Site-neutral payments could save over $12B

Paying hospital outpatient departments the same rates as physician offices for certain high-cost drugs could save health plans and employers billions, according to a new analysis from the Employee Benefit Research Institute.

Researchers estimate about $12.7 billion in annual healthcare savings from so-called site-neutral payments for over 100 of the highest-spending physician-administered outpatient drugs. These drugs are used to treat many of healthcare's most complex patients, including those with cancer, autoimmune diseases, multiple sclerosis, inflammatory conditions, rare diseases and other serious chronic illnesses.

The drugs examined by EBRI researchers accounted for approximately half of claims and over three-quarters of total spending for physician-administered drugs among commercial plans.

These drugs can be safely administered in both hospital outpatient departments and physician offices. However, what plans pay is substantially different, according to the research.

Hospital outpatient departments were paid an average of 102% more than physician offices for providing the same medication, researchers report. The median markup for the typical drug was also 64%, indicating that hospital-based physicians received nearly two-thirds more than independent doctors.

This payment gap adds up: 59% of all administrations of the drugs analyzed occurred in hospital outpatient departments, compared with 31% in physician offices during the study period between 2023 and 2024. The remaining drugs were administered in other settings, such as patients' homes.

Site-neutrality eliminates the reimbursement gap between hospital outpatient departments and physician offices, and it is a strategy that federal regulators and lawmakers have used to reduce healthcare spending. For example, Medicare already aligns reimbursement rates between the two sites of care for several services, including routine checkups, basic evaluations, chemotherapy infusions and therapeutic injections.

The CMS projects site-neutral payments to yield $290 million in savings this year, with more savings to come under a proposal to broaden the payment policy to more services.

However, hospitals defend their higher rates. They argue that hospital outpatient departments care for more complex, low-income and rural patients while complying with more stringent safety and regulatory requirements. In contrast, independent physician offices don't offer or have limited emergency and advanced care services, are open only during set times and are not obligated to treat all patients regardless of insurance.

Still, private payers and lawmakers are eyeing site-neutrality more closely as healthcare spending continues to grow at unsustainable levels.

Private payers and employers could especially benefit, with the EBRI projecting savings of roughly $77 per member per year for the 106 drugs studied and about $101 per member per year when extrapolated to all physician-administered outpatient drugs. Up to 60% of the non-elderly population is covered by employer-sponsored health insurance, according to KFF.

However, those savings wouldn't trickle down to patients immediately, EBRI researchers say. The patients receiving the medications in the study tend to have high utilization rates, which means they meet their cost-sharing requirements fairly quickly. In fact, the analysis found that among the claims examined, 90% had no deductible payment, 80% had no coinsurance and 97% had no copayment.

Consumers could benefit, though, as lower site-neutral reimbursement reduces overall plan spending. These savings could trickle down to workers and their families through lower premiums, the researchers explained.

"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," Paul Fronstin, director of Health Benefits Research at EBRI, said in a statement.

Jacqueline LaPointe is an Executive Editor at Xtelligent Healthcare Media, covering revenue cycle management, healthcare payers, health policy, and health IT since 2016.