Benedic Ippolito, Loren Adler, and Matthew Fiedler of the American Enterprise Institute analyze recent health care reform proposals on Capitol Hill.

On April 26, 2023, the House Energy and Commerce Subcommittee on Health held a bipartisan on strategies to improve transparency and competition in health care markets. At the hearing, the Subcommittee considered seventeen bills on a range of topics, notably including proposals to expand site-neutral payments for certain ambulatory services and to improve health system transparency. …

… Medicare pays different amounts for ambulatory services depending on where a service is delivered. Medicare’s total payments for a given service are typically much higher when a service is delivered in a hospital outpatient department (HOPD) rather than a physician’s office (roughly twice as high, on average, in 2016). Payments for a given service are also higher when a service is delivered in an ambulatory surgical center (ASC) rather than a physician’s office, although payment differences are typically smaller.

Paying more when a service is delivered in an ASC or HOPD rather than a physician’s office often makes little sense. To ensure appropriate access while containing program costs, Medicare payments should generally reflect an efficient provider’s cost of delivering care. …

… Setting Medicare payments based on the lowest-cost site of care would save money for the federal government. It would also save money for Medicare beneficiaries because the premium for Medicare Part B (which covers ambulatory services) is set to cover 25% of Part B costs and because Medicare applies 20% coinsurance to Part B services, which is borne either by beneficiaries directly or by whoever pays for their supplemental coverage. This change would also reduce incentives for hospitals to acquire physician practices, and for physicians to seek hospital employment rather than independent practice, which could generate savings in commercial insurance markets. There is also evidence that reducing Medicare payments can directly reduce commercial payment rates.