What “site of service” means
“Site of service” is simply where an outpatient procedure happens. The two settings that matter most in this discussion are:
• Ambulatory surgery center (ASC): A facility built specifically for same-day procedures.
• Hospital outpatient department (HOPD): An outpatient unit owned by and billed under a hospital.
The key fact: Medicare pays a different amount for the exact same procedure depending on which setting the patient walks into, even when the physician and the clinical care are identical. A screening colonoscopy is a useful illustration—the scope, the gastroenterologist, and the patient experience can be the same in either setting, yet the payment is not.
Why the same service is paid differently
In both settings, the physician is paid separately under the Physician Fee Schedule. The difference is in the facility fee that covers the room, staff, and supplies.
• In an ASC, Medicare pays the facility under the ASC payment system.
• In an HOPD, Medicare pays the facility under the Outpatient Prospective Payment System (OPPS), which is set at a higher level than the ASC rate.
So for the identical service, the HOPD collects a larger facility fee than the ASC does. Medicare typically pays meaningfully more in the hospital setting, and because patient coinsurance is a percentage of the allowed amount, the patient also pays more out of pocket in the HOPD. This gap comes from the payment methodology, not from any difference in the quality or outcome of the care.
Why the differential exists (the rationale)
The higher HOPD rate reflects the higher cost structure of operating inside a hospital. A hospital must maintain the full complement of services and standby capacity—emergency backup, anesthesia coverage, broader staffing, stricter licensing and safety requirements, and the ability to manage complications or admit a patient who deteriorates. When a patient genuinely needs that level of capability, hospital care legitimately costs more than the same procedure in a standalone ASC.
The point of contention is that for routine, low-risk procedures, the patient often does not draw on any of that extra capability—yet Medicare still pays the higher hospital rate. So the differential is well-founded for complex or higher-risk cases and harder to justify for routine ones that could safely be done in an ASC.
Physician ownership and the incentive it creates
A major driver of where procedures get done is who captures the facility fee. Many physicians own, or hold a stake in, an ASC. When they perform a procedure there, they collect both the physician fee and a share of the facility fee. When the same physician performs that procedure in a hospital HOPD, they receive only the physician fee—the facility fee goes to the hospital.
That gives physician-owners a direct financial incentive to route appropriate cases to their ASC, where the total economics favor them and Medicare’s facility payment is lower. It is one of the few places in this debate where the lower-cost setting and the physician’s financial interest point in the same direction. Hospitals, by contrast, have an incentive to keep volume in the HOPD, where they capture the larger facility fee.
The academic medical center wrinkle
Academic medical centers (AMCs) sit at the high end of this dynamic, and they raise the stakes of the debate.
AMCs almost always bill procedures through their HOPDs, so routine outpatient care at an AMC is generally reimbursed at the higher OPPS rate rather than an ASC rate. On top of that, AMCs carry missions that community ASCs do not: training residents and fellows, conducting research, and serving as referral centers for the most complex and highest-acuity patients. Many also receive additional Medicare support, such as graduate medical education (GME) payments and disproportionate share hospital (DSH) funding.
That creates real tension in the site-neutral debate. Supporters of reform note that a routine service on an otherwise healthy patient does not become more clinically complex just because it is performed at a teaching hospital, so paying a premium for it is hard to justify on clinical grounds. AMCs counter that they disproportionately treat the sickest, most complicated patients—the cases that genuinely require the full hospital complement—and that broad rate cuts could fall hardest on exactly the institutions built to handle that complexity. This is why reforms that reach on-campus HOPDs, where most AMC volume sits, are far more contested than reforms limited to off-campus sites.
What “site neutrality” would change
Site-neutral payment reform would align what Medicare pays across settings so that a procedure safe to perform in an ASC is reimbursed at the same (lower) rate even when done in an HOPD. Reformers generally do not propose flattening every service, only those that can safely be done outside a hospital.
Progress has been incremental. CMS has extended site-neutral rates to selected services at off-campus HOPDs over the past several years, and the CY2026 OPPS/ASC rule extended site-neutral payment to Part B drug administration services at off-campus HOPDs and ASCs. Proposals such as the Same Care, Lower Cost Act (2025) would go further and require the same rate at both on- and off-campus HOPDs, directly affecting AMCs.
What it would mean: CMS savings vs. hospital losses
The savings scale with how broadly the policy applies:
• Aligning only off-campus HOPDs for the targeted service set saves Medicare an estimated $18 billion over ten years.
• Extending alignment to on-campus HOPDs (where most AMC volume sits) raises that to roughly $127 billion over ten years.
• A December 2024 CBO analysis estimated the broadest options could save more than $170 billion over 2025–2034, with the large majority from on-campus HOPD alignment. Lower allowed amounts would also reduce patient coinsurance and premiums.
The flip side is that every dollar of federal savings is a dollar of lost facility revenue for hospitals and AMCs. Hospital groups argue this threatens teaching, research, and access to care, especially at safety-net and academic institutions. Reform proposals try to soften the blow with carve-outs for sole-community and critical access hospitals, multi-year phase-ins, and exclusions for services that genuinely require a hospital.
The bottom line
Many outpatient procedures are clinically the same whether done in an ASC or an HOPD, but they are reimbursed quite differently. The higher hospital rate makes sense when a patient needs the full hospital complement, and less sense for routine care that doesn’t. Layered on top is the ownership question—physicians often capture the facility fee in their own ASC but not in a hospital—which shapes where cases actually go. Site-neutral reform aims to capture savings on routine care, while the hardest fights center on academic and on-campus hospitals built to handle the most complex patients.