Reducing hospital payments: CMS proposes expanded site-neutral payment policy for drug administration services

Background

Medicare pays for services furnished in a physician’s office based on the Medicare Physician Fee Schedule (MPFS), while Medicare pays for similar services furnished in hospital outpatient departments under the OPPS. When services are furnished in hospital outpatient departments, including provider-based departments (PBDs) of a hospital, Medicare typically makes two payments: (1) a payment to the physician providing professional services in the hospital setting; and (2) a payment to the hospital for the overhead and facility component of the services. In contrast, in a physician office setting, the payment to the physician includes both the professional component and the overhead associated with the services. The payment differential reflects the typically higher cost of furnishing care in hospital-based settings.

This payment methodology usually means that if a Medicare patient receives similar services in a physician office and hospital outpatient department, Medicare pays more for the service provided in a hospital setting. CMS has estimated that, on average, hospitals are paid 60% more than physician offices for similar services. Medicare patients can also face higher costs when receiving services in a hospital outpatient department because the patient pays 20% coinsurance on the Medicare OPPS rate.

Policymakers and patient advocates have long expressed concerns that these differences in payment are not justified and create incentives for hospitals to acquire physician practices to capture higher payments. In recent years, there has been increasing criticism that these incentives have led to widespread vertical integration and increased Medicare expenditures, as well as harm to beneficiaries who face higher out-of-pocket costs. Site-neutral payment policies have been promoted as a way to eliminate incentives to perform services in hospital outpatient departments that could be furnished in lower-cost settings, such as physician offices, often with little attention to the actual reasons that certain services or patients are better suited for one site of service over another.

In an effort to address these concerns, in 2017, Congress required CMS to implement a site-neutral payment policy for many off-campus hospital outpatient departments. Under the Bipartisan Budget Act of 2015 (BiBA), as amended by the 21st Century Cures Act, items and services furnished at certain off-campus PBDs are no longer considered “covered outpatient services” that are paid under the OPPS. Those items and services furnished are now paid under a payment rate that approximates the MPFS rate. On-campus PBDs and off-campus PBDs that were furnishing services prior to November 2, 2015, together with certain other PBDs, are considered to be “Excepted Off-Campus PBDs .” This was followed in 2019 by a CMS-initiated site-neutral payment policy for office visits furnished at all off-campus hospital outpatient departments, justified as necessary to control increases in the volume of such services.

In late 2024, a report from the Congressional Budget Office, titled “Options for Reducing the Deficit: 2025 to 2034,” included three site-neutral payment policies as options for reducing mandatory spending. Namely, Congress could pay site-neutral rates for most Medicare services provided in off-campus and on-campus hospital outpatient departments or apply site-neutral rates to either drug administration services or imaging services for all off-campus hospital outpatient departments.

Congress has recently considered implementing several statutory site-neutral payment policies. Most recently, in the bipartisan December 16, 2024 continuing resolution to fund the federal government that nearly passed Congress  to fund the federal government, a statutory provision was included that would have required a separate billing identification number for off-campus hospital outpatient departments and would have required hospitals to submit provider-based attestations for all off-campus hospital outpatient departments. These provisions would have provided CMS with greater visibility and oversight regarding services furnished by off-campus hospital outpatient departments. This provision was not ultimately enacted in the continuing resolution adopted by Congress to fund the government through March 14, 2025 (or in subsequent government funding legislation).

More recently, and specific to payment differences related to drug administration, on April 15, 2025, President Trump issued Executive Order 14273, titled “Lowering Drug Prices by Once Again Putting Americans First,” which directed the Secretary of Health and Human Services to propose regulations to ensure that Medicare payment does not encourage the administration of drugs by hospital outpatient departments as opposed to physician office settings.

Proposed expansion of site-neutral payments to drug administration services

Consistent with Executive Order 14273, in the Proposed Rule, CMS proposed to use its authority under 42 U.S.C. § 1395l(t)(2)(F) to expand its existing site-neutral payment policies to include drug administration services furnished at all off-campus PBDs. Under this statutory authorization, CMS has the authority to “develop a method for controlling unnecessary increases in the volume of covered” outpatient services. Specifically, CMS is proposing to apply the MPFS payment rate for any Healthcare Common Procedure Coding System (HCPCS) codes covering drug administration ambulatory payment classifications when provided at Excepted Off-Campus PBDs, rather than an OPPS rate. Off-campus PBDs that are not excepted are already subject to a MPFS-equivalent payment rate for these services. CMS is also proposing to exclude rural sole community hospitals from the proposed site-neutral policy for drug administration services.

As the impetus for this change, CMS cited a substantial shift over time from drug administration in physician offices to administration in PBDs. As a result, the agency expressed concerns about higher costs for both beneficiaries who receive drugs administered in PBDs and the Medicare trust fund due to higher reimbursement for those services under the OPPS.

CMS reasons that providing services in a PBD at a higher cost is unnecessary if a patient can safely receive those services in a physician office for a lower cost. To support this finding, the agency cited a study which found that 68% of drug administration services currently take place in physician offices, indicating they are safely performed in multiple settings. In other words, because drug administration services are routinely – and safely – performed in physician offices, there is no reason to pay a higher OPPS rate for these services in a PBD setting. Rather, CMS points to the payment incentive as the primary motivator for the shift in care setting for these drug administration services, even though a minority of such services are provided in PBDs.

Requests for information 

In the Proposed Rule, CMS also included additional RFIs related to site-neutral payment policies. CMS is interested in whether there are other services that should be paid at an MPFS-equivalent rate when furnished at an excepted off-campus PBD, and the agency is particularly interested in imaging without contrast services (APCs 5521-5524). CMS also requested public input on the potential impact of a policy reimbursing clinic visits (HCPCS code G0463) performed in on-campus outpatient departments at the MPFS rate. Finally, CMS requested feedback on how the agency can develop a more systematic process for identifying ambulatory services at risk of shifting to a hospital setting due to financial incentives rather than medical necessity.

The RFIs send a clear signal to stakeholders that CMS intends to continue its efforts to expand site-neutral payment policies, particularly where the site of care may be driven by financial incentives.

Analysis 

In the proposed rule, CMS continues to make clear that it will seek to expand the use of site-neutral payment policies in its efforts to control Medicare expenditures.

However, the focus on financial impact fails to address those reasons that validate the need for differences in payment. While CMS recognizes in the Proposed Rule that hospital PBDs “serve unique patient populations and provide services to medically complex beneficiaries” and concludes that there is no evidence to demonstrate the need for higher payment of services that could be provided in a lower-cost setting, it fails to fully address hospitals’ higher baseline expenses and the need for providing care to patients with complex conditions that make PBD care clinically necessary. Historically, the higher payment rates for services provided in hospitals have been meant to address the higher level of care required by patients in such settings, the higher costs of providing care to patients in hospitals, and the costs of maintaining services required to be provided by hospitals (such as emergency care).

If hospital PBD reimbursements for critical service lines are reduced to match the MPFS rate, which is approximately 60% lower than the OPPS rate, that will have meaningful ramifications for hospitals’ overall financial health and long-term program viability.

While major expansions in site-neutral payment policies, such as those that might eliminate or combine entire payment systems, will likely require congressional action, through the Proposed Rule and similar actions, CMS will continue its efforts to reshape reimbursement based on the site of care.

Stakeholders should consider using the opportunity to provide public comments on the Proposed Rule to highlight the impacts of expanding site-neutral policies on their ability to provide clinically appropriate care and serve their communities, particularly related to drug administration.