Health Savers Initiative: Equalizing Medicare Payments Regardless of Site-of-Care

Currently, the Medicare program pays higher rates for medical services performed in hospital outpatient departments (HOPDs) than it pays for the same services when they are performed at physicians’ offices or Ambulatory Surgical Centers (ASCs), even when the care is equally safe and effective. In order to lower health care costs for patients and the Medicare program, policymakers could consider changing this policy.

As part of the Health Savers Initiative, this paper presents a description and savings estimate for an option to equalize payments for a specific set of services across care settings in Medicare. This policy, often called site-neutral payment reform, has bipartisan support and has been recommended by the Medicare Payment Advisory Commission (MedPAC) and proposed by Presidents Trump and Obama.

This policy would not only save Medicare dollars and reduce Medicare premiums and cost-sharing, but it could also generate savings in other parts of the health system. Commercial payers could achieve savings by also adopting site-neutral payments given strengthened negotiating leverage from Medicare’s change. Furthermore, by reducing payment rates for HOPDs, there would be less incentive for hospitals to purchase physician practices to convert to HOPDs, which has led to higher private sector prices.

Given the high and rising costs of health care, a number of bold policy changes will be needed to assure long-term affordability and sustainability. In this context, paying the same rate for the same service regardless of site-of-care could be considered an obvious option, particularly because this policy has already achieved bipartisan support.

Over the next decade (2021-2030), this site-neutral payment policy could:

• Reduce Medicare spending by $153 billion

• Reduce premiums and cost-sharing for Medicare beneficiaries by $94 billion

Assuming different levels of private sector spillover savings, this policy could also:

• Reduce total national health expenditures by a range of $346 to $672 billion

• Reduce the federal budget deficit by a range of $217 to $279 billion

• Reduce private cost-sharing and premiums1 by a range of $140 to $466 billion

The Health Savers Initiative is a project of the Committee for a Responsible Federal Budget, Arnold Ventures, and West Health, which works to identify bold and concrete policy options to make health care more affordable for the federal government, businesses, and households. This brief presents an option meant to be just of many, but it incorporates specifications and savings estimates so policymakers can weigh costs and benefits, and gain a better understanding of whatever health savings policies they choose to pursue.