Abstract
Site-neutral payment is a policy created by federal rule making and implemented by the Centers for Medicare and Medicaid Services (CMS) that aims to reduce healthcare costs by aligning payment rates for certain services provided in multiple care settings. Site-neutral payments are intended to eliminate the incentive for providers to acquire facilities, such as physician offices or ambulatory surgical centers (ASCs), that Medicare reimburses at the lower non-facility rate and convert those settings into hospital outpatient departments (HOPDs), where Medicare reimburses at the higher facility rate. Although initiated by Congress to address payment disparities in Medicare, similar payment discrepancies can be seen in the commercial market where individual and employer-sponsored health plans often pay more for certain outpatient services depending on their location. This analysis presents a simulation of the impact of applying site-neutral payments to the commercial market with respect to overall potential savings for consumers, health plans and the federal government. To conduct the analysis, we use an all-payer claims data base generalizable to the United States. The analysis focused on a select group of outpatient services identified by the Medicare Payment Advisory Commission (MedPAC). We mapped the MedPAC identified 68 Ambulatory Payment Classifications (APCs), the codes Medicare uses to reimburse facilities for outpatient services, to the relevant CPT4/HCPCS codes, which the commercial market uses for billing. The potential cost savings of applying the site-neutral payment policy to the commercial insurance market to be $58 billion for year 2022. We estimate the 10-year total (2024-2033) employer market premium reduction ranges from 5.35% to 5.0% and found that those premium reductions would result in employer-sponsored insurance (ESI) tax subsidy savings of $140 billion to the federal government over a 10-year period (2024-2033).
Site-neutral payment has been extensively examined as policy of having Medicare Part B pay the same amount for the same outpatient services regardless of whether the service is performed in a hospital, ambulatory surgical center, or physician’s office.
This research examines the potential cost savings to insurers of Medicare’s site-neutral payment policy was implemented by commercial insurers. It is the first to do so based on an all-payer data generalizable to the entire United States.
The implications are site-neutral payment has the potential to reduce health cost increases significantly.
Site-neutral payment is a policy created by federal rule making and implemented by the Centers for Medicare and Medicaid Services (CMS) that aims to reduce healthcare costs by aligning payment rates for certain services provided in multiple care settings. Site-neutral payments are intended to eliminate the incentive for providers to acquire facilities, such as physician offices or ambulatory surgical centers (ASCs), that Medicare reimburses at the lower non-facility rate and convert those settings into hospital outpatient departments (HOPDs), where Medicare reimburses at the higher facility rate.
While the policy was initiated by Congress to address disparate payments provided to different facilities paid under the Medicare program, it also can be applied to the individual and employer health insurance markets, where hospital facility fees are commonly added to claims for services performed in outpatient facilities, such as independent physician’s offices that have been converted into off-campus HOPDs.
We use an all-payer claims data generalizable to all payer groups, focused on a select group of outpatient services identified by the Medicare Payment Advisory Commission (MedPAC) in its June 2022 report for payment alignment (ie, site-neutral payment). This analysis presents a simulation of the impact of MedPAC’s June 2022 site-neutral payment policy option on the individual and employer-sponsored markets with respect to overall potential savings for consumers, health plans and the federal government.
Policy Background
Congress in the Bipartisan Budget Act (BBA) of 2015 instructed CMS to create a system that more closely aligns payment rates between HOPDs, which typically bill at the higher outpatient prospective payment system (OPPS) rate, and freestanding offices, which typically bill under the lower physician fee schedule (PFS).
CMS implemented this policy in the 2017 Hospital Outpatient Prospective Payment System final rule by creating a process that applies a lower Medicare PFS rate to certain non-emergency outpatient services provided in off-campus HOPDs that began providing services after November 2, 2015. 1 In the 2019 Hospital Outpatient Prospective Payment System final rule, CMS expanded the site-neutral payment policy to office visits that occur in any off-campus HOPDs, adding more closely aligning payment for services at previously grandfathered HOPDs with the PFS rate. 2 The 2019 OPPS rule specified site neutral payments for clinic visits, not all office visits.
