In developing outpatient site–neutral payment policy, state lawmakers must determine which services should be included. To promote efficient health care spending, site-neutral payments may be applied to services that, at least in most cases, can be safely and appropriately provided in a freestanding (i.e., non-hospital) setting. Some services — such as emergency room services or inpatient hospital services — require more intensive resources and therefore warrant higher payment amounts. However, many routine services currently paid at higher amounts in hospital settings do not require such infrastructure. Failing to apply site-neutral payment in these cases may contribute to health care consolidation and cost inflation. This Technical Explainer is meant to accompany NASHP’s Model Legislation to Establish Site-Neutral Commercial Payment for Select Outpatient Health Care Services (the Model) to aid states in understanding the “Applicable Services” in the Model and in identifying which services to target.
The Model’s Medicare-Based Approach
While there are a number of approaches for determining which services should be subject to site-neutral payment, the Model references (1) current Medicare payment policy, and (2) services identified by a nonpartisan independent congressional commission, the Medicare Payment Advisory Commission (MedPAC), as more commonly provided in freestanding settings in the Medicare program. Medicare’s rates are assessed regularly based on indicators such as beneficiaries’ access to care and quality of care and providers’ revenues and costs. Findings are reported in an annual report to Congress.
Referencing Medicare-based sources allows for administrative ease, incorporating a level of expertise that states often do not have the resources to deploy for their own health care payment policy. However, the Model also leaves it open for states to identify services that are particularly relevant to their own populations, even if those services are not included in these Medicare-based sources.
As such, “Applicable Services” in the Model are defined in three categories:
- Current Site-Neutral Services in Medicare: Services for which Medicare has already implemented site-neutral payment policy under the hospital outpatient prospective payment system or for which Medicare intentionally does not set different payment rates by site of care.
- MedPAC-identified: Services contained within the 66 ambulatory payment classifications (APCs) identified by MedPAC in its June 2023 Report to the Congress. In the report, MedPAC recommends that Medicare adopt site-neutral payment “for selected services that are safe and appropriate to provide in all settings and when doing so does not pose a risk to access” under the Hospital Outpatient Prospective Payment System (OPPS). To illustrate the types of services such a policy could apply to, MedPAC evaluated Medicare claims data and identified 66 APCs for which either freestanding physicians’ offices or ambulatory surgical centers provided the highest volume of services.
- State-Led: Services identified by a state as safe and appropriate to be provided in lower-cost settings. States may also choose to begin with a smaller set of the services outlined above, such as only drug administration services — which are included in the 66 APCs identified by MedPAC and also in the Centers for Medicare and Medicaid Services (CMS) Calendar Year 2026 Hospital OPPS final rule CMS-1834-FC — or only clinic visits, which were implemented by CMS on a limited basis in 20191.
Technical Explainer developed by the 32BJ Labor Industry Cooperation Fund, based on conversation with and feedback from the Center on Health Insurance Reforms at Georgetown University McCourt School of Public Policy, the Center for Advancing Health Policy through Research at Brown University School of Public Health, and National Academy for State Health Policy.