ACTUARIAL 6928 LITTLE RIVER TURNPIKE

SUITE E
10320 LITTLE PATUXENT PKWY
SUITE 975
RESEARCH ANNANDALE, VA 22003 COLUMBIA, MD 21044
703 941-7400 410 740-9194
CORPORATION 703 941-3951 FAX

Sizing Medicare Off-Campus Hospital Outpatient Department Site Neutrality Proposals

Tim Bulat, FSA, MAAA (tbulat@aresearch.com) | Ryan Brake, ASA, MAAA (rbrake@aresearch.com)
January 3, 2024

Summary
• Only 19% of Medicare off-campus hospital outpatient department (HOPD) spending is subject to existing
outpatient payment system site neutrality policies.
• Medicare and beneficiaries typically pay two to four times more for a service in an off-campus HOPD than if
they had received the identical service in an independent physician office.
• We estimate that expanding site neutrality policies to all off-campus HOPDs would save Medicare and
beneficiaries $32 billion over ten years.
• Off-campus HOPDs are less common in rurally based hospitals, and site neutrality proposals do not impact
facilities specifically targeting underserved populations such as critical access hospitals.

Background
Many medical services can be safely provided in multiple settings. Medicare and beneficiaries typically pay more for
services performed in a hospital outpatient department (HOPD) than for equivalent services performed in a physician
office. This is true regardless of whether the HOPD is located on the campus of a hospital or if the HOPD is in a
different, off-campus location. Off-campus HOPDs are often established as the result of a hospital system acquisition
of independent physician offices.

Site neutrality is the concept of aligning payment rates across service locations for identical services of equal
complexity. Over the past several years, limited site neutral payment policies have been implemented. The Bipartisan
Budget Act of 2015 required setting payments at new (“non-excepted”) HOPDs at roughly equivalent levels to
physician office payments, effective January 1, 2017, but all existing HOPDs were grandfathered (“excepted”) from the
legislation.1 The Center for Medicare & Medicaid Services (CMS) used administrative authority in 2019 to establish
site neutral payments for clinical visits at excepted off-campus HOPDs, but did not address site neutrality for other
services.2 In total, these policies impact only 19% of all Medicare off-campus HOPD spending.

Recently, Congress and other stakeholders have considered broadening site neutrality policies. The Medicare Payment
Advisory Commission (MedPAC) has included chapters in each of its last two annual Reports to Congress
recommending site neutrality in all HOPDs for services which can safely be performed in multiple settings.3 In
December, the Lower Costs, More Transparency Act passed in the House of Representatives and would expand site
neutrality to drug administration services in off-campus HOPDs.4 Other recently proposed bills in both the Senate and
House also include modest expansions to site neutrality.5 Unlike MedPAC’s recommendations, all of these bills would
only impact off-campus HOPD spending, with variations in the applicable services, timing, and exceptions.

In this brief, we aim to quantify the scope and projected savings of a range of site neutrality proposals and
recommendations, using Actuarial Research Corporation’s site neutrality simulation model.6 We compare the scope of
current site neutrality rules with the off-campus proposals being considered in congressional bills and contrast these
bills to the broader HOPD neutrality recommended by MedPAC. We also provide insights on the impact of neutrality
proposals in rural and underserved areas.

1
 ACTUARIAL
RESEARCH
CORPORATION

Current State of Medicare Outpatient Spending

Currently, 1% of outpatient facility spending is subject to site neutrality within the Medicare Outpatient Prospective
Payment System (OPPS). Table 1 shows all outpatient facility spending in 2022, categorized by facility type and the
applicability of site neutrality rules. Two categories, indicated by the highlighted cells, are currently impacted by OPPS
site neutral policies.

The first site neutral category is non-excepted services provided by off-campus HOPDs. Site neutrality for non-
excepted off-campus HOPDs was required in the Bipartisan Budget Act (BBA) of 2015 and became effective January 1,
2017. HOPDs are excepted, or grandfathered, from site neutrality for services they were already offering prior to the
passage of the legislation. The portion of off-campus services which are non-excepted has gradually increased over
time, yet still made up only 0.5% of all outpatient facility spending ($392 million) in 2022.

The second site neutral category is clinical visits provided by any off-campus HOPD, regardless of excepted status. Site
neutrality was expanded to excepted clinical visits at off-campus HOPDs in the 2019 OPPS payment rule. This
expansion roughly doubled the portion of spending subject to neutrality (an additional 0.5% or $415 million in 2022).

