Hospital outpatient departments are reimbursed an average of 102 percent more per unit than physician offices for the same physician-administered medications; a disparity costing employment-based health plans an estimated $12.7 billion each year, according to new research from the Employee Benefit Research Institute (EBRI).
It gives benefits brokers some of their sharpest cost data yet on a largely invisible drain on employer budgets and were co-authored by Paul Fronstin, Ph.D., director of health benefits research at EBRI in Washington, D.C., and M. Christopher Roebuck, Ph.D., president and CEO of RxEconomics, LLC in New York.
The analysis examined 106 physician-administered outpatient drugs (PAODs), many used to treat cancer, autoimmune diseases, and other serious chronic conditions, using 2023–2024 commercial claims data from the Merative MarketScan Commercial Database covering 10.9 million adults enrolled in employment-based health plans.
"The hospital industry, basically all of the supply chain in healthcare, is getting bigger at the expense of employers," Fronstin told Insurance Business Benefits US. "Employers never had a whole lot of purchasing power, and now they've got less because there are fewer health systems to negotiate with, fewer physician practices to negotiate with."
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The 106 PAODs studied represent 51 percent of all PAOD claims and 77 percent of total spending on physician-administered drugs covered under the medical benefit, according to the EBRI Issue Brief.
Hospital outpatient departments (HOPDs) were the predominant site of care, accounting for 59 percent of all administrations, compared with 31 percent in physician offices (POs) and 9 percent in other settings such as patients' homes.
Reimbursement was higher in HOPDs for 93 of the 106 medications examined. The median annual reimbursement difference across all medications was $5,531 per patient and reached $135,306 for one oncology medication, according to EBRI Issue Brief No. 666.
The structural driver is hospital consolidation. When a hospital acquires a physician practice, services previously billed at physician-office rates are often reclassified and billed as hospital outpatient services, sometimes without any change in where the patient actually receives care.
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"You may still go to your physician, walk in the same door, see the same name on the door, and not realize that that practice is now owned by a hospital," Fronstin said. "Simply by virtue of the fact that the hospital now owns it, they can charge more because they have better rates."
That dynamic is compounded by physician practices merging with one another, sometimes across multiple states, to gain negotiating leverage independent of hospital ownership. Blue Health Intelligence, a health data analytics organization, found in a December 2023 report that reimbursement for common outpatient procedures increased 27 percent in HOPDs between 2017 and 2022, compared with only 2 percent in POs over the same period, as cited in the EBRI Issue Brief.
The narrowing of the gap since EBRI's 2021 analysis is also less encouraging than it appears. The median HOPD markup declined from 98 percent in 2019 to 70 percent in 2024, but the Issue Brief finds that shift was driven largely by rising physician office reimbursement, not by hospitals charging less.
Among the 20 medications with the highest HOPD spending in 2024, PO reimbursement increased approximately 17 percent between 2019 and 2024, according to the report.
If HOPDs were reimbursed at PO rates for the 106 PAODs studied, employers and workers would collectively save an estimated $9.8 billion annually. Extended to all physician-administered outpatient drugs, potential savings reach approximately $12.7 billion per year - roughly $101 per covered member annually - according to the EBRI analysis. That figure represents a 1 percent reduction in total health care spending for workers and their dependents.
Fronstin is candid that most of those savings would flow initially to employers and health plans, not to employees at the point of service. Among PAOD claims examined in the study, 90 percent had no deductible payment, 80 percent had no coinsurance, and 97 percent had no copayment.
Patients receiving these specialty medications are disproportionately high users of health care services who frequently exhaust their deductibles and out-of-pocket maximums early in the plan year, removing any financial incentive to seek lower-cost care settings mid-year.
"Health insurance is just a form of compensation, and the expectation is that workers would ultimately benefit," Fronstin said. "Maybe their premium contributions won't go up as fast, maybe their wage growth will go a little faster. But nothing else has ever been held constant in the real world. You don't necessarily feel it."
Tiered provider networks where employee cost-sharing varies based on the site of care rather than removing providers from networks entirely, represent one of the most actionable tools available to plan sponsors, Fronstin said. He noted that while the concept has existed since at least the early 2000s, advances in benefits technology have made it meaningfully more deployable.
"The technology caught up to the concept," he said. "We now have data on prices and an easy way through technology to communicate that to workers to tell them, here are the implications of your choices."
Reference pricing offers a complementary approach: an employer sets a benchmark reimbursement rate for a given service and covers that amount in full, with employees responsible for any difference if they choose a higher-cost setting.
Concierge and navigation services can also engage patients between care events using claims data to identify who is receiving these medications and surfacing real-time cost comparisons. Benefits brokers and consultants are well-positioned to bring this capability to employer clients, particularly as the data required to make the case has become more accessible.
"You could have an educational campaign on a grand scale multiple times during the year," Fronstin said. "This is something you could do on a very targeted scale now with the people that are most likely to use these kinds of services."
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The EBRI report notes that hospital acquisitions of physician offices may limit negotiating leverage in some markets, making the broker's role in identifying workable alternatives more critical than ever.
For brokers advising smaller employers who lack the scale to negotiate directly with health systems, the Issue Brief's data provides a compelling starting point for conversations about plan design changes, navigator services, and tiered network adoption.
"There's no magic bullet to save a significant amount of money," Fronstin said. "But there are a lot of small magic bullets here and there, and you've got to play the whole field if you really want to have a measurable impact."
The full EBRI Issue Brief No. 666, "Location, Location, Location: Spending Differences for Physician-Administered Outpatient Medications by Site-of-Treatment," is available at ebri.org.
