It is not enough anymore to demonstrate that a surgery or imaging test is medically necessary. To receive reimbursement from health plans, patient access staff also must prove it is necessary for the procedure to happen at a hospital.

“This is not a new practice. But it is a rapidly expanding one,” says Kevin Thilborger, managing director for value-based care, strategy, and transformation at Chicago-based Huron.

Increasingly, health plans are refusing to pay for claims simply because a service was performed at the hospital instead of at a cheaper outpatient setting.1-4 “We have seen radiology, outpatient surgery, lab, and other ‘site of service’ payment policies now being enacted, expanded, or implemented in new geographies,” Thilborger reports.

At Edward-Elmhurst Health in Naperville, IL, “we are beginning to see site of service denials,” says Jim Economou, system director of patient access and the pre-service center. The health plan gives a prior authorization to patient access staff. Yet the claim is denied anyway because the service happened at a hospital location as opposed to a free-standing facility.

Site of service denials are likely to occur more often. “We are starting to see insurance companies publishing policies that may result in additional denials for this reason,” says Brittney Brinker, senior consultant at Alpharetta, GA-based nThrive.

The best example is knee replacement. Medicare removed knee arthroplasty from their inpatient list in 2018, but has not yet added the procedure to their ambulatory surgery list. That means Medicare still will pay for the procedure as an inpatient status, but only if patient access staff establish the hospital setting was medically necessary. However, as part of the Calendar Year 2020 physician fee schedule final rule, Medicare took the first steps toward adding knee arthroplasty to the ambulatory surgery list.5,6

It is possible CMS also will add knee arthroplasty to the ambulatory surgery list. If this happens, it means more site of service denials. “If and when Medicare adds knee replacements to the ambulatory surgery list, CMS would be saying that Medicare and Medicaid patients can get their knee replacements in an outpatient setting,” Brinker says.

Providers are used to documenting medical necessity for knee arthroplasty. “But they’re not used to documenting medical necessity regarding where the procedures are being completed,” Brinker notes.

Physicians have to justify the hospital setting by documenting comorbid conditions (such as obesity) or post-surgery needs that cannot be met on an outpatient basis. There are some common issues patient access departments are seeing regarding site of service claims denials:

Some health plans are going straight to patients in the hopes of diverting the hospital appointment altogether. “We have experienced this direct patient contact in some geographies for more than 10 years,” Thilborger says.

It first started in the radiology service line. Recently, it has expanded into therapies and surgery. “Look for denials in endoscopies, colonoscopies, podiatric surgeries, as well as other more complex surgeries,” Thilborger reports.

For all these services, health plans are steering patients to specific ambulatory surgery centers instead of hospitals. The health plan (or a subcontracted third-party company acting on the health plan’s behalf) contacts the patient right after the referral or authorization request is received. “During the outreach call, the representative encourages the member to seek care at lower-cost, non-hospital locations,” Thilborger adds.

When diagnostic tests are planned in a hospital setting, health plans are making it more difficult to secure authorization. For hospitals, “obtaining prior authorization is more challenging than for a freestanding imaging center,” Brinker observes.

Health plans are steering patients to facilities in greater metropolitan areas (rather than their local healthcare facilities) for diagnostic tests. “This is due to cost-based reimbursement, and perceived higher cost, at critical access hospitals,” Brinker says.

Patients in rural areas end up traveling long distances for a CT scan or MRI. “This lowers patient satisfaction. It jeopardizes the financial stability of healthcare in rural communities,” Brinker says.

At Edward-Elmhurst Health, “patients are informing us that they have been called by Humana, via US Imaging, directing them to freestanding facilities,” Economou reports. The department also is seeing UnitedHealthcare (UHC) deny CT and MRI claims for site of service.7

Currently, Economou says staff are creating a workflow process within its registration system to alert ordering physicians if patients fall into this category. “Ideally, the physician will refer the patient to our freestanding facility in order to minimize any loss in revenue,” he says.

Cigna also uses site of service criteria for CTs and MRIs, but has placed this policy on hold until further notice.8,9 The patient access department is ready for it. “Their policy appears to align very closely with UHC’s policy. Therefore, we should have something in place once they release their hold,” Economou adds.

Health plans are adding virtual patient encounters to the site of service denials. With the dramatic surge in telehealth visits, site of service denials have become “a lot more complex,” says Neville Zar, managing director at Deloitte.

Hospitals used to worry about whether health plans would pay for the service if it was performed in the hospital as opposed to an outpatient setting. Now, the reimbursement dispute concerns whether it should be offered in a hospital, at an outpatient setting, or virtually. “That is a new dynamic. It has created a lot of ambiguity for patient access leaders in terms of getting services authorized and paid for,” Zar reports.

Departments need a different approach for every health plan because all offer different requirements for site of service. “A blanket approach doesn’t work. It has to be done by payer,” Zar says.

Authorization denials based on location of service have been happening for several years at St. Luke’s Health System in Boise, ID. These happen mostly with high-cost drug infusions and some surgical procedures. The department has pushed back against these denials. “We don’t have a high volume of claims being denied for location of service due to our authorization work upfront,” says Michael Bennett, MBA, MHA, senior director of the revenue cycle. His department follows these practices:

  • Consistent processes for authorization, which catch site of service requirements early. “This eliminates the surprise and ‘scrambling’ that inevitably lead to services performed before authorization is resolved,” Bennett explains.
  • Training employees who are responsible for authorization. “These are some of our most knowledgeable and empowered employees,” Bennett says.
  • Close collaboration with other hospital departments in dealing with payers. “Many of our challenges in working through site of service denials have been improved through a tighter alignment with our payer relations and contracting teams,” Bennett adds.


  1. Andrews M. Anthem says no to many scans done by hospital-owned clinics. National Public Radio. Sept. 27, 2017.
  2. Stempniak M. Cigna labels most hospital-based CT, MR imaging ‘not medically necessary.’ Radiology Business. Feb. 21, 2020.
  3. Stempniak M. Cigna officially stops covering hospital-based CT, MR imaging after long delay due to pandemic. Radiology Business. Oct. 8, 2020.
  4. JD Supra. Recent health plan practices that are resulting in underpayments to providers. March 8, 2019.
  5. Chambers M, Huddleston JI, Halawi MJ. Total knee arthroplasty in ambulatory surgery centers: The new reality! Arthroplast Today 2020;6:146-148.
  6. Krueger CA, Kerr JM, Bolognesi MP, et al. The removal of total hip and total knee arthroplasty from the inpatient-only list increases the administrative burden of surgeons and continues to cause confusion. J Arthroplasty 2020;35:2772-2778.
  7. UnitedHealthcare. Prior authorization and site of service reviews for surgical codes. Frequently asked questions. 2020.
  8. American College of Radiology. Cigna announces site of care coverage policy for high-tech imaging. Feb. 20, 2020.
  9. Cigna. Medical coverage policy. Site of care: High-tech radiology. Effective April 15, 2020.