Hospitals have long operated in a payment landscape shaped by reimbursement differentials, with hospital-based outpatient departments receiving higher rates for many services compared to freestanding physician offices or ambulatory centers. But that model is quickly shifting as momentum builds behind site-neutral payment policies, according to a Dec. 3 report from Kaufman Hall.
CMS’ 2026 outpatient rule marks a new milestone: drug administration services provided in excepted off-campus departments will now fall under site-neutral payments. This follows a series of steps — from the Bipartisan Budget Act of 2015 to CMS’ 2019 reductions — aimed at leveling payments across care settings.
Ashley Thompson, senior vice president of public policy analysis and development for the American Hospital Association, said the policies ignore the complex needs of hospital outpatient department patients and widen financial strain.
“The AHA is disappointed that CMS has finalized cuts to hospital and health system services, including those in rural and underserved communities,” Ms. Thompson said in a Nov. 21 statement. “Combined with its continued inadequate market basket updates, the agency is exacerbating the challenging financial pressures under which hospitals are operating to serve their patients and communities.”
Seven things to know:
1. CMS is expanding site-neutral payments in 2026. Under the 2026 Outpatient Prospective Payment System rule, CMS will apply site-neutral payment rates to drug administration services delivered in excepted off-campus provider-based departments. The change is expected to reduce outpatient spending by $290 million next year, according to CMS.
2. More site-neutral payments may follow. CMS’ policy change is part of a broader push to reduce or eliminate payment differentials between HOPDs and freestanding sites. More services — including imaging and surgical procedures — could be targeted next.
3. Some hospital contracts are directly tied to Medicare rates. Many Medicare Advantage contracts link reimbursement to Medicare fee-for-service rates. But any change CMS makes could immediately impact MA revenue, especially in markets where MA penetration exceeds 70%, according to Kaufman Hall.
4. A knock-on effect from commercial payers. Even if contracts aren’t directly tied to Medicare, many commercial payers may seek to mirror CMS’ site-neutral standards over time. That could lead to renegotiated contracts, rate compression or changes in network participation.
5. How hospitals should prepare. Kaufman Hall recommends a three-phase approach:
- Impact assessment to define exposure and vulnerabilities.
- Strategy formulation to defend revenue, grow strategically and reduce costs.
- Execution through cross-functional teams and active change management.
6. Outpatient strategies must evolve. Health systems may need to revamp ambulatory strategies and prepare for service line shifts to freestanding centers. That includes adapting operations, pricing and facility design to be cost-competitive in lower-reimbursement settings. Systems must align cost structures with new care settings. Ambulatory services may need to be delivered at a radically lower cost than HOPD equivalents to remain viable, requiring new partnerships or service portfolio adjustments.
7. Doing nothing is no longer an option. As Kaufman Hall writes: “Ambling in neutral is no longer an option.” With CMS advancing reform and private payers watching closely, health systems that fail to prepare risk margin erosion and competitive disadvantage.
Click here to access the full Kaufman Hall report.
