Site-neutral payment: when Medicare pays a hospital outpatient department the office rate

What is site-neutral payment?

Site-neutral payment is Medicare's policy of narrowing the gap between what a hospital outpatient department (HOPD) and a physician office are paid for the same service. It comes from two sources: a statute for newer off-campus departments, and a payment method CMS adopted by rule for services at older ones.

Section 603 of the Bipartisan Budget Act of 2015 (Public Law 114-74, signed November 2, 2015) added section 1833(t)(21) to the Social Security Act. It takes "applicable items and services" furnished on or after January 1, 2017 by an off-campus outpatient department of a provider out of the OPPS and sends them to "the applicable payment system under this part." 42 CFR 419.48(c) says that payment is generally made under the Medicare physician fee schedule (PFS).

This page is date-stamped to the CY 2026 OPPS final rule with comment period, published November 25, 2025 at 90 FR 53448 and effective January 1, 2026. Site-neutral policy changes most years, so confirm the current rule before relying on the amounts below.

Which departments are paid the lower rate?

It depends on whether the department is on campus, excepted or non-excepted. A department of a provider is a facility the hospital created or acquired to furnish the same type of health care under its name, ownership and financial and administrative control, as defined in 42 CFR 413.65. The provider-based billing page covers how a department earns that status.

42 CFR 419.48(b) defines an excepted off-campus department as one on the campus, or within the campus distance of a remote location, that meets the provider-based requirements of 413.65. It also covers an off-campus department that was furnishing services before November 2, 2015 and billing them under the OPPS within timely filing limits. Section 419.48(a)(2) keeps that status only if the department "has not impermissibly relocated or changed ownership."

The section 603 statute itself excludes dedicated emergency departments, so ED services are excepted. 42 CFR 419.48(c) says items and services that do not meet the excepted definition are generally paid under the Medicare physician fee schedule on or after January 1, 2017.

What modifier marks excepted and non-excepted departments?

Modifier PO marks an excepted off-campus department and modifier PN marks a non-excepted one. The October 2026 HCPCS file lists PO as "Excepted service provided at an off-campus, outpatient, provider-based department of a hospital," added January 1, 2015, and PN as "Non-excepted service provided at an off-campus, outpatient, provider-based department of a hospital," added January 1, 2017.

Section 20.6.11 of chapter 4 of the Claims Processing Manual says PO goes with every HCPCS code for all outpatient items and services furnished in an excepted off-campus department, and reporting has been required since January 1, 2016. Section 20.6.12 says PN has been required on each line of a non-excepted department since January 1, 2017, and that it triggers the physician fee schedule rate. PN goes on every non-excepted line, including separately payable drugs, clinical laboratory tests and therapy services, even where payment is not adjusted.

• Never report PO and PN on the same line. If one claim has lines from both an excepted and a non-excepted department, PO goes on the excepted lines and PN on the non-excepted lines.
• Neither modifier goes on a line from a dedicated emergency department, or from a department on campus or within 250 yards of the hospital or a remote location.
• The UB-04 carries the modifier next to the HCPCS code in form locator 44, which holds up to four modifiers. See UB-04 revenue and condition codes.
• Intensive cardiac rehabilitation codes G0422 and G0423 are the exception to the PN reduction: since January 1, 2024 they are paid 100 percent of the OPPS rate regardless of PN.

The manual says PN triggers the physician fee schedule rate, so a missing PN on a non-excepted line is an error to correct, not a style choice.

How much lower is the rate?

The reduction is 60 percent of the OPPS amount for non-excepted services. The CY 2026 final rule says the current physician fee schedule relativity adjuster is "set at 40 percent of the amount that would have been paid under the OPPS," and that non-excepted departments must use PN so the adjuster applies.

Excepted departments are paid under the OPPS except where CMS used its volume control authority. In the CY 2019 rule it paid clinic visits (G0463) at excepted off-campus departments the PFS-equivalent amount, phased in over two years. Chapter 4, section 20.6.11 says the PFS-equivalent rate for CY 2020 and later years is 40 percent of the OPPS payment, 60 percent less than the OPPS rate. Rural sole community hospitals have been exempt from that clinic visit policy, including in CY 2024 and CY 2025.

What changed in CY 2026 for drug administration?

Drug administration at excepted off-campus departments is now paid the same reduced rate as non-excepted ones. The CY 2026 rule finalized paying "an amount equal to the site-specific PFS payment rate for nonexcepted items and services" for HCPCS codes assigned to the drug administration services APCs when billed at an off-campus department that reports PO.

CMS finalized the change without a phase-in and without budget neutrality, using its volume control authority under section 1833(t)(2)(F) of the Act. It finalized an exemption for rural sole community hospitals. In its analysis CMS found that the volume-weighted PFS payment for the four drug administration APCs ran from 24 percent to 33 percent of the OPPS payment, and concluded the 40 percent adjuster would cover the cost of these services.

The same rule asked for comment on paying on-campus clinic visits the PFS-equivalent rate too. That was a request for information, not a finalized policy. Check how your remittances treat PO-modified drug administration lines. Related rules for the same departments are hospital price transparency and 340B basics.

What if a department is paid the wrong rate?

Fix modifier errors with a claim correction, and know what cannot be appealed. Section 1833(t)(21)(E), as written in section 603, bars administrative and judicial review of the determination of applicable items and services, of whether a department meets the off-campus definition, and of the information hospitals must report.

A wrong or missing PO or PN modifier is a claim data error. 42 CFR 405.980 treats inaccurate data entry as a clerical error, and a party can ask the contractor to reopen an initial determination within 1 year for any reason or within 4 years for good cause. Chapter 4 also warns that a department must not report both modifiers on one line. For the appeal path above reopening, see Medicare appeal levels.

Before a department opens or moves, confirm its status with your MAC and compliance team. A relocation can forfeit excepted status under 42 CFR 419.48(a)(2). If this rule is costing you revenue, our hospital and facility billing team can review modifier use, and billing for hospitals shows our scope.