Site-of-Care Reimbursement Gaps Cost Employers Billions

New research shows hospital outpatient departments are reimbursed at significantly higher rates than physician offices.

Updated on Oct. 5, 2026 in Healthcare

Site-of-Care Reimbursement Gaps Cost Employers Billions

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Are rising hospital costs making it harder for your household to afford necessary medical care?

The Employee Benefit Research Institute found that site-of-care disparities in medical billing cost employers and workers $12.7 billion annually. Hospital outpatient departments receive 102 percent higher reimbursement than physician offices for the same medications.

Why it matters

The practice of reclassifying physician services as hospital outpatient care significantly inflates healthcare spending. This consolidation reduces the number of independent providers available, leading to higher costs for patients and health plans.

The study analyzed 106 physician-administered drugs and found a median annual reimbursement difference of $5,531 per patient. Hospital settings account for 59 percent of administrations compared to 31 percent in physician offices.

The players

Employee Benefit Research Institute

This Washington, D.C.-based nonpartisan organization provides research and education on economic security, health, and employee benefit programs.

RxEconomics, LLC

Based in New York, this firm specializes in healthcare policy and economic analysis regarding pharmaceutical pricing and provider reimbursement models.

The details

Hospitals frequently acquire physician practices and reclassify services to justify higher billing rates for outpatient procedures. This trend has limited the pool of health systems available for fee negotiations, further straining commercial health insurance budgets.

2017-2022 saw a steady increase in outpatient reimbursement rates within hospital departments.
2019-2024 marked rising physician office reimbursement for high-spending medications.
2023-2024 served as the commercial claims data period analyzed in the research.
October 5, 2026, was the official publication date of the research report.

Market Landscape

The report highlights how the horizontal and vertical consolidation of physician practices into hospital systems undermines efforts to control site-of-care costs. This institutional shift allows health systems to exert greater leverage in contract negotiations with insurance carriers.

Employees may see increased health insurance premiums as companies pass down the costs associated with inefficient billing practices. The higher reimbursement rates for hospital-administered drugs often translate to higher out-of-pocket costs for patients depending on their plan design.

The takeaway

Patients should check if their specific medication can be safely administered in a physician office rather than a hospital outpatient setting to reduce costs. Understanding how your health plan defines site-of-care coverage can help avoid unexpected medical billing charges.