CMS, MedPAC Propose Site-Neutral Payment Systems

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A new health policy brief issued by Health Affairs and the Robert Wood Johnson Foundation explains the origin of these differential payments and the debate over approaches that have been proposed for developing so called "site neutral" payments.

The Centers for Medicare & Medicaid Services (CMS) and the Medicare Payment Advisory Commission (MedPAC) have been exploring options to eliminate the differential in payment rates for medical items and services that are delivered based on different clinical settings. That’s welcome news to practicing community oncologists who contend that cancer care delivered in the hospital setting costs more than care delivered in a private physician’s office.

Medicare uses more than a dozen different payment systems to set payment rates for the medical items and services the program covers for beneficiaries. The location where a beneficiary receives a service determines which payment system applies. As a result, medical care that can be provided in a variety of clinical settings may sometimes be paid for at dramatically different payment rates.

A new health policy brief issued by Health Affairs and the Robert Wood Johnson Foundation explains the origin of these differential payments and the debate over approaches that have been proposed for developing so called “site neutral” payments.

CMS and MedPAC have made proposals to eliminate the differential payments, but each took divergent approaches.

CMS proposes a cap on physician office payment rates. In general, Medicare pays more for the same service when it is delivered in the hospital outpatient department than in a physician’s office. The agency contends that hospitals incur higher costs to maintain operations around the clock and to meet legal obligations to provide care to people needing emergency medical treatment.

CMS has proposed to limit the amount paid for a service in the physician office setting to the amount paid for the same service in the hospital outpatient setting or ambulatory surgical center (for surgical procedures), but ultimately did not adopt the limit.

MedPAC recommends limiting payments to hospital outpatient departments. MedPAC states that its general position is that “Medicare should base payment rates on the setting where beneficiaries have adequate access to care at the lowest cost to the program and beneficiaries.”

The brief highlights the contrast between the two approaches and asks the key question in developing a site-neutral payment system: Which payment system has the most appropriate payment rate?

For now, but CMS and MedPAC have identified continued interest in identifying and addressing situations where differences in payment are not considered appropriate or supported by differences in cost or the needs of the patient.

Congress has taken initial steps on addressing site-neutral payments by requiring long-term care hospitals be paid a rate comparable to the inpatient prospective payment system rate for patients that do not meet certain criteria, but the adjustment won’t take effect until fiscal year 2016.

Stay tuned!

Differences in Medicare Payments and Beneficiary Cost Sharing

Service Provided in Freestanding Physician Practice

Service Provided in Hospital Outpatient Department

Medicare Fee Schedule Office Rate

Medicare Fee Schedule Physician Facility Rate

Outpatient Prospective Payment System

Total hospital-based care

Program Payment

$58.46

$41.26

$74.02