Leadership1 publisher3 min readPublished
Hospital outpatient billing costs employer plans $12.7bn a year on specialty drugs, EBRI estimates
EBRI estimates employer health plans spend $12.7bn a year, about $101 a member, paying hospital outpatient rates for drugs that cost less in physician offices. The sum measures the full price gap between the two sites, so what an employer can recover depends on how many hospital infusions can safely move.
The Board Room · Leadership desk
Drafted by a language model from the sources cited here and checked against its claim ledger before publication. How we use AISend a correction
What happened
- Hospital outpatient departments were paid an average of 102% more per unit than physician offices for the same physician-administered drugs.
- Hospital departments handled 59% of administrations, physician offices 31% and homes or other settings 9%, in the 2023-2024 claims EBRI studied.
- The median annual payment difference between the two sites was $5,531 per patient, reaching $135,306 for one oncology drug.
- Most of the claims carried no cost-sharing: 90% had no deductible payment, 80% no coinsurance and 97% no copayment.
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Why it matters
- decision Patients who have hit their out-of-pocket limits gain nothing from a cheaper site, so moving infusions depends on plan rules and on HR persuading patients under treatment.
- constraint An employer's pool of lower-cost offices can shrink with no visible change, because an acquired practice starts billing at hospital rates under the same name.
- cost A narrowing hospital markup is weak evidence of savings when, as from 2019 to 2024, it narrowed mostly because office prices rose.
EBRI calls the $12.7bn avoidable spending [1]. The brief was co-authored by Paul Fronstin of EBRI and M. Christopher Roebuck of RxEconomics [3]. The published account of it does not estimate how much a plan could recover by moving patients. The gap runs across most drugs: hospital departments were paid more for 93 of the 106 medications studied, about 88% of them [6][18].
The $101 is an average across all covered members. Dividing $12.7bn by $101 gives roughly 126 million members [19]. A plan's exposure depends less on its headcount than on how many of its members take these drugs, many of which treat cancer, autoimmune disease and inflammatory disorders [4].
The first objection to steering patients comes from the claims data. Patients on these drugs use a lot of care. They typically exhaust their deductibles and out-of-pocket maximums early in the plan year, and after that a cheaper site saves them nothing [14]. Most of these claims carried no cost-sharing [13]. So the near-term saving goes to the employer and the plan [15], while the patient carries any change of clinic. "Health insurance is just a form of compensation," Fronstin said [17]. A lower price will not move these members on its own. Any shift in where drugs are given has to be written into the plan's rules, and HR has to explain it to patients being treated for serious chronic conditions [15][4].
Consolidation shrinks the lever from the other side. When a hospital buys a physician practice, the billing classification and the rate change, while the clinician, the office and the address can stay the same [8]. "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 [9]. "Simply by virtue of the fact that the hospital now owns it, they can charge more because they have better rates" [10]. An office a plan steers members toward this year can bill at hospital rates next year. Blue Health Intelligence, in a December 2023 report cited in the brief, found that reimbursement for common outpatient procedures rose 27% in hospital departments from 2017 to 2022, against 2% in physician offices [11].
The cheaper site is also getting more expensive. The median hospital markup fell from 98% in 2019 to 70% in 2024, and the brief puts most of that drop down to rising physician office reimbursement [12]. Fronstin said 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" [16].
The decision open this quarter is which drugs and which providers a plan writes into its site-of-care rules. Hospital purchases of practices [8] will decide how many independent offices are still on that list in later plan years.
What to watch
- An EBRI or insurer estimate of how many hospital-based administrations could move to physician offices or homes, giving a recoverable figure inside the $12.7bn gap.
- Further hospital purchases of physician practices inside employer networks, each one converting a lower-cost site to hospital billing.
- Whether physician office reimbursement keeps rising fast enough to close the hospital markup from below.