The site-neutral payment policy has been met with resistance from hospitals, who argue that the policy unfairly targets HOPDs and will lead to reduced access to care for Medicare beneficiaries. Hospitals argue that the payment differential between HOPDs and physician offices is necessary to cover the higher costs of providing care in a hospital setting, such as maintaining expensive equipment and staffing. Hospitals sought to block the policy in court, but it was ultimately upheld and remains in effect today.
Hospital outpatient is the only focus of site neutrality proposals. Part A post-acute care settings are also in play do The IMPACT Act. 3 MedPAC’s mandated analysis from that law, and past OMB budgets have looked at this, for example.
Proponents of the policy, on the other hand, argue that site-neutral payments will lead to more efficient use of healthcare resources, reduce unnecessary healthcare spending, and lower out-of-post costs for patients. They argue that the payment differential between HOPDs and physician offices is a result of a historical anomaly and not reflective of the actual costs of providing care in those setting. Further, proponents, including MedPAC, note that the practice drives healthcare consolidation by creating an incentive for hospitals to purchase physician’s offices and convert them into HOPDs that receive higher payments.
MedPAC in its June 2022 Report to Congress recommended expanding the existing site-neutral payment policy to align payment rates across 3 outpatient settings: HOPDs, ambulatory surgical centers, and physician’s offices. 4 MedPAC detailed a volume-based formula for evaluating which services can be safely provided in lower-cost settings, and therefore, should have their payment aligned with the lowest-cost setting.
To do so, MedPAC sorted services into ambulatory payment classifications (APCs), which are used in the OPPS, and excluded certain APCs that include services, such as emergency and trauma services, that can only be safely provided in HOPDs. MedPAC then compared the remaining APCs by the volume of services provided in HOPDs, ASCs, and physician’s offices, aligning payment for those APCs based on the setting with the highest volume. Ultimately, MedPAC identified 57 APCs that could be aligned with PFS payments and 11 APCs that could aligned with ASC payments, generating $6.6 billion in Medicare savings and $1.7 billion in beneficiary cost-sharing obligations. Importantly, MedPAC’s recommendations also detail ways to account for rural hospitals and those who serve a disproportionate number of low-income patients.
The potential Medicare savings from site-neutral payment policy prompted the question: what savings might be possible in the individual and employer-sponsored health plan market?
Analytic Approach
To conduct the analysis, we used all-payer claims data that was generalizable to all payer groups. This analysis focused solely on the individual and employer insurance markets, referred to collectively as the commercial market. The analysis meets the following parameters:
Focus only on the 68 APCs included in MEDPAC’s June 2022 Report to Congress.
Estimate the potential cost savings for the commercial market for the year 2022 using an all-payer database.
Estimate the 10-year (2024-2033) savings for the commercial market.
The data creation process had several significant steps. First, we needed to secure data rights for the project and computing resources. The synthetic database used for this analysis is proprietary and available for multiple client analysis. The data used was based on a synthetic database developed by the Agency for Healthcare Research and Quality (AHRQ) and called Synthetic Healthcare Database for Research (SyH-DR). 5 SyH-DR is an all-payer, nationally representative claims database developed by AHRQ in 2020-21. The database has claims from 2016 only. SyH-DR has claims data from Medicare, Medicaid, and the Commercial market. We focused on only the commercial market to complete our analysis. To create the proprietary database used for this analysis, we adjusted the SyH-DR to calibrate current and estimated health care expenditures from 2024 to 2033. A unique feature of SyH-DR is the has national representation with each person in the sample associated with statistical weight matched to age, gender and plan representation in a given state. 6
Second, because individual and employer-sponsored insurers pay by CPT4/HCPCS instead of the APCs used by Medicare, we needed to map APCs to relevant CPT4/HCPCS to identify individual and employer market payment differences in reimbursement using cross walks provided by CMS 7 . In some cases, there could be up to over 200 different CPT4 codes that mapped to a single APC. As a result, we needed to also identify an appropriate price associated with an APC bundle. We considered using either the median price or the average price. Ultimately, we used the median price given that it is common practice for insurance payment analysis and would avoid an extreme outlier impacting the mean.
