Location, Location, Location: Cost Differences in Health Care Services by Site of Treatment — A Closer Look at Lab, Imaging, and Specialty Medications

Summary

It is estimated that 20–30 percent of overall health care spending may be wasteful. Overall, employers and workers spent $244.2 billion to $366.3 billion on six domains of waste: failures of care delivery, failures of care coordination, overuse of low-value health care services, fraud and abuse, administrative complexities, and pricing failure — or when prices migrate from what is expected in a well-functioning market.

In this Issue Brief, we focus on that last area of waste: pricing failure when it comes to lab; imaging; and special medications for conditions such as multiple sclerosis, rheumatoid arthritis, and other inflammatory disorders. This analysis is important because care is shifting from physicians’ offices (POs) to more costly hospital outpatient departments (HOPDs). Compounding this shift in care is the fact that prices for hospital-based outpatient care are increasing faster than physician prices. Ultimately, employers and workers bear the brunt of cost differences when HOPDs perform services that can be provided in less costly POs or in stand-alone lab or imaging facilities.

Key Findings: Location matters...

• To employers and employees:
  • Overall, employers and workers would collectively save $11.2 billion if price differentials between HOPDs and other sites of treatment were eliminated for each of the 25 health care services examined in this report.
  • Employers would save $9 billion or 80 percent of the total, whereas workers and their dependents would save $2.2 billion or 20 percent.
• When it comes to a wide variety of health care services:
  • Employers and workers could reduce their spending on lab services as much as 69 percent, depending on the type of lab service, if price differentials between HOPDs and other sites of treatment were eliminated.
  • Savings could be as high as 56 percent for chest X-rays, 49 percent for echocardiograms, and 41 percent for DEXA scanning.
  • If site-of-treatment price differentials for specialty medications were eliminated, employers and workers would save as much as 36 percent, depending on the medication.

While $11.2 billion does not seem like much savings compared with the $1 trillion spent on health benefits by employers and workers, the potential for savings is much greater, as our analysis is based on only 25 health care services. Employers could cut costs by 1 percent simply by shifting patients away from more costly HOPD settings or by negotiating site-neutral pricing for the 25 health care services examined in this report.