A good idea from Trump's first term has the chance to become law in his second.
Health-care reform is a difficult problem with no easy solutions. But one policy change under consideration by the Trump administration comes close to being one: eliminating Medicare’s disparity in payments for identical health-care services based solely on the location of their delivery.
Today, Medicare reimburses hospitals at higher rates for the same service if it is provided in hospital outpatient departments (HOPDs) rather than in physician’s offices or independent clinics. For instance, a common diagnostic test such as an echocardiogram can cost Medicare and taxpayers double or even triple when performed in an HOPD compared to a physician’s office.
This disparity does not reflect differences in care quality or patient outcomes. Instead, it reflects outdated payment policies that were designed to protect hospital revenues but have led to unintended market imbalances. Hospitals, recognizing the financial incentives, have acquired independent practices and converted them into HOPDs that qualify for higher reimbursements. As a result, costs to Medicare have ballooned, competition has diminished, and patients are left navigating a system where prices seem arbitrary.
Medicare site neutrality is a straightforward concept: The same service should cost the same amount, regardless of where it is delivered. Under this policy, Medicare payments for procedures that can be safely performed in non-hospital settings would be equalized, eliminating the financial incentives that drive up costs.
An X-ray performed in an HOPD currently costs Medicare approximately $200, while the same procedure in a physician’s office might cost $100. Under site neutrality, it would cost $100 in both places. That would remove the incentive for hospitals to consolidate practices unnecessarily and would encourage more efficient care delivery.
The financial implications of this policy are staggering. Trump’s budget proposal for fiscal year 2020 estimated that site neutrality could save Medicare and its beneficiaries $131.4 billion over ten years, extending the solvency of the Medicare trust fund. These estimated savings are backed by independent analyses from organizations such as the Congressional Budget Office.
Moreover, the broader economic benefits cannot be overlooked. By leveling the playing field, site neutrality would enable smaller, independent clinics to compete more effectively with hospital systems. This competition could lead to lower prices across the board, benefiting not only Medicare but also private insurers and out-of-pocket payers.
Patients would see the difference right away. Lower costs for services mean reduced co-pays and out-of-pocket expenses, making healthcare more affordable for millions of Americans. For taxpayers, the savings could be allocated to other critical areas or deficit reduction.
As the U.S. grapples with rising health-care expenditures and an aging population, the pressure on Medicare is only increasing. The program’s trust fund is projected to face insolvency within the next decade unless significant reforms are enacted.
The first Trump administration’s emphasis on site neutrality set the stage for this critical discussion, but it needs to put its words into action. The Covid-19 pandemic exposed the vulnerabilities of the American health-care system, from hospital overcrowding to inefficiencies in care delivery.
By removing government-imposed distortions, site neutrality will allow the market to function better, with prices reflecting actual costs rather than arbitrary policies. This is a reform that conservatives, moderates, and progressives alike can rally behind, as it addresses both economic efficiency and healthcare equity.
While the benefits of site neutrality are clear, it is essential to address legitimate concerns about its implementation. Hospitals that rely heavily on outpatient revenue may face financial challenges, particularly those in rural or underserved areas. Policymakers must consider mechanisms to help these institutions adjust, such as phasing in implementation over five to seven years.
Another concern is the potential for job losses in hospital systems that may need to scale back operations. While this may be a problem for some workers, the purpose of a hospital is to care for sick people, not to employ doctors and nurses. These impacts on employment can be mitigated by the growth of independent practices and outpatient clinics, which would likely expand and hire more workers under a site-neutral payment system.
The former Trump administration’s initial steps toward site neutrality demonstrated that reform is possible, even in the face of strong opposition. Building on its previous efforts, the current Trump administration has the opportunity to implement a policy that balances cost savings with compassionate care.
Equalizing Medicare payments is not just a fiscal imperative; it is a moral one. The current system, with its arbitrary disparities and perverse incentives, is unsustainable and unfair. Site neutrality offers a path forward by reducing costs, improving competition, and ensuring that patients receive the care they need without unnecessary financial burdens.