A research letter published in JAMA Health Forum on September 25, 2026, examined the 2024 financial reports of 257 ambulatory surgery centers (ASCs) in Pennsylvania. The finding was not what the usual debate over outpatient medicine would lead you to expect.
Nonprofit centers represented 20.6 percent of the facilities. They collected 35.8 percent of the revenue and earned 51.5 percent of the net income. Their median profit margin was 37.8 percent. For-profit centers had a median margin of 16.4 percent. The nonprofit centers also reported median uncompensated care of just 0.5 percent of revenue.
Those numbers deserve attention, not because one state and one year settle the economics of ambulatory surgery, but because they point in almost the opposite direction from the policy conversation.
I spent twenty years in private gastroenterology practice and more than ten years as a hospital-based gastroenterologist inside a health system. I have worked in both private-practice and institutional medicine. I have not owned an ambulatory surgery center.
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What interests me here is not defending physician ownership. It is asking why health policy focuses so heavily on ownership while paying less attention to what facilities are actually paid, what they cost to operate, and what taxpayers receive in return for tax exemption.
The same colonoscopy can carry very different prices
Consider a routine colonoscopy. Medicare deliberately pays ambulatory surgery centers less than hospital outpatient departments. The payment systems are different, and for many comparable procedures the ASC receives substantially less. Commercial insurance shows the same basic pattern, although the size of the gap depends heavily on the insurer.
A 2023 JAMA Health Forum analysis examined more than 30,000 commercially negotiated facility fees for three common colonoscopy codes. For diagnostic colonoscopy, the mean facility fee was $1,530 at hospitals and $989 at ASCs. But the more important result was not the average.
For Anthem, hospital facility fees for the three colonoscopy codes were roughly 3.3 to 3.7 times ASC fees. For UnitedHealthcare, they were only about 1.04 to 1.08 times as high. Same procedure. Same two types of facilities. Very different price gaps depending on who negotiated the contract.
That should make us cautious about treating a facility price as a measure of the clinical work being performed. Much of what we are measuring is bargaining power.
Lower payment does not appear to mean worse colonoscopy safety
The obvious defense of the hospital premium is that hospitals take care of sicker patients and maintain capabilities an ASC does not. That is true and important. Hospitals maintain emergency departments, intensive care units, trauma services, inpatient beds, laboratories, imaging, blood banks, and around-the-clock standby capacity.
But that argument should not automatically determine the payment for every low-complexity procedure that happens to occur in a hospital-owned outpatient department. For gastrointestinal endoscopy, the available evidence does not suggest that routine ASC care is intrinsically less safe.
A propensity-matched Massachusetts study compared unplanned hospital visits after GI endoscopy in ASCs and hospital outpatient departments. After screening colonoscopy, ASC patients had fewer hospital visits within seven days, with a relative risk of 0.88. Similar results were seen after nonscreening colonoscopy and upper endoscopy.
It was an observational study, not a randomized trial. Patient selection matters. But it offers little support for the assumption that a large site-of-service payment difference is itself purchasing safer routine colonoscopy.
Then look at who has the highest margin
The Pennsylvania study makes the economics harder to dismiss. The nonprofit ASCs were much more likely to belong to health systems: 94.3 percent were system-owned, compared with 27 percent of for-profit centers.
They were also larger and more complex. They reported more specialties and had twice the median full-time staffing: 27 employees compared with 13.5. Case mix matters. A multispecialty facility doing orthopedics and higher-cost procedures should not be compared casually with a single-specialty endoscopy center.
The authors did not adjust for procedure mix, and their study cannot tell us why the nonprofit margin was higher. That limitation is essential. But it does not erase the result.
Despite twice the staffing, the nonprofit centers had substantially higher per-visit revenue, higher per-visit net income, and more than double the median profit margin.
