to see site-neutrality expanded to Medicare rehabilitation services provided either in hospital inpatient rehabilitation facility (IRF) settings or skilled nursing facilities. MedPAC concedes that there are certain conditions where Medicare beneficiaries might get more appropriate treatment in an inpatient hospital setting. However, there are still many conditions where SNFs and IRFs have similar outcomes, but SNF payments are significantly lower.

Again, hospital advocates point out the disadvantages in the comparison because of the difference in costs required to operate a hospital versus a SNF. MedPAC has been generally unmoved by these arguments.

Presidents from both parties have included provisions in annual budget requests to Congress to authorize site-neutral payments in Medicare rehabilitation, but the policy has not survived aggressive lobbying from the hospital industry.

Even though such a policy might appear to be a commonsense approach to helping control Medicare spending, we should remember that Medicare is not simply a public health insurance program but a public spending program that sometimes has winners and losers and is subject to the same interests as any other spending program.

Moving to a site-neutral reimbursement policy for Medicare rehabilitation would be beneficial for SNFs, which seemed to be reason enough for some advocates in years past to oppose the policy. But as we get closer to the day when the cost of caring for the nation’s elderly surpasses our available resources, maybe even the most powerful voices for the status quo will be moved to accept this modest restraint.

X Factors for Understanding Site-Neutral Payments

  • Medicare now pays different reimbursement rates for identical services performed in different settings.
  • Site-neutral payments establish one payment amount for a particular service regardless of where the service is performed.
  • Site-neutral payments for post-acute rehabilitation have been proposed for Medicare but have not yet been authorized; hospitals oppose it based on their greater overall costs.

Do you approve or oppose the implementation of site-neutral payments to reduce Medicare spending?

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Written by: Paul Baldwin, Baldwin Health Policy Group
Paul’s pharmaceutical industry experience in public and government affairs led to becoming Executive Director of the Long Term Care Pharmacy Alliance, helping lead the industry through the Medicare Modernization Act and creation of the prescription drug benefit. Paul was VP of Public Affairs for Omnicare before founding Baldwin Health Policy Group.

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