As Medicare’s financial footprint grows, policymakers are sharpening their focus on high-expenditure areas that present opportunities for reform. One target is the payment differential for outpatient services based on site of care—Medicare often reimburses hospitals at higher rates than physician offices for delivering the same service. In response, policies that aim to standardize reimbursement across settings for comparable services, known as “site-neutral” payments, have gained momentum.
In its proposed rule for the Calendar Year (CY) 2026 Outpatient Prospective Payment System (OPPS), the Centers for Medicare & Medicaid Services (CMS) builds on prior site-neutrality efforts by applying them to drug administration services covered under Medicare Part B. If finalized, the policy would align Medicare reimbursement for certain outpatient drug services across provider settings. Specifically, CMS proposes matching payment rates for off-campus hospital outpatient departments (HOPDs) with rates paid under the Medicare Physician Fee Schedule (MPFS).
Background on site-neutral payment
Site-neutral payment policies have been a focus of CMS and the Medicare Payment Advisory Commission (MedPAC) for more than a decade, driven by research highlighting payment disparities for the same services delivered in different care settings. For example, in 2023, MedPAC found that the same chemotherapy infusion service was reimbursed at a rate 186% higher than when administered in an HOPD compared to a physician’s office. This differential has been referenced as one of the driving factors behind acquisition of provider groups by hospital systems.
In an early response to findings like these, the Bipartisan Budget Act of 2015 (BBA) established Medicare’s first statutory site-neutral payment policy. The law required that most services delivered in newly established off-campus HOPDs be reimbursed at MPFS rates, which are approximately 40% of standard OPPS reimbursement. However, departments that had been billing Medicare before the law’s enactment—referred to as “excepted” or “grandfathered” sites—were permitted to continue receiving the higher OPPS rates.
In 2019, CMS extended site-neutral payment further by phasing in MPFS-equivalent reimbursement for clinic visits at all off-campus HOPDs, including those that had been exempted under the BBA’s statutory reforms. The rule faced legal challenges from the hospital industry, who argued that CMS exceeded its rulemaking authority. The D.C. District Court sided with hospitals in 2019, vacating the site-neutral payment rule. The following year, however, the district court’s decision was overturned by the Court of Appeals for the D.C. Circuit, and the Supreme Court declined to hear the hospital associations’ appeal, effectively codifying the agency’s regulatory authority to implement site-neutral payment in the OPPS.
The 2026 proposed OPPS rule continues this trajectory by applying site-neutral payment to drug administration services provided at excepted off-campus HOPDs. A similar provision appeared in the Lower Costs, More Transparency Act of 2023, which passed the House of Representatives with bipartisan support but was not taken up by the Senate.. As with the 2019 rule, CMS justifies the current proposal as a way to curb growth in outpatient service volume at off-campus HOPDs—a trend the agency attributes to financial incentives embedded under the current payment system.
5 considerations for hospitals and health systems
1. Services affected
Although CMS has not published an official list of drug administration services subject to site-neutral payment, the proposed rule indicates its intent to include all 61 Healthcare Common Procedure Coding System (HCPCS) codes that fall within the four Ambulatory Payment Classification (APC) groups related to drug administration in the OPPS. This proposal draws on a 2023 MedPAC report, which found that these four APCs (5691, 5692, 5693, 5694) were more commonly billed in freestanding offices than in HOPDs—supporting the agency’s position that it is “safe and appropriate” to furnish drug administration services in physicians’ offices. At the same time, CMS observed that these services have increased in volume at excepted off-campus HOPDs, both overall and on a per-beneficiary basis. Together, these findings suggested to CMS that drug administration services performed in off-campus HOPDs are driving “unnecessary increases” in spending when they could be safely performed in lower-cost settings.
2. Revenue reductions
The proposed rule estimates that applying site-neutral payment to drug administration services in excepted off-campus HOPDs would reduce OPPS spending by $280 million in CY 2026. Of that total, $210 million of the savings would accrue to Medicare, while $70 million would be saved by Medicare beneficiaries through reduced cost sharing. These savings would result in a corresponding decrease in hospital revenue.
Because OPPS rates for these services are tied to MPFS rates under site neutral policy, changes to the MPFS would directly influence outpatient reimbursement. For example, the CY 2026 MPFS proposed rule includes a one-year 2.5% payment increase, which would also raise OPPS site-neutral rates. However, this increase is set to expire in 2027, potentially lowering those payments in future years. Over time, differences in how OPPS and MPFS are updated may amplify the impact of site-neutral policies. OPPS updates are based on the hospital market basket, while MPFS updates are set at 0% by statute but are sometimes modified by Congress. These differing update mechanisms can cause payment levels to move at different rates, affecting the magnitude of site-neutral payment changes. This contributes to uncertainty around future reimbursement levels.
