New York Legislature Seeks to Control Outpatient Spending through Site-Neutral Payment and Rate Cap Proposal
Spending on outpatient care—the care patients receive in a hospital outpatient department (HOPD), ambulatory surgical center (ASC), or a free-standing physician office—is one of the fastest growing components of health care costs. A new proposal in New York State seeks to rein in this spending for commercial payers, employers, and the millions of consumers they insure.
Background
One reason for increased spending on outpatient care is the vertical integration of health care markets, which occurs when hospitals acquire independent physician practices or other outpatient providers. Once acquired, these newly affiliated practices effectively become off-campus HOPDs which can charge significantly higher prices for the same services, as the health system they now belong to can leverage its market power in rate negotiations with insurers. These higher rates are typically split between two bills for standard office visits, with one bill covering the health care professional’s fee and another bill purportedly covering the hospital’s overhead, which can include intensive resources that these patients are unlikely to need. These combined charges are considerably higher than the bill for an office visit at a free-standing practice and drive up spending on outpatient care.
Policymakers have identified site-neutral payment as a possible solution to this dynamic. The underlying principle of site-neutral payment is that insurance companies, public programs, and other payers would pay the same rate regardless of whether the patient receives care at an HOPD, an ASC, or a free-standing physician’s office. This single payment amount for a given service is based on the amount insurers pay for care in the most-efficient, lowest-price setting and therefore reflects the resources providers need to provide safe and appropriate care, but not the higher overhead costs or pricing power emblematic of hospital-affiliated settings. Among major health insurance programs, only Medicare uses site-neutral payment in limited circumstances—but new legislation in the New York State Senate would introduce site-neutral payment to the New York commercial market for a subset of outpatient care.
New York’s Legislation
As introduced by State Senator Liz Krueger, S 9952 would require health care providers, including hospitals, physician offices, and urgent care clinics, to bill no more than 150 percent of what Medicare would pay for a defined set of outpatient services that are safe and appropriate to provide in lower-cost settings, such as a physician’s office or ASC. (Providers would bill at the rate they have negotiated with commercial payers if this rate is less than 150 percent of Medicare’s payment level.) The bill would also prohibit providers from charging an additional facility fee for covered services. These billing limits apply to in- and out-of-network care and to care provided to people without health insurance.
Services identified for site-neutral payment include evaluation and management services, wellness visits, and the 66 ambulatory payment classifications (APCs) the Medicare Payment Advisory Commission (MedPAC) identified in a 2023 report as appropriate for site-neutral payment. APCs, which group services based on clinical and cost similarity with a single payment rate assigned to each APC, are the foundation for Medicare’s outpatient prospective payment system (OPPS). The bill also anticipates that should New York State, the federal government, or MedPAC identify additional services that are safe and appropriate to provide in lower-cost settings, these services would be enfolded into the state’s site-neutral payment requirement.
This proposal also stipulates that network contracts between health care providers and health benefit plans—defined in the bill as a plan offered by an insurance carrier, a third-party administrator acting on behalf of a plan sponsor, such as an employer or a labor union, or a nonfederal public plan such as a state employee health benefit plan—must specify that plans will not pay higher rates for this defined set of outpatient services. Payers also would not be allowed to pay facility fees for covered services. To ensure that hospitals cannot shift these charges to patients, S 9952 would require network contracts to prohibit providers from collecting uncovered charges related to the facility fee prohibition and site-neutral payment requirements from patients themselves.
A common concern with facility fee bans or other reimbursement changes for outpatient care is the impact these policy changes may have on the viability of rural and safety-net hospitals and other providers who may depend on revenue from institutional charges for HOPD-based office visits to remain solvent. Under this proposal, new site-neutral billing and payment requirements would not apply to public hospitals, sole community hospitals, critical access hospitals, rural emergency hospitals, and safety-net hospitals, nor to federally qualified health centers.
Potential for Consumer, Employer, and Health Plan Savings
As introduced, the bill is likely to generate savings for commercial insurers and New York employers and provide important protections for consumers. According to an analysis by RAND, prices for outpatient services in New York State averaged 304 percent relative to Medicare in 2022. A payment cap of 150 percent of Medicare rates is therefore likely to reduce commercial spending on the outpatient services targeted by this proposal, although actual savings will depend on both current negotiated rates for this set of services, and whether negotiated rates for other services, not included in this reform, ultimately increase in response. These savings would accrue to insurance plans, employers, and other plan sponsors. For example, 32BJ Health Fund, a union-sponsored benefit plan, estimates that it would have saved $31 million, or two percent of its total health benefit expenditures, in 2022 if this rate cap had been in place.
This proposal could also provide real financial protection to consumers. Consumers with high-deductible health plans, who can be responsible for all allowed charges before they reach their deductible, would directly benefit from the proposal’s cap on payments for these outpatient services as well as the ban on facility fee charges. Similarly, patients with plan designs that include separate cost-sharing obligations for outpatient hospital charges would no longer owe that payment given the prohibition on facility fees. Consumers may also see reductions in their health insurance premiums should this reform result in significant reductions in outpatient spending. Post-implementation analysis of this proposal’s savings effects on insurers, employers, and consumers would inform future site-neutral payment efforts.
Monitoring Effects on Health Care Providers
Similarly, enactment and implementation of S 9952 would provide important insights on site-neutral payment’s effect on hospitals and health systems. As introduced, the proposal exempts rural and financially vulnerable providers from site-neutral payment requirements, while applying these requirements to the types of health systems that have driven vertical integration of the delivery system. The bill’s reporting requirements for pricing and utilization data, and its related call to the state that these data be made publicly available, will help answer questions about how these entities respond to site-neutral payment and what impact it may have on facility finances.
Takeaway
If enacted into law, S 9952—the first detailed state-level site-neutral payment proposal for the commercial market—would not only create a new model for other states to consider but would also provide significant real-world experience with site-neutral payment. While it is too early to know whether S 9952 will pass the New York legislature, and what changes it might go through before enactment, it creates an important marker for other states grappling with increased spending on outpatient services. Should this proposal be implemented, employers, health plans, and consumers may realize savings and new financial protections.
