Strategies
Site-neutral payments aim to eliminate the price differential between outpatient services delivered within hospital-owned or affiliated settings and those that can be safely and appropriately provided in lower-cost settings, such as in an independent physician’s office or another freestanding setting. As hospitals acquire physician practices and shift services into hospital outpatient departments and other hospital-owned settings, services that were once billed at lower, office-based rates can become more expensive solely due to changes in practice ownership or billing classification. As a result, higher prices become driven by where care is delivered rather than what care is provided.
Site-neutral payment policies prohibit payments that exceed reference-based non-hospital rates for a defined set of outpatient services, typically capped at a percentage of Medicare’s non-hospital rates. By focusing on outpatient services where additional payment is not justified, site-neutral payments directly address excessive prices as a driver of health care spending, while utilizing a more targeted approach than a commercial market-wide price cap. In addition, the policy can help disrupt upstream incentives for further market consolidation, which have been shown to drive up prices without corresponding improvements in quality, and eliminate incentives to shift care to higher-cost hospital departments solely to maximize revenue. For information on a narrower approach to addressing site-based price differentials, see the Hub page on Facility Fee Bans.
In 2025, NASHP released a comprehensive model law, Establishing Site-Neutral Commercial Payment for Select Outpatient Health Care Services. See the Policy Design Decisions table below for further details on the NASHP model law.
| Question | Answers |
|---|---|
| How should the state apply site-neutral payments? | Site-neutral payments can be applied to specific market segments only – such as within a state employee health plan – or across the fully insured commercial market. In addition, where states have or can obtain appropriate authority, site-neutral payments can be applied directly to hospital and provider charges, which impacts both the fully insured and self-insured commercial markets. For example, the NASHP model law prohibits providers from charging, billing, or accepting payment that exceeds the site-neutral payment cap for applicable services. |
| What authority is needed to establish site-neutral payments? | States seeking to address site-of-care payment differentials in their public employee benefit programs may be able to leverage existing purchasing authority to achieve lower provider prices via site-neutral payments. However, states planning to go beyond this narrower application will need statutory authority to implement site-neutral payment caps via insurance regulation or provider regulation. |
| Which services should be subject to site-neutral payments? | The services subject to site-neutral payment caps are outpatient or ambulatory services that can be safely and appropriately provided across ambulatory settings. The NASHP model includes the 66 ambulatory payment classifications identified by the Medicare Payment Advisory Commission’s (MedPAC) June 2023 Report to Congress as appropriate for site-neutral payment. The NASHP model also stipulates that services include any additional outpatient services recommended or required to be paid in a site-neutral manner by MedPAC, or by federal or state law, which allows services to be added over time. |
| Which hospitals and providers should be accountable? | The level of the site-neutral payment cap will dictate which hospitals and providers will be impacted based on current price levels. If implemented via provider regulation, the site-neutral payment cap can apply to both in-network and out-of-network providers, which removes incentives for providers to leave health plan networks to avoid the payment requirements. States must also decide whether to apply site-neutral payments universally or exempt certain hospital or provider categories, weighing administrative simplicity and comprehensive savings against targeted relief for certain providers. States could comprehensively apply site-neutral payment caps to all hospitals or could exempt certain hospitals based on designation (e.g., rural, critical access, sole community), financial metrics (e.g., operating margin and days cash on hand below certain thresholds), or service mission (e.g., safety-net facilities serving a high proportion of Medicaid-enrolled or uninsured individuals). States could also exempt non-hospital entities such as federally qualified health centers, which may be hospital-owned or affiliated. States could conduct hospital financial analyses to understand hospitals’ financial health and help determine if an exemption or transition period may be needed for certain hospitals, recognizing that some hospitals are financially robust, while others are not. Additional considerations for any exemptions or variations include the precedent it creates for hospitals and providers to lobby for special treatment, the associated complexity involved with evaluating exemption requests, and the overall complexity with administering a policy with multiple accommodations. |
| At what value should the site-neutral payment benchmark be set? | States should conduct modeling to understand the current range of payments for outpatient services in hospital and non-hospital settings to identify current payment differentials and the relative non-hospital Medicare rates for those services. The percentage multiple of Medicare should be informed by the state’s objectives and projected savings estimates, and should reflect a higher payment than current non-hospital Medicare rates for services provided in non-hospital settings to ensure financial stability of non-hospital providers and prevent potential incentives for vertical integration. |
| How can the state mitigate potential risks? | States can require that in-network providers accept the site-neutral payment amount as payment in full for applicable services to avoid providers seeking to selectively contract around these requirements (i.e., avoid contracting only for services subject to the site-neutral payment cap). This provision, combined with an explicit prohibition on patient liability for any amounts in excess of the site neutral rate, can protect patients from potential balance billing. The NASHP model includes both provisions. States can also mitigate risks with comprehensive monitoring and reporting to ensure the policy is being implemented effectively and to detect any potential unintended consequences, such as cost-shifting to non-capped services. States can prevent hospitals from seeking to quickly increase their prices up to the site-neutral payment cap by combining this policy with a price growth cap, which restricts how much providers can increase prices in any given year. |
Site-Neutral Payments
New York’s Coalition for Affordable Hospitals, led by 32BJ Labor Industry Cooperation Fund, developed and has supported comprehensive site-neutral payment legislation since 2023, the Fair Pricing Act (S705). The legislation would prohibit providers from charging, billing, or accepting payment for a defined set of outpatient services that exceeds the lesser of 150% of the Medicare non-hospital rate for those same services, or the existing negotiated rate. These billing limits apply to in- and out-of-network care and to care provided to people without health insurance. The legislation would also prohibit providers from charging an additional facility fee for covered services. Services identified for site-neutral payment include evaluation and management services, wellness visits, and the 66 Ambulatory Payment Classifications identified in MedPAC’s 2023 report as appropriate for site-neutral payment. The bill further prohibits providers from collecting from patients any outstanding charges related to the facility fee prohibition and site-neutral payment requirements.
A study examining the potential financial impact of the Fair Pricing Act statewide found savings of over $1 billion for commercial payers if they had used site-neutral payment for low-complexity services in 2022, with consumer savings ranging from $168.9 million to $213.4 million in lower out-of-pocket expenses.
Projected Savings for Site-Neutral Payments in 48 States and Washington, D.C.
A study using 2022 Health Care Cost Institute data found that implementing site-neutral payments for commercial insurers by capping prices at 150% of Medicare non-hospital payments would have saved purchasers and patients in 48 states and Washington, D.C. a total of $10.8 billion, or an average of $72.10 per commercially insured person in 2022. The study further provides state-specific figures for estimated total and per capita savings. Using NASHP’s Hospital Cost Tool data, the authors also estimated the state-specific impacts of savings from site-neutral payment on state-level hospital operating margins.