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LUGPA Policy Brief: Opposition to Model Legislation Establishing Site-Neutral Commercial Payments for Outpatient Services

March 2026 

At-a-Glance Essentials

What’s Changing

  • Model state legislation developed for the National Academy for State Health Policy (NASHP) would cap commercial reimbursement for designated outpatient services at 150% of Medicare’s non-hospital rates (Physician Fee Schedule or ASC rates).
  • Services are based on recommendations from the Medicare Payment Advisory Commission (MedPAC), including 66 ambulatory payment classifications and certain E/M and therapy services.
  • The proposal overrides contracts exceeding the cap, restricts billing practices, and authorizes state enforcement and penalties.

Why It Matters

  • Medicare payment rates set by the Centers for Medicare & Medicaid Services (CMS) frequently fall below the cost of delivering specialty care.
  • Independent practices depend on commercial reimbursement to offset Medicare underpayments.
  • Extending Medicare-based caps into private markets risks destabilizing independent physician groups and shifting care to hospital systems.

LUGPA Position

LUGPA opposes the adoption of this model legislation.

While site-neutral reforms may be appropriate when narrowly targeted at documented hospital outpatient overpayments, broad commercial payment caps tied to Medicare benchmarks threaten independent specialty practices and interfere with private contracting.

Key Policy Concerns

1. Exporting Medicare Underpayment into the Commercial Market

Medicare rates have not kept pace with inflation, staffing costs, technology investments, and regulatory burden. For many urologic services, margins are already negative under Medicare.

Capping commercial reimbursement at 150% of Medicare would:

  • Import structural Medicare underpayment into private markets.
  • Eliminate cross-subsidization that sustains Medicare access.
  • Reduce financial flexibility for independent practices.
  • Increase consolidation pressure, particularly in rural and underserved areas.

2. Government Intrusion into Private Contracting

Commercial payment rates reflect:

  • Local cost structures
  • Quality and value-based incentives
  • Specialty expertise and infrastructure investment

A statutory cap:

  • Overrides negotiated agreements.
  • Shifts leverage toward insurers.
  • Discourages innovative contracting arrangements.
  • Establishes precedent for broader state rate-setting in private markets.

3. Impact on Ambulatory Surgical Centers (ASCs)

Urology practices frequently deliver cost-efficient care in ambulatory surgical centers.

However:

  • Medicare ASC updates have trailed inflation.
  • Specialty equipment and supply costs are often not fully reflected in Medicare rates.
  • Aligning commercial ASC reimbursement with Medicare would compress margins for common procedures.

The result could be reduced investment in outpatient infrastructure and migration of services back to higher-cost hospital settings.

Potential Impact on Patients and Practices

For Practices

  • Reduced commercial revenue and thinner margins.
  • Curtailment of service lines or workforce reductions.
  • Increased acquisition pressure from hospital systems.

For Patients

  • Reduced access to independent specialty care.
  • Longer wait times or travel distances.
  • Potential cost shifts to hospital-based settings, increasing overall system spending.

New York Legislation: Assembly Bill 2140-A

Overview

New York Assembly Bill 2140-A would codify a broad commercial site-neutral payment cap by:

  • Limiting reimbursement for “applicable services” to 150% of Medicare’s non-hospital rate.
  • Voiding contract provisions that exceed the statutory cap.
  • Prohibiting providers from billing above the cap, including for out-of-network or self-pay patients.
  • Authorizing significant enforcement penalties and private rights of action.
  • Requiring insurers to adjust premiums to reflect expected savings.

Certain safety-net and public hospitals are excluded.

Implications for LUGPA Members

If enacted, A.2140-A would:

  • Statutorily override negotiated commercial contracts.
  • Compress margins for office-based and ASC urology services.
  • Increase compliance burdens and exposure to civil penalties.
  • Potentially disadvantage independent groups relative to partially exempt hospital entities.

Bottom Line

Across-the-board commercial payment caps tied to Medicare benchmarks risk extending Medicare’s payment shortcomings into private markets. While addressing hospital outpatient price variation may be appropriate, imposing rigid statutory caps on independent physician practices threatens sustainability, accelerates consolidation, and may ultimately reduce patient access to high-quality specialty care.

LUGPA urges policymakers to pursue targeted, balanced reforms that control costs without undermining independent specialty practice infrastructure.