Insights

As health care costs climb and the population ages, policymakers face ongoing pressure to limit spending while expanding access to care, especially for vulnerable and underserved populations. 

Economic Stability 

Every aspect of our nation’s health care system, from physicians to nurses, the drug and device industries to insurers (private and public), shares in the commitment to deliver care to the people in our communities. In this effort, America’s hospitals serve a unique role on the frontlines of our nation’s health care system, serving all who come through their doors—regardless of ability to pay. Yet, given their unique roles as economic engines in their communities and the dollars required to fund daily operations, hospitals are increasingly being put in the crosshairs of those seeking quick fixes to save scarce health care funds. 

In Search of Dollars 

When it comes to hospitals, there has been growing interest among policymakers in “site neutrality” proposals that would seek to level the cost and reimbursement for various services that can be provided in variety of settings, including hospital outpatient departments (HOPDs), ambulatory surgical centers (ASCs), and physician offices. Dating back to the Bipartisan Budget Act of 2015, there has been a movement within Medicare, supported by both legislation and regulation, toward equalizing payments for clinical visits at off-campus HOPDs and all other services provided at off-campus HOPDs—with a few exceptions. While off-campus HOPDs that billed Medicare before November 2, 2015, were exempted from these changes, the camel’s nose was now under the tent, and interest in expanding on these ideas has only grown in recent years.  

While the years following have brought more noise than action, in 2023, the House revisited the issue and passed with broad support the Lower Costs, More Transparency Act, which included a provision that would equalize Medicare reimbursement for physician-administered drugs between physician offices and all off-campus HOPDs, including those which were previously exempt from these changes. 

In November 2024, Sens. Bill Cassidy (R-LA) and Maggie Hassan (D-NH) released a “Lowering Health Costs for Seniors Framework,” which proposes establish site-neutral payments for common outpatient procedures across HOPDs, ASCs, and physician offices.  The framework also proposes to re-invest the subsequent Medicare savings into low-volume rural and urban safety net hospitals. Even though the framework has yet to be introduced as formal legislation, the release of the paper signals further bipartisan interest in enacting site-neutral payments. 

The Whole Picture 

What site-neutral proposals can miss is that attempting to equate the services provided in a hospital with those delivered in an office setting is not an easy apples-to-apples comparison—especially when considering the overhead costs required to support a hospital instead of a physician’s office. In addition, the patients served by hospitals are more likely to come from lesser-served areas, are more likely to have more limited resources, and are often sicker and have more comorbidities than those who often seek care in the office setting.  

Financial Realities  

Hospitals appear to outside observers to be “where the money is.”  That may be true—to a point. But one should not mistake capital for being flush with dispensable cash.  If site neutral proposals become law, hospitals could be faced with reimbursement cuts for services—especially when those payments fail to fully account for the costs of maintaining a hospital. 

With the capital expenses and infrastructure costs that come with being a hospital, it is essential to note that Medicare does not fully cover the costs that hospitals incur in caring for patients, paying only an average of 82 cents for every dollar of hospital care provided to Medicare patients.  

All-Comers 

Where site-neutrality proposals can miss the mark is that there is nothing site-neutral about the commitment that our hospitals have made to take all comers. Free-standing centers and offices simply are not neutral when it comes to whom they extend care, whereas such facilities can turn away those who they might see as a financial liability. That is not a criticism as much as it is a recognition of reality. 

What’s Next 

As a new administration and Congress converge on Washington in 2025, we expect renewed interest in moving health care legislation and, with it, policymakers’ perennial search for pay-fors to offset the costs of any new initiatives. Until site-neutrality proposals are willing to consider what “neutrality” would mean—not only in dollars but also in our hospitals’ commitment to the community and caring for all—they will fall short of recognizing the commitment and responsibility hospitals take on in our communities.

When Congress returns after the November election, it will have a slew of spending bills to address—either passing them or kicking the can down the road until the new year. One of the topics that could resurface in the lame duck is reforms to requirements on Pharmacy Benefit Managers (PBMs), as there has been bipartisan support this year for measures to change the way PBMs do business. 

What is a PBM? 

PBMs are third-party administrators that manage prescription drug plans for health insurers, Medicare, Medicaid, and large employers.1 They negotiate discounts and rebates with drug manufacturers, create formularies (lists of covered drugs), and manage pharmacy networks.   PBMs were designed to create cost savings, manage formularies, streamline the process of getting medications to patients and providers, and to help with patient medication adherence. 

Current Issues 

Many of these benefits have been achieved – but in recent years, many in Congress have identified concerning PBM behaviors and now feel the system and market have become misaligned.  The House and the Senate have spoken of the lack of transparency within PBMs.  Leaders in both chambers have also pointed out that current reimbursement incentives steer PBMs toward higher cost drugs, as they receive higher reimbursements for these drugs2.  In fact, studies have shown that PBMs are costing patients more in out-of-pocket prescription drug spending.3 Advocates have also said that PBMs are one of the largest factors in the closure of local ” mom-and-pop” pharmacies.

PBM Reform 

Consequently, both the House and Senate have considered PBM reform bills in this Congress.  The full House passed legislation with broad bipartisan support late last year, while the Senate has moved legislation at the committee level. Legislation focused on changing compensation for drug pricing and service fees5, creating more transparency regarding PBM pricing and reimbursement practices, allowing beneficiaries to have flexibility in which pharmacy they want to use, and changing the way drug savings and discounts are accounted for and distributed6.  These bills would create significant cost savings for the Medicare program – upwards of $1 billion – so PBM reform will be eyed as a “pay for” if Congress wants to offset the costs of other legislation.  

When Congress returns after the elections, whether some type of PBM reform will be passed this year remains an open question. Should Congress not move PBM reform this year, we expect that in 2025 PBMs will continue to be in the bipartisan crosshairs of policy leaders on both sides of the Capitol until some form action is taken.