Disrupting the outpatient playbook: Site neutrality | Baker Tilly
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Disrupting the outpatient playbook: Site neutrality and what’s next for hospitals
Nov. 6, 2025 · Authored by Karl Rebay, Justin Stewart, Mandy Mori
Site-neutral payment reform — the concept that Medicare should pay the same rate for the same service, regardless of the care setting — continues to gain momentum. This policy direction has drawn consistent recommendations from the Medicare Payment Advisory Commission (MedPAC) and favorable budgetary analyses from the Congressional Budget Office (CBO) when scored for potential federal savings. Together, these perspectives underscore growing attention to the financial and policy implications of site-neutrality for hospitals, particularly those operating hospital outpatient departments (HOPDs).
While the One Big Beautiful Bill Act (OBBBA, H.R. One) was enacted on July 4, 2025, it didn’t include site-neutral Medicare payment reforms. However, stand-alone legislation — the Same Care, Lower Cost Act (S.1629) — is gaining traction and could reshape outpatient payment policy as early as 2027. Health systems and hospitals must act now to prepare for the likely shift in payment dynamics.
Key legislative developments
Site neutrality proposes equal Medicare reimbursement for identical services, regardless of where they are delivered — such as in a HOPD versus a physician office. MedPAC has long recommended adopting site-neutral payments, citing its potential to eliminate unnecessary healthcare spending, reduce billing complexity tied to facility ownership, preserve the viability of independent physician practices, and disincentivize strategic site shifting by health systems.
The CBO, while not taking a policy position, has projected significant federal savings in scenarios where site-neutral payment policies are implemented — an analysis that has informed recent congressional interest.
Hospitals acquire and integrate physician practices for many reasons, such as preserving access to care in underserved areas, sustaining financially vulnerable practices, maintaining continuity of patient care, and enhancing clinical capabilities. They have been criticized for accessing higher reimbursement when they convert those practices to operate as outpatient departments of the hospital. The reason behind the higher reimbursement is that overhead costs are higher. Arguments against that strategy are based on the belief that costs don’t really change just because a practice changes ownership. While the reality is somewhere in the middle, payers pay more in that model. Site-neutral payment policies aim to ensure that reimbursement aligns with care value rather than the location of service.
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If broadly implemented, site neutrality would affect a wide range of outpatient services and significantly reduce reimbursement for hospitals with large HOPD footprints, building upon existing financial pressures. For those at or below break-even financial performance, it could spell disaster.
Health systems and hospitals — particularly those in rural or underserved areas — have highlighted the potential unintended consequences of site-neutral reimbursement. Many rely on outpatient reimbursement to support essential services such as uncompensated care, trauma services, specialized programs, and community services. Smaller systems may face challenges reflecting the higher overhead, regulatory requirements, and staffing complexity inherent to hospital-based care. Additionally, care provided in HOPDs often involves greater clinical complexity and risk, which has been historically used to justify differentiated reimbursement.
OBBBA
Signed into law on July 4, 2025, the OBBBA focused primarily on tax reforms, federal spending caps, and entitlement reductions. Although earlier drafts included discussions on healthcare savings, the final version didn’t include any site-neutral payment reforms.
Same care, lower cost act (s.1629)
Introduced in May 2025 by Sen. John Kennedy (R-Louisiana), this bill is currently gaining bipartisan interest and support from cost-containment advocates. Its key provisions include equalizing Medicare payments for outpatient services across all care settings, targeting more than 60 Ambulatory Payment Classification (APC) codes frequently used in HOPDs, and proposing implementation starting in calendar year (CY) 2027. The bill is pending CBO scoring and remains under committee review, with estimated savings exceeding $150 billion over 10 years.
Strategic implications for hospital leaders
Health system and hospital leaders should prepare for a landscape where service setting no longer dictates payment. Key implications include:
Revenue compression
Expect reduced reimbursement for evaluation and management visits, drug infusions and injections, and imaging services. These cuts could materially impact outpatient department profitability, particularly for academic medical centers and systems with large HOPD footprints.
Physician integration risk
Hospitals that acquired physician practices to shift services into higher-reimbursed outpatient departments may face diminishing returns. Site neutrality weakens this economic incentive and may affect future integration and alignment strategies.
Vulnerability for safety-net and rural hospitals
Hospitals in underserved areas, including Disproportionate share hospital-eligible and rural facilities, should plan for potential funding shortfalls and explore targeted subsidies. These providers will need to advocate for exemptions or carve-outs to preserve access to care.
Operational optimization
Reassessment of care delivery locations should begin now. Prioritizing low-cost, high-efficiency outpatient models, optimizing use of clinic space across owned and affiliated networks, and accelerating the redesign of ambulatory strategies not tied to HOPD billing status will be key.
Financial and payer strategy
Hospitals should take immediate steps to prepare their financial strategies. Now is the time to model the impact of APC code payment alignment, identify service lines at greatest reimbursement risk, and review payer contracts for site-of-service provisions that may be renegotiated or impacted by the Centers for Medicare & Medicaid Services (CMS) rules.
While not common, in markets where hospitals have significant leverage, a refusal to accept site-neutral rates — potentially including contract termination with commercial payers that follow Medicare’s lead and push site-neutral rates — can be a strategic option. However, this approach carries risks and is usually part of a broader negotiation strategy rather than an outright rejection of site neutrality policies.
Regulatory and advocacy readiness
Following the close of the CY 2026 Hospital Outpatient Prospective Payment System proposed rule comment period on Sept. 15, 2025, CMS is now evaluating extensive stakeholder input on the proposed site-neutral payment policies. As the agency moves toward publishing the final rule later this fall, organizations should stay closely aligned with national associations to reinforce shared advocacy positions, prepare for potential payment impacts, and develop response strategies once the final rule is issued.
Recommendations for leadership action
To position your organization for success, executive teams should:
Conduct detailed analyses of site-of-service revenue exposure
Convene strategy, finance, and operations leaders to develop scenario models for CY 2027 and beyond
Create a playbook for delivering services to most cost-effective settings without compromising quality
Communicate implications and scenarios with board members and physician leaders
Build advocacy plans tailored to local, state, and national stakeholders
Although site neutrality hasn’t become law, sustained bipartisan legislative interest makes passage plausible in 2026–27. For hospitals and health systems, site neutrality isn’t just a policy change; it's a strategic inflection point that may affect service line configuration, site-of-care decisions, physician alignment strategy, contracting approach with payers, and long-term financial sustainability. Hospitals may face hundreds of millions in outpatient revenue losses if site-neutral reform passes and must begin preparing now.
