Medical Cost Disparities Cost Employers $12.7 Billion
Employers lose billions annually as hospital outpatient drug reimbursements outpace physician offices by 102 percent.
Updated on Oct. 5, 2026 in Healthcare
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The Employee Benefit Research Institute found that employment-based health plans incur $12.7 billion in annual waste due to site-of-care reimbursement disparities. Hospital outpatient departments are reimbursed significantly more than physician offices for the same medications.
Why it matters
Consolidation of physician practices into hospital systems forces higher costs onto employer-sponsored health plans through reclassified billing codes. This shift limits the available network of lower-cost care settings, driving up annual healthcare premiums.
Hospital outpatient departments receive 102 percent higher reimbursement than physician offices for the same medications, with a median annual difference of $5,531 per patient. The study analyzed 106 physician-administered drugs and found a maximum price gap of $135,306 for one oncology medication.
The players
Employee Benefit Research Institute
A Washington, D.C.-based nonpartisan organization that conducts research on economic security and employee benefit programs.
The details
Hospitals frequently acquire private physician practices and reclassify their services to bill under higher hospital outpatient rates. This creates a cost discrepancy where 59 percent of physician-administered drug volumes are billed at elevated hospital rates, compared to 31 percent in independent physician offices. The resulting reimbursement gaps persist even when identical medications are delivered in both environments.
Timeline
2017-2022: Hospital outpatient procedure reimbursement increased.
2019-2024: Physician office reimbursement increased for high-spending medications.
2023-2024: Commercial claims data period analyzed.
October 5, 2026: Research report published.
Market Landscape
The study aligns with the ongoing policy debate surrounding site-neutral payment reform aimed at curbing rising employer healthcare costs. It underscores how hospital consolidation strategies directly contradict the intent of market-based pricing for medical procedures.
Business owners should review their plan's site-of-care billing data to identify whether outpatient services are driving avoidable cost spikes. Consult with your benefits broker or accountant to evaluate if your current health plan structure incentivizes lower-cost provider settings.
The takeaway
The consolidation of independent practices into hospital systems is directly inflating the cost of employer-provided benefits by bypassing standard office-based reimbursement rates. Operators should audit their upcoming benefit renewals for network restrictions that force employees into higher-cost outpatient settings.
Further reading
For additional context on how billing shifts affect your business, visit Healthcare.
More information
Read the full Employee Benefit Research Institute report for detailed findings on site-of-care waste.
Live Poll
Are rising hospital costs making it harder for your household to afford necessary medical care?