The third step was to define the policy assumptions to create a site-neutral payment mechanism. One of the concerns was that the Medicare pricing system for medical procedures is quite different than that of the commercial payment system. Specifically, although some commercial prices might be indexed to a Medicare HCPCS CPT4 equivalent payment, there are many instances where direct negotiation by providers with a regional insurer can result in quite different reimbursement. For example, the range of commercial prices for imaging procedures as reported in a recent hospital price transparency study shows variation as high as 9 times between the 10th and 90th percentiles of reimbursement. 8 As a result, we use the all-payer data to examine the range in reimbursement for CPT4 codes in each APC bundle and assigned the median value for that APC. It is important to note that this analysis is limited to place of service codes for outpatient ambulatory surgery.
The fourth part of the process was to estimate individual and employer market impact for the site-neutral payment mechanism. To do this, we needed to be cognizant of allowed charges for every one of the procedures paid in the commercial insurance market. Allowed charges are defined as the provider payment plus the cost sharing associated with a claim for a patient, which could include deductibles, coinsurance, and copayments. For the 2022 estimates, we used claim payments adjusted by inflation in the employer sponsored market and the individual market that were available on the synthetic database. We contrasted these payments with the 68 APC codes with median values for these place of service codes appropriate for site-neutral payment and aggregated them for a total in the given year. It should be noted that we can provide more than just a national estimate; we chose to keep it at a high level for this analysis in order to have a national estimate. Each of the individuals in the synthetic database has the statistical weight equivalent to hundreds if not thousands of individuals in a given state for a given health plan choice.
The final step was to run a micro simulation to identify the 10-year impact to both the individual and employer market insurance population. In this step, we estimated two different types of outputs. The first type of output was an estimate of premium reduction resulting from site-neutral payment. The second type of output was the impact on federal spending associated with the premium reduction and the decrease in federal tax exposure of the employer sponsored market. Our estimates focused on the ten years between 2024 and 2033.
Results
Our estimate of savings across the employer market in 2022 is $58.2 billion. This estimate applies to the entire US population. In Figure 1, we present the projected savings of commercial site-neutral payments over a 10-year period of time. As seen in Figure 1, the share of potential savings of the entire commercial market is much smaller for the individual insurance market. This is due entirely to the fact that the individual market is a substantially smaller market than the employer-sponsored health plan market.
Ten-year projected potential savings of commercial site-neutral payments (billions).
The 10-year total (2024-2033) employer market has projected savings of $847 billion. The total commercial (individual & employer market) has projected savings of $898 billion.
In Figure 2, we estimate the 10-year projected employer-sponsored health plan premium reductions from site-neutral payments. This is based on the counterfactual had site neutral policy not been effectuated for each year. The premium reduction range is as high as 5.35% in 2024 and as low as 5% by 2033. These savings are possible if the policy is put into place in 1 year and then continued subsequently for an additional 10 years. One reason why the premium reductions get smaller over a period of time is the overall increases in inflation are greater than what premium reductions can achieve, and thus, the site neutral impact is reduced over time.
Ten-year projected ESI premium reductions from site neutral payments.
It is important to note that these premium reductions reflect the total premium, which is the combination of payment between the employer and the employee of a given firm. It would be up to the employer to determine whether the eventual reduction in premium would be passed on to the employee or preserved for the firm to use exclusively to reduce its costs of providing health insurance to its workforce.
