New research from the Employee Benefit Research Institute (EBRI) finds that substantial differences in reimbursement for the same physician-administered medications based on where treatment is provided could add billions of dollars annually to the cost of employment-based health coverage.
The research, titled “Location, Location, Location: Spending Differences for Physician-Administered Outpatient Medications by Site-of-Treatment,” found that hospital outpatient departments (HOPDs) were paid an average of 102% more per unit than physician offices for the same physician-administered outpatient medications. If HOPDs were reimbursed at physician-office rates, employers, and workers could collectively save approximately $12.7 billion — equivalent to about $101 per covered member each year.
“Where a medication is administered can have a significant effect on what an employment-based health plan pays, even when the medication itself is the same,” said Paul Fronstin, director of Health Benefits Research at EBRI. “While not every treatment can or should be provided in a lower-cost setting, these findings show that reducing unnecessary reimbursement differences could generate meaningful savings for employers and health plans and, over time, help reduce cost pressures for workers and their families.”
EBRI examined 2023-24 commercial health insurance claims for 106 of the highest-spending physician-administered outpatient drugs. These medications represented approximately 51% of claims and 77% of total spending for physician-administered drugs. The analysis used adjudicated claims from the Merative MarketScan Commercial Database for adults ages 18 to 64 with employment-based health coverage.
Physician-administered outpatient medications include injectable and infused therapies commonly used to treat cancer, autoimmune diseases, inflammatory disorders, multiple sclerosis, rare diseases, and other serious chronic conditions. Many of these medications can be administered in either hospital outpatient departments or physician offices.
For employers and health plans, this research highlights the potential importance of contracting strategies, site-of-care programs, network design, and reimbursement policies that address unnecessary payment differences across treatment settings, according to EBRI. The findings also contribute to ongoing discussions among policymakers about site-neutral payment approaches and other strategies designed to reduce reimbursement variation while preserving access to clinically appropriate care.
Here are four additional findings from the report:
- Hospital outpatient departments are the predominant treatment setting. Approximately 59% of physician-administered outpatient drug administrations occurred in HOPDs, compared with 31% in physician offices and 9% in other settings (including patients’ homes).
- Large reimbursement differences persist for the same medications. HOPDs received higher reimbursement for 93 of the 106 medications examined, and the median reimbursement difference was 64%.
- The annual reimbursement difference can be substantial for individual patients. The median annual difference across medications was $5,531 per patient, while the difference reached $135,306 for one oncology medication.
- Most immediate savings would accrue to employers and health plans. Among claims examined, 90% had no deductible payment, 80% had no coinsurance and 97% had no copayment. Because patients using these medications are often high users of health care services and may already have reached annual deductibles or out-of-pocket maximums, reductions in reimbursement would have a relatively limited immediate effect on patient cost sharing, according to EBRI.
EBRI notes that hospital acquisitions of physician practices, differences in negotiating leverage, facility payments, and other market factors can contribute to higher reimbursement in hospital outpatient settings. Researchers added that this analysis does not assume all care can or should be moved from hospital outpatient departments to physician offices. Instead, EBRI estimates the portion of spending associated with differences in reimbursement for clinically comparable services while holding utilization constant.