MedPAC Recommends “Site-Neutral” Payment Policy


The Medicare Payment Advisory Commission’s (MedPAC) June report to Congress contained several cost-cutting recommendations but one of the more significant ones was its proposal to move “immediately” to “site-neutral payment” in which, e.g., Medicare would no longer pay more for a service provided in a hospital outpatient department than in a physician office.  MedPAC reasoned that “[i]f the same service can be safely provided in different settings, a prudent purchaser should not pay more for that service in one setting than in another.”  Accordingly, MedPAC maintained that “Medicare should base payment rates on the resources needed to treat patients in the most efficient setting, adjusting for differences in patient severity, to the extent that severity differences affect costs.”  This MedPAC proposal goes beyond its prior recommendation which was limited to E&M services only.  Citing an “increased urgency,” the commission noted that “current payment disparities had created incentives for hospitals to buy physician practices, driving up costs for the Medicare program and for beneficiaries.”  Given the significant effect a site-neutral payment policy would have on some hospitals’ revenue, MedPAC proposed a stop-loss provision for “hospitals that provide ambulatory services to a disproportionate share of low-income patients that would limit the loss of Medicare revenue for these hospitals.”  In this same report, MedPAC estimated that Medicare payments to doctors will be cut by 24.4 percent on January 1, 2014 unless Congress intervenes to avoid the reductions under the sustainable growth rate (SGR) as it has in years past.  When Congress is looking for ways to offset the cost of maintaining physician payment rates at current levels, MedPAC’s “site-neutral” payment recommendation, which is estimated to save about a billion dollars annually, may present a tempting avenue. 

On a happier note for hospitals, MedPAC proposed relaxing “the financial penalties that Medicare imposes on hospitals with high rates of patient readmissions.” In particular, MedPAC recommended that Medicare not penalize hospitals whose readmission rate has improved even if they still perform poorly based on a national standard. 

Reporter, Daniel J. Hettich, Washington, D.C., +1 202 626 9128,

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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