Federal Legislative Update: Momentum Builds Around Medicare Site-Neutral Payment Policies

Washington policymakers are increasingly aligned around expanding Medicare "site-neutral" payment policies in 2026, a shift that would pay hospital outpatient departments the same rates as physician offices for a broader set of common services.

Regulatory Developments

In November, CMS finalized a policy to align Medicare payments for certain drugs administered in physician offices and hospital outpatient departments beginning in 2026. CMS estimates that similar site-neutral payment adjustments could generate more than $6 billion in federal savings over 10 years, based on prior CBO analyses.

CMS has also signaled that additional services could be targeted in future rulemaking. In a proposed payment rule released in July, the agency solicited public input on which services should be considered for expanded site-neutral payment reforms, indicating that those comments may inform future regulatory action.

Congressional Activity

Parallel to CMS action, lawmakers are pursuing legislative options to codify payment parity. In May, Sen. John Kennedy (R-LA) introduced the Same Care, Lower Cost Act (S.1629), which would align Medicare payments across diagnostic imaging, skin procedures, biopsies, pathology, and more than 60 additional services commonly performed in physician offices.

More expansive legislative approaches could have significant fiscal implications. According to CBO estimates, broader site-neutral payment reforms could save up to $157 billion over 10 years. Other analyses estimate potential reductions of $94–$134 billion in Medicaid premiums and cost-sharing over the same period.

Implications for Providers

Hospital groups, including the American Hospital Association, continue to oppose expanded site-neutral policies, warning that further payment reductions could lead to workforce reductions and service cutbacks. Supporters counter that the policy would help curb hospital consolidation of physician practices—now estimated at nearly 35%—and reduce higher facility-based billing once practices are acquired.

Notably, research published in Health Affairs found that California markets with the highest levels of hospital-owned physician practices experienced a 12% increase in insurance premiums, underscoring the broader cost implications of consolidation.

Outlook

With CMS signaling openness to further expansion and Congress actively weighing legislative options, site-neutral payment policy remains a key issue to watch heading into the 2026 payment cycle. As regulatory and legislative activity converges, the window for meaningful stakeholder engagement is narrowing. Decisions made over the coming months—both through statute and rulemaking—will shape Medicare payment policy well beyond 2026. This is a critical moment for affected stakeholders to engage with Congress and the Administration to ensure policymakers fully understand the operational, access, and workforce implications before positions harden and reforms are finalized.

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