United States: Congress Take Step Toward Site-Neutral Medicare Payments In Bipartisan Budget Act Of 2015

On October 28, 2015, the U.S. House of Representatives approved legislation that, if enacted, would, among other things, substantially alter how and how much Medicare pays for outpatient services furnished by hospitals. The legislation, known as the Bipartisan Budget Act of 2015, principally reflects and implements a two-year federal budget and debt limit compromise negotiated between President Obama and congressional Republicans that diminishes many of the harshest spending reductions wrought by sequestration, and avoids a potential default on U.S. debt obligations. Nonetheless, the legislation is drawing heightened scrutiny by, and concern within, the health care community— not because of the central purposes of the bill, but rather because of a handful of Medicare and Medicaid related provisions also included in the legislation.

Of perhaps greatest significance to the health care community is a provision (Section 603) that would provide that effective January 1, 2017, Medicare payments for most items and services furnished at an off-campus department of a hospital that was not billing as a hospital service prior to the date of enactment would be made under the applicable non-hospital payment system.  This "site neutrality" provision begins to address concerns raised by certain policymakers in recent years that Medicare should not be paying different amounts for the same services based on the location or type of provider, and that hospitals may be improperly incentivized to acquire and label physician practices and ambulatory surgery centers (ASCs) as hospital outpatient departments due to higher rates available for services furnished in hospital outpatient settings.

Site Neutrality Provision


Medicare utilizes several different payment systems to pay for services furnished to beneficiaries on an outpatient basis. Generally speaking, when a Medicare beneficiary receives a physician office service in a physician's office, Medicare pays for that service pursuant to the Medicare Physician Fee Schedule (MPFS). If that Medicare beneficiary receives the same service in a hospital setting, Medicare also pays a facility fee under the Hospital Outpatient Prospective Payment System (OPPS). When Medicare pays both a professional fee (under the MPFS) and a facility fee (under the OPPS), the total payment is typically higher than if Medicare makes just one payment to the physician under the MPFS. Similarly, if a beneficiary receives a surgical service in an ASC, the Medicare payment is always less than if the beneficiary receives that same service in a hospital setting.

Policymakers and watchdogs, most notably the Medicare Payment Advisory Commission, have expressed concerns for years that these disparities are not justified and incentivize hospitals to acquire physician practices and ASCs to capture the higher payment for furnishing the services in a hospital setting. In recent years, there has been increasing criticism that these incentives have led to widespread vertical integration and increased Medicare expenditures.

New Payment Limits

Under Section 603, effective January 1, 2017, when an item or service is furnished at an off-campus outpatient department of a hospital, unless that location was billing as a department of a hospital prior to the date of enactment, Medicare will pay for that service under either the MPFS or ASC fee schedule, as applicable to the service provided. Notably, this limitation will not apply to off-campus emergency department services (i.e., services coded using HCPCS codes 99281-99285).


This limitation begins to address concerns about site-driven payment disparities and the behaviors they motivate, but it is much less onerous than alternative solutions that could have advanced. First, the limitation applies only prospectively. As such, any arrangement billing as a hospital outpatient department service prior to the date of enactment would be exempt from this limitation, and would be able to continue to bill and be paid by Medicare under the OPPS.  Nonetheless, hospitals should be prepared for the possibility that the Centers for Medicare and Medicaid Services (CMS), which will be responsible for implementing this provision, may seek to stretch its authority and add further limitations that effectively "freeze" the size and scope of the existing location.

Second, the limitation applies only to items and services furnished off-campus.  Under existing Medicare regulations at 42 C.F.R. § 413.65 governing provider-based status, the term "campus is defined as the physical area immediately adjacent to the provider's main buildings and other areas and structures that are not strictly contiguous to the main buildings but are located within 250 yards of the main buildings" (plus, other areas determined on an individual case basis by CMS). Locations not on the "campus" are deemed "off campus." Consequently, this limitation technically applies only to those entities not meeting this definition of "campus," although how a provider has positioned a location as on or off campus with CMS will be just as important.  Under the statutory amendment, services furnished at remote locations of a hospital would be considered on campus.

