A hospital-owned outpatient department has billed more than a physician office for the same service since the 1990s. Same MRI machine, same radiologist, same twenty minutes on the table, a different number on the claim. CMS has spent seven years chipping away at that gap. This year the chipping became a wall.
Strip away the acronym and the idea is almost boring: pay the same amount for the same service, no matter which building it happened in. Medicare has never done that. It pays a hospital outpatient department (HOPD) rate that runs higher than the physician fee schedule rate for an identical procedure, on the theory that hospitals carry overhead a standalone clinic does not: the trauma bay, the ICU beds, the round-the-clock staffing that sits ready even when nobody needs it that day.
Here is where it broke. Over the past two decades, hospitals bought up independent physician practices in bulk and reclassified them as provider-based departments. The building did not change. The equipment did not change. The physician walking through the door to read the same chart did not change. What changed was the billing code, and with it, the price.
For a standard outpatient MRI without contrast, that reclassification alone could add seven hundred to nine hundred dollars per scan. Multiply that across a health system's imaging volume and the number stops being a rounding error.
CMS has been implementing site-neutral rates in phases since 2019, starting with outpatient clinic visits. Imaging without contrast and infusion services are the current phase, and they are big ones: high volume, low complexity, exactly the service lines hospitals have leaned on to cross-subsidize care that loses money on its own.
"The image resolution does not change depending on which building the machine sits in. What changes is a billing modifier tied to real estate."
The policy is not a blanket rule. Some off-campus provider-based departments that were already billing that way before the policy took effect may be partially exempt, and on-campus imaging sits outside the current phase entirely. Compliance teams need to know precisely which service lines and which locations are affected, because "we heard about site-neutral payment" and "our billing system correctly flags every exposed claim" are two very different states to be in.
Patients see it first as lower cost-sharing on the affected services. A patient who has been driving to the hospital-affiliated imaging center because it felt like the safer, more official choice may, without knowing it, have been paying more for the exact same scan available at an independent center down the street.
Health systems see it as a revenue line getting thinner, concentrated in exactly the outpatient imaging and infusion volume that used to help fund the departments that cannot break even on their own. A facility strategy built around the old HOPD premium starts to look like a strategy built on a foundation that is no longer there.
Vendors see it in the incentive structure underneath their own product. Any tool built to optimize HOPD throughput, or to steer volume toward the hospital-owned site because that is where the margin lived, was built for a payment world that is actively being dismantled.
Imaging and infusion are the current phase. They will not be the last one. Every high-volume, low-complexity service line still billing at a hospital rate for reasons that trace back to real estate rather than clinical complexity is a candidate for the next round.
None of this erases the real value of an integrated hospital system: the specialist down the hall, the imaging read by the same team managing the rest of the case, the safety net when something turns out more complicated than the referral suggested. That value survives the payment change. The business model that was quietly financed by the payment gap does not.
Health systems modeling their exposure now get to plan a transition. The ones waiting for the next proposed rule to land get to react to one.
Physician executive with a surgical background, currently practicing internal medicine (charity care). Advisory practice focused on clinical AI governance, vendor evaluation, and implementation strategy for health systems and health-tech companies. If your board or finance team is trying to get ahead of the next site-neutral category before it turns into a budget surprise, that is the work I do.
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