In Figure 3, we present the 10-year projected federal revenue increases from site-neutral payment policy applying to the commercial market. These revenue increases are derived from the lost tax revenue of the subsidy for employer provided health insurance that would otherwise be taxed as additional employee wages. The CBO estimates this subsidy to be approximately $270 billion in 2018. 9 Not included in our estimate is the potential additional savings from the subsidies for premiums in the individual market resulting from the Affordable Care Act. These estimates begin at 2024 and conclude at 2033. In 2024, approximately $11 billion of potential revenue increases are possible from the employer-sponsored health plan market. By 2023, the potential federal revenue increases from site-neutral payments would be nearly $18 billion. Over a 10-year period, from 2024 to 2033, the total federal projected increase in tax revenue is estimated to be $139.7 billion. These estimates are based on the share of premium in the employer health plan market that is paid for by the employer on behalf of the employee. We assume approximately 67% to 70% of the total premium would be paid by the employer over this time. It is important to note that this is based on historical trends.
Ten-year projected ESI tax exemption savings from site-neutral payments (billions).
Discussion
There is extensive evidence that variation in provider reimbursement is a major policy concern for US health care markets. 10 Clearly, site-neutral payment could reduce some of the variation. Yet, much of the literature on the impact of site-neutral payment has focused on Medicare policy changes. However, a recent study from the Committee for Responsible Federal Budget (CRFB) concluded that site-neutral payment could reduce national health expenditures by nearly half a trillion dollars over ten years from 2024 to 2033. 11 The authors used a combination of claims for the individual and small group markets were from the 2019 Enrollee-level External Data Gathering Environment (EDGE) Limited Data Set (LDS), claims for the large group insured and self-funded markets were from the 2019 Health Care Cost Institute (HCCI) multi-payer commercial claims data set and for some services, the 5% sample 2019 LDS Medicare analytic files. These data sources are quite similar if not identical to the ones used to create the SyH-DR database used in this analysis. One major difference in approach is CRFB explicitly looked on campus institutional (eg, hospital outpatient) spending versus off campus spending. Their off-campus spending estimates are actually very close to our estimates. A second difference we based our estimates on national population weights developed by AHRQ and simulated forward with population projection.
Any policy simulation always relies on assumptions made that could radically alter the results of analysis simply based summing up claims expenditures from existing data.
A significant limitation of this study is that we can not estimate the impact of provider consolidation on estimated costs from a site-neutral policy applied to a commercial insurance population.12,13 It is possible that a site-neutral payment policy creates an incentive for greater provider consolidation that could “lift all boats” and the reduce the expected saving estimated.
Conclusion
We estimate the potential cost savings of site-neutral payment for the commercial market (individual and employer sponsored health plan market) to be quite substantial. Using all payer microsimulation model, we estimate the 10-year total (2024-2033) employer market premium reduction ranges from 5.35% to 5.0% from site-neutral payments and the cost-sharing savings for beneficiaries and/or employees. This may seem high compared to proposed Medicare impact of 4.1 as estimated by a report by The Brookings Institution. 14 However, it is important to note that commercial payment for many hospital outpatient services could be twice as high if Medicare was used as a reference price. As a result, we expect our estimate to be plausible. We also estimated the employer-sponsored insurance tax subsidy savings to the federal government associated with such a premium reduction. Specifically, we find the 10-year total (2024-2033) in federal projected savings to be $140 billion.
These findings could be used by policymakers as they consider ways to build upon Medicare’s site-neutral payments and encourage adoption in the commercial market. It is important to consider the application of such a policy in the individual and employer sponsored health plan market is not without complication. For such a policy to be enacted for the self-insured population, the Department of Labor, whose authority extends to the ERISA self-insured health plans, would need to issue guidance. Furthermore, for the policy to be applied to the individual commercial insurance market, it would require new federal guidance for marketplace insurance regulators. If these changes were able to be made, then the significant savings estimated from this analysis would be possible. If, on the other hand, compliance with a site-neutral policy was left to be voluntary, it is not clear whether the same level of savings would result. That said, even a fraction of the savings estimated could constitute billions of dollars of savings to employers, consumers, and the federal government.
Footnotes
Declaration of Conflicting Interests
The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: The author received no financial support for this research from The Alliance to Fight for Health Care.
Funding
The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: The author received no financial support for this research from The Alliance to Fight for Health Care.
