By Robert A. Pratt and Michael Romano

Site-neutral payment policy is reshaping where healthcare gets delivered, and master planning that still centers the acute care hospital is increasingly out of step with the economics. This article is for health system executives, real estate leaders, and strategy teams weighing where to invest next. The take-away: rethink master planning as a system-of-care plan, not a campus plan, before site-neutral reimbursement strands inpatient capital.

Healthcare leaders today are under relentless pressure to solve immediate operational challenges—overcrowded emergency departments, constrained operating room capacity, workforce shortages, and surging demand for specialized services. Yet many of these challenges are symptoms of a deeper structural issue: health systems are still planning around a hospital-centric model that no longer aligns with how care is delivered, paid for, or consumed.

At the center of this shift is site-neutral payment policy, a force that is rapidly reshaping the financial logic of healthcare real estate, capital deployment, and service line strategy.

Acute care as the historical hub

For decades, acute care campuses were the unquestioned hub of the healthcare ecosystem. Surgical volumes, specialty care, and capital investment flowed toward inpatient facilities. Expansion meant adding beds, building new towers, and increasing on-campus operating room capacity.

That model made sense when reimbursement favored hospital settings and patients had limited alternatives.

Today, the landscape has fundamentally changed. Patients expect convenience, speed, transparency, and affordability, while payers increasingly seek lower cost and efficient settings. Technology enables care delivery far beyond hospital walls. As a result, a growing share of procedures and encounters are migrating to ambulatory surgery centers (ASCs), outpatient clinics, virtual platforms, and even the home.

The result is a paradox many systems now face: declining inpatient utilization alongside rising fixed costs tied to massive acute care campuses. Organizations that continue to chase inpatient volume without rethinking where services belong risk fighting a tide that is no longer reversible.

Why master planning must evolve

Modern master planning can no longer be IP campus-centric. A true system-level plan asks harder, more strategic questions:

• Where should each service line optimally live across the system?
• How should capital be deployed across multiple inpatient and ambulatory sites—not just the flagship hospital?
• Which care settings deliver the best outcomes at the most sustainable cost?

Surgical services illustrate this challenge clearly. Many systems still perform a significant number of outpatient surgeries in acute care operating rooms. This drives up cost per case, creates both OR and bed bottlenecks, and contributes to delays and patient dissatisfaction. Shifting appropriate cases to ambulatory settings frees inpatient OR capacity for complex cases, improves throughput, lowers capital and operating costs, and enhances the patient experience.

The same dynamic exists with observation care. Patients who should be managed in short-stay observation units are often held in emergency department bays or admitted unnecessarily, straining capacity and degrading throughput. Purpose-built observation units are both clinically appropriate and financially prudent, yet they are frequently underprioritized in traditional master plans.

Site-neutral payments: from policy concept to strategic imperative

Perhaps the most disruptive force accelerating the need for change is site-neutral payment reform. Medicare has already implemented site-neutral policies for select outpatient services, and commercial payers are rapidly following suit.

The direction is clear: the same procedure increasingly receives the same reimbursement regardless of whether it is performed in a hospital outpatient department or a lower-cost ambulatory setting.

This represents a fundamental break from the past, when health systems relied on higher hospital-based reimbursement to subsidize expensive inpatient infrastructure. As payments equalize, the financial rationale for keeping lower-acuity services on acute care campuses evaporates.

For healthcare executives, the implications are significant:

• Capital at risk: Expanding inpatient ORs or building new bed towers may lock systems into high-cost structures with diminishing returns.
• Competitive pressure: Independent ambulatory providers can operate with far less overhead and greater pricing flexibility.
• Inevitable migration: Even systems that resist change will see volumes shift as payer incentives and consumer preferences align around lower-cost sites of care.
• Financial erosion: By keeping outpatient cases in the inpatient setting, the hospital will slowly erode its financial margin by trying to cover the most expensive asset operations compared to a lower-cost setting

This disruption is not theoretical—it is already unfolding. Systems that plan as if reimbursement models will remain static risk being left with stranded assets and misaligned portfolios.

The ambulatory boom 3.0

Headlines often frame ambulatory growth as a future trend. In reality, it is has already reshaped how care is delivered today. Patients are actively choosing outpatient surgery centers, urgent care clinics, virtual visits, home-based diagnostics, and digital health tools.

The acute care hospital is no longer the default entry point to the system—it is one component of a much broader ecosystem.

Health systems that recognize this shift early are repositioning themselves to compete on access, experience, and value rather than relying solely on legacy infrastructure.

How to design a true system of care

The next generation of master planning requires a system-of-care lens, not a building-by-building approach. Leaders should be asking:

• How do acute, ambulatory, virtual, and home-based care settings integrate seamlessly?
• Where do redundancies exist that can be reduced or eliminated?
• Where should capital be reinvested to improve access, efficiency, and patient experience?
• How should internal incentives be realigned to facilitate shifting care to the appropriate location?

Doubling down on traditional inpatient expansion without considering these questions is a short-sighted strategy. The real opportunity lies in designing a future-ready portfolio that aligns service lines, geography, and care settings with how healthcare is actually evolving.

We touched on this in a preview article, “Balancing Service Lines Across a Geography: A Strategic Imperative for Evolving Health Systems,” which underscores the importance of distributing services intentionally across markets to improve access, performance, and long-term sustainability.

What health systems should do next

Site-neutral payments are accelerating a transformation that was already underway. Health systems that embrace this reality—by rethinking master planning, realigning service lines, and investing in the right sites of care—will be better positioned to thrive in an environment defined by consumer choice, cost pressure, and policy change.

Those that don’t may find themselves owning more hospital space than they need, at a cost they can no longer justify.