These two site neutral categories only represent 19% ($807 million out of $4.3 billion) of all off-campus HOPD
spending. Expanding site neutrality to all off-campus HOPD services would increase the share of outpatient
expenditures subject to neutrality provisions by a multiple of five. That said, off-campus HOPD spending represents
only 5% of total outpatient facility spending, and therefore off-campus site neutrality proposals are much more
modest than proposals that might also include on-campus HOPDs.

TABLE 1: MEDICARE OUTPATIENT FACILITY SPENDING BY FACILITY TYPE, GEOGRAPHY, AND SITE NEUTRALITY STATUS (2022)
Non-Rural Rural All Geographies
Facility Type ($ millions) ($ millions) ($ millions) Site Neutrality Status
Off-Campus HOPDs $4,035 $301 $4,336 5.2%
Non-Excepted All Services $371 $21 $392 0.5% Neutral by BBA of 2015
Excepted Clinical Visits $370 $44 $415 0.5% Neutral by 2019 rule
Not neutral; 2023 bills
Excepted Other Services $3,294 $235 $3,529 4.2%
proposed partial expansion
On-Campus HOPDs $48,858 $6,087 $54,945 65.8%
N/A; excluded from all
Emergency Department $5,829 $957 $6,786 8.1%
recommendations and bills
All Other $43,029 $5,130 $48,159 57.7% Not neutral
Other Outpatient Facilities $14,712 $9,495 $24,207 29.0%
Critical Access Hospitals $1,319 $5,646 $6,965 8.3% N/A; payment based on cost
Rural Health Centers $403 $1,536 $1,939 2.3% N/A; payment based on cost
Federally Qualified Health Centers $807 $359 $1,165 1.4% N/A; FQHC PPS
End-Stage Renal Disease Facilities $9,853 $1,735 $11,588 13.9% N/A; ESRD PPS
Other Facilities $2,330 $219 $2,549 3.1%
TOTAL $67,605 $15,883 $83,488 100%
Notes: Based on ARC’s analysis of the 2022 Medicare 5% sample Limited Data Set (LDS), extrapolated to 100% Medicare fee-for-service. Rural status corresponds
to where the hospital is based, using the rural/urban indicator corresponding to the provider number of the facility in the CMS Provider of Services file. Excludes
claim lines for drugs. Only outpatient facility payments are included; corresponding physician payments paid under the Physician Fee Schedule (PFS) are not
included. Other Facilities includes certain rehabilitation facilities, home health, outpatient skilled nursing, and additional less common facility types.

2
 ACTUARIAL
RESEARCH
CORPORATION

It is also important to note that off-campus HOPD spending makes up a significantly smaller share of spending of
facilities based in rural areas (1.9%, or $301 million out of $15.9 billion in 2022).7 Furthermore, facility payments at
Critical Access Hospitals (CAHs), Rural Health Clinics (RHCs), and Federally Qualified Health Centers (FQHCs) are not
determined by the OPPS and would not be impacted by site neutrality proposals.

Savings Impact of Site Neutrality Proposals

There have been numerous recent proposals and recommendations from various stakeholders to expand site
neutrality. Among these, the breadth of expansion varies widely. Bills in the House of Representatives are the most
limited. The Lower Costs, More Transparency Act, which passed in the House in December, would expand neutrality
only to drug administration services in excepted off-campus HOPDs. In the Senate, the Site-Based Invoicing and
Transparency Enhancement Act (SITE Act) would eliminate the exception for grandfathered off-campus facilities by
expanding site neutrality to all services in off-campus HOPDs, with some facility exclusions. MedPAC’s
recommendation is the most comprehensive, expanding neutrality to all HOPDs for all services which can safely be
performed in multiple settings.

Table 2 shows projected savings associated with a range of site neutrality expansion scenarios.8 We project that site
neutrality in off-campus HOPDs for drug administration services (consistent with the House bills) would save $5.6
billion over 10 years, of which $4.9 billion benefits the Medicare program and $0.7 billion benefits beneficiaries
through lower Part B cost sharing, as shown in the first table row.9 Imaging and diagnostic testing are two other
narrowly defined but sizable categories of services for which neutrality at off-campus HOPDs may be considered.
Combined, we project savings for these two categories of $6.1 billion.

As part of their June 2023 recommendation, MedPAC identified 66 ambulatory payment classifications (APCs) to
consider for site neutrality based on services that currently take place in physician offices a majority of the time.10 We
project that expanding neutrality for these 66 APCs in off-campus HOPDs would save $21 billion over 10 years. While
meaningful, these savings associated with off-campus expansion are only 15% of the $145 billion of savings if
neutrality for the same services were expanded to all HOPDs.

