New report: To drive up profits, hospitals continue unnecessary medicine mark-ups, burdening patients, employers and the health system

A new study from the Employee Benefit Research Institute (EBRI) compared the difference in price for 72 physician-administered outpatient medicines – representing 73% of medicine spending – depending on whether they were administered at a hospital outpatient department or physician’s office. Not surprisingly, EBRI found employers and plans paid hospitals significantly more than physicians for the exact same treatment, suggesting employers and their workers could save money if these pricing differentials are addressed. This study comes on the tail of another EBRI study, which found hospital outpatient departments mark up the cost of oncology drugs by an average of 223%, which, in just one year of paying physician prices instead of hospital prices, could lead to employers saving an average of almost $10,000 per covered cancer patient.

Key findings from the report include:

1. Care is shifting from physician offices to more costly hospital outpatient departments. EBRI first determined where the 72 physician-administered outpatient medicines in their study are more likely to be administered and found similar results trending more broadly across the health care space.

• Nearly 60% of the physician-administered outpatient medicines studied were administered in a hospital outpatient department, while just one-third (34%) were administered in a lower cost doctor’s office.
• The shift to more costly sites of care is a growing trend. For example, in 2004, nearly all (94%) of chemotherapy infusions were administered in doctor’s offices. Just ten years later that percentage had dropped to 57% with a corresponding shift toward hospital outpatient departments administering that care. Increasing consolidation of providers is likely to exacerbate this trend.

This shift to more costly sites of care is significant because as hospitals continue to needlessly drive-up cost for treatments as compared to physician offices, the burden on the health care system – especially employers and workers – also grows.

2. Prices paid for drugs administered in a hospital-based outpatient setting are three times higher than prices paid in doctor offices. Hospitals’ rise in cost is meritless as EBRI examined the same 72 physician-administered treatments in each location.

• Unsurprisingly, average plan payments to hospital outpatient departments were triple what plan payments were to physician offices for the same unit of medication.
• EBRI found payments are higher to hospitals than in doctor offices for all but two of the 72 physician-administered outpatient drugs And prices for half of the drugs were marked up two-fold by hospitals relative to doctor offices.
• A previous analysis from the Moran Company found that nearly one in five hospitals charge 700% or more for medicines.

Not only are more treatments now being administered in hospital outpatient departments as compared to physician offices, but hospitals are also charging significantly more compared to physician offices for the exact same treatment.

3. Potential savings for employers, workers and the health care system are substantial if hospital outpatient departments did not overcharge for the same medicine administration as doctor offices. There is too much at stake for individuals, companies and the health care system as a whole to not hold hospitals accountable.

• In the aggregate, employers and workers could collectively save $10.3 billion annually if price differentials between hospital outpatient departments and doctor offices were eliminated for the 72 physician-administered outpatient medicines If we extended the savings to all physician administered medicines, aggregate savings would be $14.1 billion each year.
• On an individual basis, annual savings could be $80.21 for the 72 drugs examined in this paper and $110.03 for all physician-administered outpatient drugs if price differentials between the two locations were eliminated.

EBRI’s study underscores just how much hospitals are driving health care spending in the United States by unnecessarily marking up the cost of medicines. Yet, increasing provider consolidation is making it harder for employers to negotiate fair or competitive prices. Any conversation about ways to improve our health care system and lower costs for patients must include a discussion of these unfair hospital pricing practices that have implications for patients, employers and the entire health care system.

To learn more, read the study here and visit PhRMA.org/Cost.