EBRI data shows hospital drug markups are costing employer health plans billions — HR can act now
The same specialty medication, administered to the same employee, can cost an employer's health plan twice as much depending solely on where it is given. New research from the Employee Benefit Research Institute (EBRI) puts a precise figure on that disparity for the first time using current data — and it lands squarely on the desks of HR and benefits leaders responsible for plan design and workforce cost strategy.
Published September 24, 2026, in EBRI Issue Brief No. 666, the analysis finds that hospital outpatient departments (HOPDs) are reimbursed an average of 102 percent more per unit than physician offices (POs) for the same physician-administered medications. Across employment-based health plans, that gap translates to an estimated $12.7 billion in avoidable annual spending — approximately $101 per covered member per year — according to the report, co-authored by Paul Fronstin, Ph.D., director of health benefits research at EBRI in Washington, D.C., and M. Christopher Roebuck, Ph.D., president and CEO of RxEconomics, LLC in New York.
"The hospital industry — basically all of the supply chain in healthcare — is getting bigger at the expense of employers," Fronstin told Insurance Business Benefits US. "Employers don't — they never had a whole lot of purchasing power, and now they've got less because there are fewer health systems to negotiate with, fewer physician practices to negotiate with."
What HR leaders need to understand about site-of-care costs
The EBRI analysis examined 106 physician-administered outpatient drugs (PAODs) — many used to treat cancer, autoimmune diseases, inflammatory disorders, and other serious chronic conditions — using 2023–2024 commercial claims data from the Merative MarketScan Commercial Database covering 10.9 million adults in employment-based health plans.
HOPDs were the predominant site of care, accounting for 59 percent of all administrations, compared with 31 percent in physician offices and 9 percent in other settings such as patients' homes, according to the Issue Brief. Reimbursement was higher in HOPDs for 93 of the 106 medications examined. The median annual reimbursement difference across all medications was $5,531 per patient — and reached $135,306 for one oncology medication.
A key driver of this cost gap is hospital consolidation. When a hospital acquires a physician practice, HR leaders and their employees may not notice anything has changed — the same clinician, the same office, the same address. But the billing classification changes, and with it the reimbursement rate.
"You may still go to your physician, walk in the same door, see the same name on the door, and not realize that that practice is now owned by a hospital," Fronstin said. "Simply by virtue of the fact that the hospital now owns it, they can charge more because they have better rates."
Blue Health Intelligence, a health data analytics organization, found in a December 2023 report that reimbursement for common outpatient procedures increased 27 percent in HOPDs between 2017 and 2022, compared with only 2 percent in POs over the same period, as cited in the EBRI Issue Brief. The median HOPD markup has declined from 98 percent in 2019 to 70 percent in 2024, but that narrowing is driven largely by rising physician office reimbursement rather than hospitals charging less, the Issue Brief notes.
Why employees won't feel the savings — and why that matters for HR
One of the report's most important findings for HR leaders concerns who actually benefits when site-of-care costs come down. The immediate answer is not employees — at least not directly.
Among PAOD claims examined in the EBRI study, 90 percent had no deductible payment, 80 percent had no coinsurance, and 97 percent had no copayment. Employees receiving these specialty medications are disproportionately high users of health care services who typically exhaust their deductibles and out-of-pocket maximums early in the plan year. Once those limits are reached, they have little financial incentive to choose a lower-cost care setting, because the cost difference no longer falls on them.
The savings, in the near term, flow primarily to the employer and the health plan. This creates a communication and engagement challenge that sits directly in HR's domain.
"Health insurance is just a form of compensation, and the expectation is that workers would ultimately benefit," Fronstin said. "Maybe their premium contributions won't go up as fast, maybe their wage growth will go a little faster. But nothing else has ever been held constant in the real world. You don't necessarily feel it."
For HR directors, that gap between what the employer saves and what the employee experiences requires active management. Workforce trust in benefits programs depends in part on employees understanding why plan design decisions are made — and site-of-care changes are among the less intuitive ones to communicate.
Practical steps HR and benefits teams can take
Tiered provider networks — where employee cost-sharing varies based on the site of care rather than removing providers from networks entirely — represent one of the most actionable plan design tools available, Fronstin said. Advances in benefits technology have made this approach significantly more deployable than it was even five years ago.
"The technology caught up to the concept," he said. "We now have data on prices and an easy way through technology to communicate that to workers — to tell them, here are the implications of your choices."
For HR teams, that means moving beyond the annual open enrollment window as the sole moment of benefits engagement. Targeted educational campaigns — delivered by email, text, or through concierge navigation services — can reach employees who are actively using high-cost specialty medications and present them with meaningful alternatives before their next treatment.
The Society for Human Resource Management (SHRM) has documented growing employer interest in site-of-care programs and reference pricing as part of broader workforce benefits cost-containment strategies. Reference pricing sets a benchmark reimbursement rate for a given service, covering that amount in full while making employees responsible for any difference if they choose a higher-cost setting — creating a financial incentive that works even for employees who have not yet hit their deductible.
"You could have an educational campaign on a grand scale multiple times during the year," Fronstin said. "This is something you could do on a very targeted scale now with the people that are most likely to use these kinds of services."
For HR leaders at smaller organizations, the EBRI data provides a powerful starting point for conversations with benefits brokers and consultants about what plan design changes are feasible given their market and their workforce profile. The report notes that hospital acquisitions of physician offices may limit the negotiating leverage available to purchasers in some regions — making the choice of a well-connected benefits advisor a strategic one.
"There's no magic bullet to save a significant amount of money," Fronstin said. "But there are a lot of small magic bullets here and there, and you've got to play the whole field if you really want to have a measurable impact."
The full EBRI Issue Brief No. 666, "Location, Location, Location: Spending Differences for Physician-Administered Outpatient Medications by Site-of-Treatment," is available at ebri.org.