TABLE 2: MEDICARE AND BENEFICIARY PROJECTED SAVINGS OF SITE NEUTRALITY EXPANSION SCENARIOS
Site Neutrality Scenario 10-Year Projected Savings (2025-2034)
Medicare Beneficiary Cost
Applicable Applicable Total Program Sharing
Services Locations ($ millions) ($ millions) ($ millions)
Drug Administration Off-Campus HOPDs $5,589 $4,871 $718
Imaging (no contrast) Off-Campus HOPDs $5,252 $4,577 $675
Diagnostics Off-Campus HOPDs $858 $747 $110
All 66 APCs in MedPAC
Off-Campus HOPDs $21,026 $18,325 $2,701
Recommendation
All Services Off-Campus HOPDs $32,171 $28,038 $4,133
All 66 APCs in MedPAC
All HOPDs $145,459 $126,771 $18,688
Recommendation
Notes: Projected savings are from ARC’s site neutrality simulation model (see endnote 6). Includes savings to Medicare fee-for-service and the impacts on
Medicare Advantage benchmarks.

3
 ACTUARIAL
RESEARCH
CORPORATION

Site Neutrality Implementation and Projection Approaches

Existing site neutrality within the OPPS has been implemented by applying a uniform 40% multiplier (“Relativity
Adjuster”) to the non-neutral OPPS rates to approximate equivalence with physician office rates. This approach has
been used given the complexity of precisely aligning Physician Fee Schedule (PFS) and OPPS rates. 11 Often, when a
service is performed in an HOPD, the total payment includes a facility component determined by the OPPS and a
physician component determined by the PFS, while the same service performed in a physician office only generates a
single payment. Adding additional complexity, within the OPPS, payment for supporting services is often bundled with
the primary facility payment. In calculating projected savings of site neutrality scenarios, we estimated the impacts
using two methods. First, we assumed the 40% Relatively Adjuster would be expanded to the applicable services
within the scenario. Second, we estimated a more precise neutrality implementation where the sum of the OPPS
payment and PFS payment (when there is a physician component) would be set for each APC at the average rate paid
for the same mix of services with a physician office place of service, adjusted for the additional cost of bundled
services. Table 2 reflects the first method, for consistency with existing site neutral policy implementation. However,
utilizing the second, more precise, method would have yielded savings which were only modestly higher. Comparing
these two approaches indicates the Relativity Adjuster is a reasonably accurate simplification for implementing
neutrality.

Savings estimates presented in this brief consider the impacts of lower fee-for-service (FFS) Medicare payments and
the corresponding impact on benchmarks used to determine Medicare Advantage payments. There would likely be
additional savings in commercial segments, given commercial contracting practices often follow Medicare, which are
not included in estimates in this brief.

Examples of Service Level Payment Differences

Payments for services in HOPDs are typically more than twice as large as the payments for equivalent services in
physician offices. Most HOPD services are paid under Medicare Part B, and the beneficiary is responsible for 20%
coinsurance after a nominal deductible is met. Therefore, higher HOPD payments impact both beneficiaries and the
Medicare program.

Table 3 shows the average Medicare and beneficiary payment for several common services when provided in different
settings. Clinical Visits, as shown in the first row, are already approximately site neutral (relativity of 114%) under the
2019 rule-based expansion of neutrality discussed earlier. The other examples reflect an illustrative subset of the
services for which savings are projected in Table 2 under various site neutrality expansion scenarios. HOPD rates
include the sum of the facility component paid under the OPPS and, when relevant, the additional physician
component paid under the PFS.

The amounts in Table 3 reflect payment per service. At a beneficiary level, the extra cost sharing associated with
excepted off-campus HOPDs are concentrated on a small portion of the population with high utilization. For example,
from our previous brief on drug administration site neutrality, we estimated that the highest utilizing 5,000 patients
who received chemotherapy at excepted off-campus HOPDs paid $1,055 more in cost sharing than they would have
had payments been site neutral.12

The utilization of imaging services is more widespread than chemotherapy. In 2022, 1.6 million Medicare beneficiaries
received an imaging service at an excepted off-campus HOPD. Of these, about 400,000 beneficiaries paid at least $50
more in cost sharing than had payments been site neutral (not shown in tables).

