America's Benefit Specialist July 2023

POLICY SERIES

REDUCING THE COST OF HEALTHCARE: SITE NEUTRALITY THE PROBLEM Prices for healthcare can be distorted by many things, but one very import ant factor is Medicare paying higher reimbursements for hospital settings than in physician office settings for the same service. Because many commercial plans base payment rates on an enhanced percentage of what Medicare pays for healthcare services, the distorted Medicare payments also affect private health plans. According to the Medicare Payment Advisory Commission (MedPAC), which advises Congress on Medicare payment policy, this disparity in reimbursements for the same service creates increased incentives for healthcare-provider consolidation, which has resulted in higher health care costs. As an example, in its June 2022 report to Congress, MedPac reported that in 2022 Medicare paid 141% more in a hospital outpatient department than did for the same care in a freestanding office for the first hour of chemotherapy infusion. • Medicare pays higher reimbursements for hospital settings than in physician office settings for the same service, which affects private health plans. • Expanding site-neutral payment policies in Medicare could gen erate $6.6 billion in annual savings for Medicare and taxpayers and lower cost-sharing for Medicare beneficiaries by $1.7 billion. • New research estimates that expanding site-neutral payment reform could result in nearly $60 billion in savings annually in the commercial market. Payment rates based on treatment settings have incentivized hospitals to shift sites of care from physician offices to hospital outpatient depart ments, and we have seen a significantly increased rate of hospitals acquir ing physician practices. In the report, MedPAC noted that the increased reimbursements are not linked to improved quality of care for beneficia ries, but they are directly linked to increased costs for patients. MedPAC’s June 2022 report estimated expanding site-neutral payment policies in Medicare could generate $6.6 billion in annual savings for Medicare and taxpayers and lower cost-sharing for Medicare beneficiaries by $1.7 billion. New research estimates that expanding site-neutral pay ment reform could result in nearly $60 billion in savings annually in the commercial market. THE SOLUTION At a high level, site-neutral payment is the concept of aligning payment rates for certain services across the three main sites where patients receive outpatient care: hospital outpatient departments (HOPDs), ambulatory surgical centers (ASCs) and freestanding physician offices. While Congress and CMS have made progress toward balancing pay ments between healthcare settings, NABIP believes more needs to be done to lower costs for patients and generate savings for the Medicare program and private health plans. We support both Congressional and regulatory action to align Medicare fee-for-service payment rates across ambulatory settings and encourage adoption of these policies in the commercial market.

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