The authors also separated system-affiliated for-profit ASCs from independent for-profit centers. Those two for-profit groups were not statistically distinguishable from each other, while the nonprofit margin distribution remained shifted higher. So system ownership alone did not explain the difference in this sample. Something else is happening.
Price is a plausible explanation, but it remains an inference
The nonprofit centers received a smaller share of their revenue from Medicare: a median 23.6 percent, compared with 31.9 percent for for-profit centers. That means greater exposure to other payers, including commercially negotiated payment.
We already know that commercial rates vary dramatically depending on who is negotiating them. That makes price a plausible explanation for at least part of the nonprofit ASC margin advantage. But plausible is not proven.
The Pennsylvania study did not decompose the margin difference into price, case mix, efficiency, overhead allocation, physician compensation, or accounting practices. The right conclusion is not that nonprofit ASCs overcharge. It is that we finally have enough data to know that we need much more data.
CMS is beginning to ask the same site-of-service question
This is where the policy debate has become more interesting. Medicare has been moving toward site-neutral payment for years, but in a piecemeal way.
Services furnished at many newer off-campus hospital provider-based departments already do not receive full hospital outpatient payment. And since 2020, ordinary clinic visits at certain grandfathered off-campus hospital departments have been paid at a Physician Fee Schedule-equivalent amount, roughly 40 percent of the full outpatient prospective payment system (OPPS) payment.
For 2026, the Centers for Medicare & Medicaid Services (CMS) extended that policy to drug-administration services at those grandfathered off-campus departments. For 2027, CMS has proposed extending it again, this time to imaging without contrast. Those are meaningful changes, but they remain targeted.
The more consequential development appeared in CMS’s 2026 outpatient rulemaking. CMS asked whether it should establish a systematic process for identifying services that migrate from physician offices or ASCs into hospital outpatient departments because the hospital payment is higher. Then it asked the central question directly: Should Medicare limit hospital outpatient payment for certain services to the amount paid under the ASC payment system or Physician Fee Schedule, depending on where that service is most commonly performed?
CMS used cataract surgery as an example. About 82 percent of those Medicare procedures occur in ASCs, while ASC rates are generally about 55 percent of corresponding OPPS rates. The agency then asked whether, when a service is predominantly performed in an ASC, the hospital outpatient department should simply receive the ASC payment amount.
That is not yet Medicare policy. But it is considerably more than an academic argument about site neutrality. CMS has now formally put the efficient-site payment model into federal rulemaking.
Colonoscopy is an obvious test case
For routine endoscopy, the logic is difficult to avoid. If a colonoscopy is safely and routinely performed in an ASC, why should Medicare automatically pay a substantially higher facility amount when the same procedure is performed in a hospital outpatient department?
The answer cannot simply be that hospitals have emergency rooms. Hospitals absolutely need to be paid for emergency readiness and standby capacity. But if society wants to subsidize those services, the subsidy should be visible. It should not have to hide inside the facility fee for a routine colonoscopy.
The Medicare Payment Advisory Commission (MedPAC) has gone further than CMS in modeling what a broader system could look like. Its site-neutral framework asks which setting performs a service most frequently. If the ASC is the dominant setting, the hospital outpatient rate can be aligned with the ASC rate. If the physician office is dominant, payment can move toward the physician-office benchmark.
That is a fundamentally different way of thinking about facility payment. Instead of asking who owns the building, it asks what setting efficiently performs the service.
The tax exemption makes the result harder to ignore
Nonprofit hospitals receive substantial public subsidies through tax exemption. One national analysis estimated the value of nonprofit hospital federal, state, and local tax benefits at $37.4 billion in 2021.
Federal law does impose community-benefit and financial-assistance obligations on tax-exempt hospital organizations. But the federal community-benefit standard does not require a fixed minimum amount of charity care.
And outpatient facilities create an important legal complication. Section 501(r) applies to hospital organizations operating facilities recognized under state law as hospitals. A separately organized outpatient facility does not necessarily become a “hospital facility” subject to every 501(r) requirement simply because a tax-exempt health system owns it. That distinction matters.