Third, the limitation will not apply to payments for items and services until January 1, 2017, although it would apply to any location not billing as a hospital outpatient department as of the date of enactment.

Fourth, the limitation applies only to items and services furnished by a hospital department.  Under those same regulations, an entity is considered a hospital department (as opposed to freestanding or a provider-based entity) if it is, among other things, furnishing services "of the same type as those furnished by the main provider." Accordingly, this change applies to physician and ASC services, which are of the same type as those furnished by a hospital, and would not, for example, appear to apply to rural health clinic services.

Also of note, the statutory language does not provide a specific mechanism for implementation of the site-neutral payments, but does suggest that CMS consider identifying services furnished at new off-campus outpatient locations through claim modifiers or information reporting during the Medicare enrollment process. Therefore, it remains uncertain how this provision may impact hospital Medicare enrollment and cost reporting obligations for off-campus outpatient locations and could have possible implications for hospital survey and certification requirements.

Finally, there is a discrepancy between the actual text of the legislation and a published summary of the legislation, which states that an off-campus hospital outpatient department executing a provider agreement (rather than billing as a department of a hospital) after the date of enactment would not be eligible for OPPS reimbursement. Not only does the summary language differ from the legislative text, it is inconsistent with current CMS rules, which do not require hospitals to enter into new provider agreements to add off-campus hospital departments.

Potential 340B Program Impact

This change also has potential implications for hospital participation in the 340B Program, the federal program that permits certain safety net providers, including hospitals, to obtain outpatient drugs for dispensing to eligible patients at a significant discount. Depending on how the statutory change is implemented by CMS and interpreted by the Health Resources and Services Administration (HRSA), the federal agency that administers the 340B Program, it could impact 340B eligibility for off-campus outpatient departments created after the date of enactment of the provision. Current 340B Program policy extends access to 340B discounts to only those outpatient locations of an eligible hospital that are reported as Medicare-reimbursable outpatient locations on the hospital's Medicare cost report. If CMS implements the statutory change in a manner that changes the way new off-campus outpatient locations are reported on the Medicare cost report, or if HRSA otherwise opts to consider such locations not part of the 340B-eligible hospital entity, outpatient drugs prescribed or dispensed at such locations could be ineligible for 340B discounts. 

Other Provisions

The legislation has over three dozen distinct sections, only a few of which affect health care items and services.


The legislation also extends the across-the-board sequestration of Medicare payments for an additional year into fiscal year 2025. Under current law, Medicare payments for all items and services are, and will continue to be, cut two percent through 2023, and then four percent for the first six months of 2024.  Congress has in recent years turned to the sequestration as an easy and distant mechanism for achieving measureable budget savings with minimal political implication.  Congress chose that path again here.

Part B Premiums

The legislation avoids an anticipated spike in Part B premiums for a select cohort of beneficiaries beginning in 2016, but largely pays for this relief by increasing Part B premiums for a broader set of beneficiaries by a smaller amount.

Medicaid Rebates from Generic Drugs

There have been a number of hearings and congressional inquiries in 2015 concerning the rapidly rising price of generic drugs. This bill partially addresses these concerns through the rebates that are due to Medicaid for generic drugs. Currently, manufacturers of single source and innovator multiple source drugs pay an additional rebate if the price of the drug has increased faster than inflation (CPI-U). Generic drugs are not subject to the inflation-based rebate. This bill would apply the inflation-based rebate to generic drugs.

Next Steps

The legislation thus far has been approved only by the House of Representatives, and must still be approved by the Senate and signed by the president before it becomes law. This deal reflects a compromise negotiated with the president's involvement, and therefore should garner bipartisan support and approval, enactment is not certain.

Hospitals considering (or in the process of) acquiring or developing new off-campus outpatient locations, with particular attention to those participating in the 340B Program, should carefully monitor the status of this legislation and, if enacted, future CMS guidance implementing the provision.

Congress Take Step Toward Site-Neutral Medicare Payments In Bipartisan Budget Act Of 2015

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.