The US Center for Medicare and Medicaid Services (CMS) wants healthcare delivered in the most appropriate, cost-effective setting by eliminating differences in payments across care sites for outpatient services. This is to encourage what is referred to as “site-neutrality.”

Until now, CMS reimbursed hospitals, physician offices, and freestanding outpatient facilities at significantly different payment rates for the same outpatient services depending on where the service was provided. For example, a hospital received a higher reimbursement rate, called outpatient prospective payment system (OPPS), for outpatient services even if they were provided at an off-site facility under their license, such as a freestanding diagnostic or ambulatory surgery center. Physicians or independent health providers who operated the same services would receive a lower reimbursement.

Hospitals maintained that a hospital-owned outpatient facility (called provider-based or PBD) needed larger reimbursements to accommodate a hospital’s generally higher overhead cost and potentially higher-acuity patients seeking treatment, even off-site from the main hospital.

That changed Jan. 1, when regulations went into effect with the 2015 Bipartisan Budget Act. CMS will now reimburse PBDs at the significantly lower physician office rate rather than the OPPS. The only exceptions that can still receive the existing higher reimbursement are:

  • Dedicated freestanding emergency departments
  • PBDs that provided services before Nov. 2, 2015, and haven’t relocated since that date (Some PBDs that were approved to bill after that date will have a short extension.)
  • PBDs that were midway through construction on Nov.2, 2015, and meet certain other requirements
  • PBDs that need to move due to rare extraordinary circumstances
  • PBDs that are on or within 250 yards of a hospital campus, which CMS considers “hospital based”

Additionally, new services at an existing PBD cannot receive the OPPS rate. (For more detailed information, visit here.)

These changes may have a sobering effect on hospital acquisition of physician practices and the development/expansion of off-site outpatient facilities since reimbursement will be lower, making these options less profitable. Hospitals could draw back diagnostic and treatment facilities to their main campus or within 250 yards to maintain higher outpatient reimbursement levels, especially for profitable services such as endoscopy or imaging.

However, current trends such as providing better patient access by positioning outpatient facilities to capture market share are still in play. For example, if patient volume increases by locating services on sites with better access away from the main hospital campus, this can offset the lower reimbursement.

Before project teams get out their tape measures to map out 250 yards, additional changes are being contemplated. The Medicare Payment Advisory Council (MedPac) is now discussing further modifications to the definition of site-neutral reimbursement, suggesting that hospital campus-based outpatient services that don’t require clinical emergency standby capacity and aren’t risky to perform off-site be reimbursed at the lower rate, reducing reimbursement at the hospital to match off-sites. Services that meet rate-reduction criteria could include all evaluation and management office visits, cardiac imaging, pulmonary testing, sleep studies and outpatient imaging, such as CT, ultrasound, and MRI. In other words, no matter where you provide these types of outpatient services, the reimbursement would be the same and the lowest cost setting most desirable.

Hospitals don’t agree with this concept because they feel it’s costlier to provide these services in the hospital proper. Academic medical centers and public safety net hospitals that rely more on hospital based-outpatient services because of their educational mission would be most adversely affected, per MedPac, because they treat vulnerable, more severely ill patients that drive higher costs. There’s no timetable yet for implementing these additional site-neutral rule changes, but organizations such as the Advisory Board have put their members on notice.

These changes could provide significant design opportunities as hospital systems reconfigure services both on and off campus to capture the best reimbursement. For example, if reimbursement is site-neutral, more outpatient services may be unbundled to locations with the lowest operating cost. We may see even more outpatient testing and procedural centers located in smaller satellite facilities, some with short stay/observation beds.

Many health systems are already embracing a more retail model of widely distributed, smaller outpatient facilities that are based on prototype templates built for a lower cost, utilizing faster construction techniques. Hospitals may need to further develop off-campus facility “warehouse” service hubs for supply distribution or ancillary support, such as pharmacy and laboratory services, to support these distributed sites. Will all of this mean the hospital of the future will just provide services for the most acute conditions or include the highest cost technologies and procedures?

No one knows how the new administration may affect these CMS initiatives or if these concepts will be embraced by private insurers, but these governmental mandates are setting a trend of lower site-neutral reimbursement. As designers and planners, we can add value to our customer engagements if we understand how these policy changes will affect our clients.

Sheila Cahnman, FAIA, FACHA, LEED AP, is president, JumpGarden Consulting, LLC. She can be reached at