You walk into a hospital outpatient department for a simple check-up. You see the same doctor. You sit in the same chair. Maybe they even wear the same white coat if the building used to be an independent practice.
But the bill? It’s twice as much.
Why? It has nothing to do with clinical quality. It’s about billing codes. And specifically, how Medicare pays for the building versus the doctor.
The Two-Tiered Payment Trap
To understand the price hike, you have to look at how Medicare pays doctors versus hospitals. They operate on two completely different systems that collide when a doctor becomes hospital-owned.
Independent physicians bill under the Physician Fee Schedule (PFS). This is a single payment. It covers the doctor’s time and skill. It also covers the overhead of running a private office—rent, staff, equipment, lightbulbs. When Medicare sends one check to a private practice, that’s it.
Hospitals use the Outpatient Prospective Payment System (OPPPS). This system splits the bill.
If you see a doctor who works for a hospital system, two separate entities are charging you:
1. The doctor bills the PFS, but at a reduced “facility” rate because the hospital covers some overhead.
2. The hospital bills its own “facility fee” under OPPS. This covers the building, the nursing staff, the utilities, and the administrative bloat.
Medicare pays both.
Because the total is the sum of the physician’s fee plus the hospital’s facility fee, the final number is almost always higher than the single payment made in a private office. Ambulatory surgery centers usually fall somewhere in the middle, but hospital outpatient departments consistently win the contest for highest cost.
The clinical value delivered is identical. The Medicarepayment is not.
The Back Pain Example: Same Care, Different Price Tag
Let’s look at a concrete example. A 62-year-old patient comes in with six weeks of lower back pain. No red flags. No history of serious issues. No prior imaging.
The spine specialist spends time with them. Checks the back. Reviews history. Talks through conservative care. Prescribes physical therapy. Maybe some non-opioid pain relievers.
No surgery. No injection. Just a standard office visit.
In a private, freestanding clinic, this is billed as CPT 99204 under the non-facility PFS. The national average payment is roughly $193. The patient pays 20% coinsurance (about $39). Total cost: ~$193.
Now, take that exact same doctor and clinic. Let’s say the hospital system buys the building. The doctors become hospital employees. The physical space hasn’t changed. The exam is identical.
But now, two bills are generated:
* The physician bills CPT 99263 or similar facility-based codes at a lower rate (approx. $131 ).
* The hospital bills a facility fee (often using code G0463 for primary care/clinic visits).
The patient now pays 20% on both amounts.
The total payment jumps to the $250–$350 range.
The care hasn’t gotten worse. The expertise hasn’t changed. The price has simply doubled because of a change in ownership designation. This dynamic plays out millions of times a year, creating massive, unnecessary spending.
The Overnight Ownership Flip
This isn’t some hypothetical edge case. It’s a standard business tactic.
Consider an independent orthopedic group owning their building next to a hospital campus. On Monday, they are independent. A new patient arrives. The visit is billed under the standard office rate. Total Medicare payment: ~$193.
On Tuesday, the hospital closes the deal to acquire the group. The surgeons are now employees. The building is reclassified as a provider-based Hospital Outpatient Department (HOPD).
Nothing about the care changes. The same nurses. Same EHR. Same rooms.
But the billing does. The physician submits a claim at the lower facility PFS. The hospital submits an OPPS facility claim. The combined payment exceeds what the office paid before.
Hospital acquisitions are often driven by this financial arbitrage. By converting practices to provider-based status, health systems can bill significantly higher OPPS rates. This creates a perverse incentive to buy up private practices just to shift them into the hospital billing structure.
Is Medicare Reform Actually Happening?
Congress and CMS know about this. They’ve tried to patch it, but the system is sticky.
Site-neutral payment started gaining traction with Section 603 of the Bipartisan Act of 2015. This law generally required that services in new off-campus hospital outpatient departments—those starting billing after November 2, 215—be paid at the lower PFS rate, not the higher OPPS rate.
CMS expanded this in 2019. They applied site-neutral rates to clinic visits at all off-campus HOPDs. They phased the reduction over two years to smooth the shock, eventually aligning payments closer to what private offices get.
However, many large hospitals pushed back, arguing that rural clinics need higher rates to stay open. The result? A fragmented policy where some sites get neutral rates, and others still charge the hospital premium.
What’s Next for 2026?
CMS is moving again. In the Calendar Year 2026 OPPS final rule, they are extending site-neutral payment to drug administration services.
Think chemotherapy infusions and other injections provided in excepted off-campus departments. As of January 1, 2028, these services will be paid at a PFS-equivalent rate, not the full OPPS rate.
The math is significant. CMS estimates this change will reduce OPPS spending by about $290 million in 2026.
* ~$220 million in savings for the Medicare program.
* ~$70 million in lower out-of-pocket coinsurance for beneficiaries.
Note: This applies to the administration of the drug. It doesn’t change the 340B drug acquisition costs or payments for the drug product itself, which remain separate issues.
The Bottom Line
Site-of-service differentials were never meant to be a permanent subsidy for hospital consolidation. When a doctor moves from a private office to a hospital clinic, costs skyrocket for no clinical reason.
Expanding site-neutral payment to more services—especially evaluation-and-management visits, imaging, and minor procedures—could reduce the incentives for pure consolidation. It would lower costs for Medicare. It would lower costs for patients. It might even level the competitive playing field for independent providers.
Policymakers signal they want to go further. Some even suggest applying site-neutral rates to on-campus HOPDs, though hospitals warn this would hurt emergency access in rural areas.
For now, if you see a specialist, check where the bill comes from. An independent clinic? You’re paying the fair rate. A hospital-based clinic? You might be subsidizing a real estate portfolio.
And that’s not exactly how healthcare is supposed to work.