This uncertainty may compound stakeholder concerns that site-neutral payment may not fully account for the higher operating costs faced by hospitals relative to other outpatient settings. Hospitals typically maintain around-the-clock emergency services, broader infrastructure, and must meet more complex regulatory and compliance standards. These stakeholders argue that the payment differential for HOPDs has historically helped support those functions and warn that the proposed changes could prompt hospitals to reassess, or even reduce, their care delivery services.
3. Exemptions for rural hospitals
Another common concern raised by critics of site-neutrality reforms is their potential impact on rural hospitals. These facilities often rely heavily on government payers, and reductions in reimbursement could exacerbate existing financial challenges. Their financial difficulties are evidenced by the nearly 200 closures and conversions that occurred over the past two decades.
To address this issue, the CY 2026 proposed rule would exempt facilities designated as rural Sole Community Hospitals from the site neutrality provision. This exemption is consistent with the policy codified in the CY 2023 OPPS final rule, which excluded rural Sole Community Hospitals from the 2019 site-neutral clinic visit provision. However, both the 2023 final rule and the 2026 proposed rule do not extend this exemption to other rural hospital designations, such as Rural Emergency Hospitals or Medicare Dependent Hospitals, leaving them and their patients vulnerable to the fiscal impact of the policies. For some stakeholders, this limited exemption is not concerning, as research shows that off-campus HOPDs account for only 2% of all rural outpatient spending in Medicare. Others caution that exempting rural hospitals at all may come with tradeoffs: by maintaining higher reimbursement, rural patients may miss out on lower cost-sharing that would result from site-neutral payments.
4. Interplay with other policy changes
The proposed rule does not address how lower reimbursement rates for hospitals may compound the financial challenges anticipated under other recent federal policy changes. For example, changes to federal healthcare programs included in H.R. 1 (informally referred to as the One Big Beautiful Bill Act) are projected to result in 10 million additional people uninsured by 2034. As a result, hospitals may face higher levels of uncompensated care and bad debt, placing additional strain on operating margins. Although the legislation’s Rural Health Transformation Program aims to mitigate the financial impact of these changes on rural hospitals, the $50 billion allocated to the program is only expected to offset approximately one-third of the estimated Medicaid funding losses in rural areas through 2034.
At the same time, proposed changes to the 340B Drug Pricing Program could further impact hospital revenues. Policymakers concerned with potential program misuse have proposed reforms that could narrow the program’s scope, such as the recently announced 340B Rebate Model Pilot Program. In addition, CMS will soon begin recouping past payments made to hospitals that received higher OPPS rates for non-drug services between 2018 and 2022—rates that were increased due to unlawful reimbursement reductions for 340B drugs during that period. For hospitals that rely on 340B savings to support outpatient drug delivery and uncompensated care, program changes may create compounding financial pressure, while the recoupment of past payments adds further strain across all affected hospitals.
Finally, the Medicare Drug Price Negotiation Program for Part B drugs—set to begin in 2028—may reduce reimbursement for purchasing and administering negotiated drugs. Hospitals will likely receive lower add-on payments, which are currently based on the drug’s average sales price but will instead be tied to its negotiated price in 2028. This shift also introduces the potential for margin compression, adding complexity to financial planning for many hospitals.
5. Future site neutrality reforms
In the proposed rule, CMS signaled its interest in expanding site-neutral payment policies to other services and settings. The CY 2026 OPPS proposed rule specifically pointed to other APC categories, such as imaging without contrast and outpatient clinic visits rendered in on-campus settings.
Future legislative action may also shape the direction of site neutrality. In May, Congress introduced the Same Care, Lower Cost Act, which would require Medicare to reimburse both on- and off-campus HOPDs at MPFS rates for equivalent services. Although unlikely to advance, the legislation signals Medicare’s future potential to transition toward a fully site-neutral payment system for HOPDs.
Looking ahead
CMS is now reviewing stakeholder feedback on the scope of the site-neutral provision, the types of rural hospitals qualified for exemption, the list of affected HCPCS codes, and the modeling behind CMS’ cost estimates. As the agency prepares the final OPPS rule, hospitals and health systems will need to prepare for potential site-neutrality changes by evaluating the operational and financial implications for their organizations. Strategic planning around payer and service mix, staffing, infrastructure investments, and site-of-care optimization will be essential to sustaining care delivery models. While the fiscal implications of site neutrality are significant, the broader impact hinges how hospitals and health systems respond to a shifting reimbursement landscape.