If a health system operates a highly profitable tax-exempt ASC, policymakers should be able to determine what public obligation follows the tax advantage into that facility. Right now, that is far less transparent than it should be.
The policy target is changing
For years, the policy discussion focused heavily on physician ownership, hospital ownership, and consolidation. Those questions still matter.
But CMS is now asking something more fundamental: Why should the Medicare payment amount follow the building rather than the service?
If a procedure is predominantly and safely performed in a lower-cost ASC, CMS is openly considering whether the ASC price should become the payment ceiling even when the procedure occurs in a hospital outpatient department. That would change the economics of outpatient medicine considerably.
It would reduce the incentive to acquire physician practices or outpatient facilities simply to move services under hospital billing. It would reduce Medicare beneficiary cost sharing. And it would put pressure on every facility to justify what the higher hospital rate is actually purchasing.
CMS has not adopted that policy across the board. But the direction is increasingly clear.
Start with transparency and site-neutral payment
I would begin with three reforms.
First, require meaningful financial reporting from Medicare-certified ASCs. Hospitals file Medicare cost reports. ASCs do not. The Pennsylvania study was possible because state law created a window into financial information the federal government generally does not collect. That makes little sense for a sector performing such a large share of outpatient surgery.
Second, continue toward site-neutral payment when a service can safely be performed in multiple settings. The emerging CMS framework is the right one: Identify where a service is predominantly performed and ask whether that efficient setting should establish the payment benchmark.
That does not mean every hospital and ASC should receive identical payment for every patient. It means the burden should be on Medicare to explain why the same routine service deserves a materially higher facility payment solely because it crossed into a hospital billing structure.
Third, make the public benefit attached to tax exemption visible at the facility level. If a tax-exempt system owns an ASC earning a 30 or 40 percent margin, taxpayers should be able to see its financial performance, its uncompensated care, and how its earnings support the charitable mission of the organization.
That does not require declaring nonprofit medicine a fraud. It requires accounting.
The Pennsylvania study is one state in one year. It does not prove that nonprofit ASCs everywhere earn extraordinary margins, and it does not prove why the centers in this sample did. What it does is undermine the caricature.
The physician-owned surgery center is not automatically the most lucrative actor in outpatient medicine. In the only state where researchers have been able to look directly at the books, the highest reported margins were found in the tax-exempt sector.
And CMS is now asking whether the payment premium that helps make hospital outpatient care so lucrative should continue simply because of where the service is billed. Those two developments belong in the same conversation.
Brian Hudes is a board-certified gastroenterologist and hepatologist with more than thirty years of clinical experience and a recipient of his specialty board’s thirty-year certification award. He built and ran a private gastroenterology practice for twenty years, then spent more than a decade in hospital-based gastroenterology, most recently as chief of gastroenterology and medical director of GI and endoscopy at a 550-bed Level I trauma center in Pensacola, Florida. He is an assistant professor of medicine at Florida State University College of Medicine.
Those two halves of a career shape the way he writes about medicine and clinical technology. Outpatient practice and hospital-based care fail their clinicians differently, and many systems are designed without a meaningful understanding of both environments.
Dr. Hudes has been building clinical software alongside his medical practice for decades. In 1995, during his gastroenterology fellowship, he co-developed one of the first Windows-based endoscopy reporting systems in the United States. He is now founder and chief executive officer of AiMOS Systems Corporation, where he is developing an AI-native clinical platform for outpatient and hospital-based care. AiMOS has been accepted into NVIDIA’s Inception program.
He writes about the architecture of clinical information, administrative cost growth, physician workforce shortages, board certification policy, and the widening gap between what clinicians need and what the health care technology industry builds. He also publishes The Renaissance Physician, an independent publication examining medicine, technology, physician workforce, and the structure of modern clinical practice.