4
 ACTUARIAL
RESEARCH
CORPORATION

TABLE 3: PER SERVICE AVERAGE MEDICARE AND BENEFICIARY PAYMENTS FOR EXAMPLE SERVICES (2022)
Medicare Payment Beneficiary Payment Relativity
Excepted Off-
Excepted Off- Excepted Off- Campus vs.
Service Campus HOPD Office Campus HOPD Office Office
Clinical Visits $106.53 $93.10 $26.63 $23.28 114%
Therapeutic or Prophylactic Injection
$51.94 $12.54 $12.99 $3.13 414%
(APC: Drug Administration Level 2)
Percutaneous Allergy Skin Test
$719.16 $176.01 $179.79 $44.00 409%
(APC: Diagnostic Level 4)
Chest X-ray Single View
$66.52 $17.22 $16.63 $4.30 386%
(APC: Imaging Level 1)
Cystoscopy
$543.46 $204.20 $135.86 $51.05 266%
(APC: Urology Level 2)
Radiation Dosimetry (Planning)
$376.98 $155.65 $94.24 $38.91 242%
(APC: Radiation Therapy Prep Level 1)
MRI - Lower Extremity w/o Contrast
(APC: Imaging Level 3) $263.93 $173.27 $65.98 $43.32 152%
Notes: From ARC’s Site Neutrality Scenario model, benchmarked to claims in the 2022 Medicare 5% sample Limited Data Set. HOPD payments reflect the sum of
the facility and physician payments when there are two payments for the same service.

Conclusions
Many recent proposals related to site neutrality have focused on off-campus HOPDs. These locations are more similar
to physician offices than on-campus HOPDs and are often the result of hospital acquisitions of physician offices. While
non-excepted and clinical services are already paid on a site neutral basis at off-campus HOPD locations, those
services represent only a small fraction of off-campus HOPD facility spending (19%) and an even smaller fraction of all
outpatient facility spending (1%).

We project that expanding site neutrality to all services at off-campus HOPDs would save approximately $32 billion
over ten years. Over one-third of this savings potential is related to three narrow service categories: drug
administration, imaging (without contrast), and diagnostics. Site neutrality for off-campus drug administration alone,
as has recently passed in the House of Representatives, would save $5.6 billion.

The financial strength of outpatient facilities in underserved areas is an important consideration in determining
Medicare payment policies. In the context of site neutrality, it is important to note that off-campus HOPD spending is
less common among hospitals based in rural areas. Further, facilities which specifically target underserved
populations, such as CAHs, RHCs, and FQHCs, are not paid under the OPPS and would not be impacted by OPPS site
neutrality proposals.

Because HOPD claims are paid by Medicare Part B, patients typically share in 20% of the cost, either directly or
through the premiums associated with supplemental coverage. The annual cost sharing savings for sicker patients,
like those undergoing chemotherapy, would be hundreds (and occasionally thousands) of dollars. Expansion of site
neutrality would meaningfully benefit this population.

5
 ACTUARIAL
RESEARCH
CORPORATION

Disclosures
This work was supported by Arnold Ventures. ARC maintains full editorial control over the written policy analysis and savings
estimates.

Guidelines issued by the American Academy of Actuaries require actuaries to include their professional qualifications in all
communications with respect to actuarial services. Tim Bulat and Ryan Brake are members in good standing of the American
Academy of Actuaries and meet the qualification standards for performing the analyses in this brief.

This report was prepared as an account of work for Arnold Ventures (the Client). Neither ARC nor the Client nor any of their
employees or contractors make any representations or warranties, express, implied, or statutory, as to the validity, accuracy,
completeness, or fitness for a particular purpose; nor represent that use would not infringe privately owned rights; nor assume
any liability resulting from the use of such materials and shall in no way be liable for any costs, expenses, claims, or demands
arising out of the use of this report. In no event shall ARC be liable to the Client or to any third party for any indirect, special or
consequential damages or lost profits arising out of or related to this report, or the accuracy or correctness of the information
and data in the report, even if ARC has been advised of the possibility thereof.

