Hospital outpatient versus the doctor's office: The difference could save employers $11.2 billion

As health care shifts from physicians’ offices to more costly hospital outpatient departments, the cost differential is hitting employers and employees hardest. Compounding this shift is the fact that prices for hospital-based outpatient care are increasing faster than physician prices.

According to new research by the Employee Benefit Research Institute (EBRI) presented in a webinar on April 21, companies and their workers would collectively save $11.2 billion if price differentials between hospital outpatient departments (HOPDs) and other sites of treatment were eliminated for each of the 25 health care services the institute examined. Those services include imaging, lab work, and specialty medications for conditions such as multiple sclerosis, rheumatoid arthritis, and other inflammatory disorders.

Related: The cost of an outpatient visit? $500

As an example of how dramatically care has shifted from physicians’ offices (POs) to HOPDs, Paul Fronstin, director of EBRI’s Health Research and Education Program, cited earlier EBRI data indicating that HOPD prices for the top 37 infused cancer drugs averaged 86% more per unit than in POs.

“Had HOPD prices matched PO prices, holding drug mix and treatment intensity constant, we found that payers would have saved $9,766 per user of these medicines in 2016 — a savings of 45%,” he said.

Fronstin also said that 94% of chemotherapy infusions in 2004 were administered in POs; by comparison, only 57% were administered in POs in 2014. He added that although the same physician administers the service, the prices for service at HOPDs increased 25% between 2007 and 2014, while they increased just 6% at Pos during that time.

EBRI’s latest research in the impact of site of treatment on health care costs indicates that the allowed charges for a metabolic panel — commonly distributed in HOPD, PO and stand-alone lab settings — were $11 in the lab and $15 in the PO. But the same lab service in the HOPD cost $101. That’s a price differential of 531%. The lowest price differential for a lab service was found in drug tests (65%).

The story is similar when looking at price differentials for various MRI services, non-MRI imaging services and specialty medications. For complete data, see this EBRI Issue Brief.

According to the institute’s research: “Employers and workers could reduce their spending on lab services as much as 69%, depending on the type of lab service, if price differentials between HOPDs and other sites of treatment were eliminated. Savings could be as high as 56% for chest X-rays, 49% for echocardiograms, and 41% for DEXA scanning. If site-of-treatment price differentials for specialty medications were eliminated, employers and workers would save as much as 36%, depending on the medication.”

While Fronstin admitted that in aggregate, $11 billion is “not much” compared to the $1 trillion spent on health benefits for workers and their families, he noted that EBRI’s latest analysis is based only on 25 health care services.

“Employers can exert pressure on both health plans and hospitals to shift from discounted charge contracts based on a multiple of Medicare to some other prospective case rate,” he concluded. “Third-party payers can attempt to engage patients through increased price transparency combined with plan design changes to incentivize them with a share of savings to less costly sites of care for treatment that is clinically appropriate.”

Another option, Fronstin added, involves employers and insurers using both value-based insurance design and reference pricing to vary patient cost-sharing based on the choices they make regarding use of health care services.

Read more:

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•  AHA asks for regulations on pharmacy ‘white bagging’ and ‘brown bagging’ practices
• Hospital outpatient payments higher, rising faster without fee schedules