Notes
1
The Bipartisan Budget Act (BBA) of 2015 introduced site neutrality for off-campus HOPDs. This bill also excepted off-campus
HOPDs from site neutrality if they were already operating as off-campus HOPDs prior to the bill’s passage. See: Section 603 of the
Bipartisan Budget Act of 2015; https://www.congress.gov/114/plaws/publ74/PLAW-114publ74.pdf

2
In 2019, site neutrality specific to the clinical visit service was expanded in the OPPS payment rule to excepted off-campus
HOPDs. See: CY2019 OPPS Final Rule; Federal Register 83:225; Section X.B Method To Control Unnecessary Increases in the
Volume of Outpatient Services (p59004-59014); https://www.federalregister.gov/documents/2018/11/21/2018-24243/medicare-
program-changes-to-hospital-outpatient-prospective-payment-and-ambulatory-surgical-center

3
Medicare Payment Advisory Commission (MedPAC); June 2023; Chapter 8: Aligning fee-for-service payment rates across
ambulatory settings; https://www.medpac.gov/document/chapter-8-aligning-fee-for-service-payment-rates-across-ambulatory-
settings-june-2023-report/

4
See: Section 203 of the Lower Costs, More Transparency Act (HR5378); https://www.congress.gov/bill/118th-congress/house-
bill/5378/text

5
In the House of Representatives, see the Lower Costs, More Transparency Act (previous note) and Section 302 of the PATIENT
Act of 2023 (HR5361); in the Senate, see Section 2 of the SITE Act (S1869): https://www.congress.gov/bill/118th-congress/house-
bill/3561/text; https://www.congress.gov/bill/118th-congress/senate-bill/1869/text

6
Actuarial Research Corporation (ARC) has developed a simulation model which illustrates the current state of billing practices
and payment rates, and projects the impacts of site neutrality across a variety of inputs which define the scope of services and
approach to payment neutrality. The model baseline data is the 2022 Medicare 5% sample Limited Data Set (LDS), extrapolated to
100% Medicare fee-for-service. Projections are calibrated to the CMS 2023 National Health Expenditures Accounts projections. All
analyses in this brief are based on this model or other ARC analyses of Medicare 5% sample LDS claims.

7
Identifying the rurality of spending is imprecise because off-campus locations of provider-based facilities often share the same
provider number as the primary facility. Typically, off-campus locations are within 35 miles of the main provider, though there are
several exceptions (see 42 CFR § 413.65(e)(3)). Both House of Representatives bills (see notes 4 and 5) include sections which
would require a separate identification number for each off-campus HOPD.

6
 ACTUARIAL
RESEARCH
CORPORATION

8
Savings estimates in this brief do not consider OPPS budget-neutrality requirements. Under current law, any decreases in
payments for certain services would be offset by increases in services not made site neutral. To fully realize the savings,
legislation would have to exempt site neutrality savings from budget neutrality calculations, as the recent House of
Representatives bills propose.

9
In Medicare Part B, a 20% coinsurance is required after a nominal deductible is met ($233 in 2022). While many beneficiaries
have a Medicare Supplement plan which directly pays the Part B coinsurance, pricing in the Medicare Supplement market is
extremely competitive, and we implicitly assume savings would be passed to beneficiaries in terms of lower Medicare
Supplement premiums.

10
See tables 8-2 and 8-3 of MedPAC June 2023 report (note 3). The 57 APCs from table 8-2 are set neutral with Physician Fee
Schedule payments using the Neutrality Adjuster. The 9 APCs from table 8-3 are set neutral with ambulatory surgical center
payments.

11
When the site neutrality required in the BBA of 2015 was first implemented in the 2017 OPPS payment rule, the Relativity
Adjuster approach was defined and set at 50%. The Relativity Adjuster was reduced to 40% in 2018. See: CY2017 OPPS Final Rule;
Federal Register 81:219; Section X.A Implementation of Section 603 of the Bipartisan Budget Act of 2015 Relating to Payment for
Certain Items and Services Furnished by Off-Campus Provider Based Departments of a Hospital (p79699-79719);
https://www.federalregister.gov/documents/2016/11/14/2016-26515/medicare-program-hospital-outpatient-prospective-
payment-and-ambulatory-surgical-center-payment and CY2018 PFS Final Rule; Federal Register 82:219; Section II.G Establishment
of Payment Rates Under the Medicare PFS for Nonexcepted Items and Services Furnished by Nonexcepted
Off-Campus Provider-Based Departments of a Hospital (p53019-53030);
https://www.federalregister.gov/documents/2017/11/15/2017-23953/medicare-program-revisions-to-payment-policies-under-
the-physician-fee-schedule-and-other-revisions

12
T. Bulat and R. Brake; Actuarial Research Corporation; October 18, 2023; Potential Impacts of Medicare Site Neutrality on Off-
Campus Drug Administration Costs; https://craftmediabucket.s3.amazonaws.com/uploads/Drug-Admin-Off-Campus-Site-
Neutrality-2023.10.18.pdf