As federal and state policymakers pursue policies to lower health care costs, "site neutral payment" has emerged as a potential tool with bipartisan support to bring down spending. Adopting "site neutral payments" would mean that a given service would cost the same amount regardless of where the care was received (i.e., the site of service). Currently, in many cases, hospital outpatient departments charge more than doctors' offices for the same services. These payment rate differences can affect how much people pay for their care and can produce incentives for health systems to acquire physician groups to increase revenue.
Using a sample of services identified by a 2023 Medicare Payment Advisory Commission report as potential candidates for site neutral payments, the dashboard below quantifies and illustrates the difference in price between hospital outpatient departments and physician offices among people with employer-sponsored insurance between 2018 and 2022. It also highlights where those services are being provided to indicate how the price difference can affect overall health care spending.
Consistent with existing literature, we found prices at hospital outpatient departments are consistently higher than physician offices. Specifically, the dashboard includes 57 services. For every service in every year, the price was higher in the outpatient setting than the physician-office setting, with the difference ranging from 1.27 times to 13.5 times in 2022.
Below the dashboard, we describe how the site-of-care price differential operates for four specific service categories: nuclear medicine, skin procedures, imaging, and pathology.
Nuclear Medicine
Nuclear medicine includes diagnostic imaging techniques that use small amounts of radioactive material to examine organ function. Myocardial perfusion imaging, tomographic (SPECT), or deep vein thrombosis nuclear imaging are examples. Prices of nuclear medicine services rendered at hospital outpatient departments were 3.3 times higher than physician offices. For example, the average hospital outpatient department price for a nuclear medicine service in 2018 was $2,159, more than three-times higher than the price at physician offices ($654). During our study period, approximately 52% of nuclear medicine services were rendered in physician offices and 48% at hospital outpatient departments.
Skin Procedures
Skin procedures that could be considered for site-neutral payments range from minor treatments, such as skin tag removal (Level 1), to more complex procedures like pressure sore removal (Level 5). In 2022, the average price for Level 5 skin procedures was $3,734 in hospital outpatient departments, compared to $1,947 in physician offices—a price difference of 1.92 times. The price difference by site of care was even greater for Level 1 and Level 2 skin procedures; for example, Level 2 procedures in hospital outpatient departments cost 4.33 times more than in physician offices.
We found that nearly 90% of Level 1 to Level 3 skin procedures were performed in physician offices in 2018. In contrast, physician offices accounted for 28% of Level 5 skin procedures in 2018. The share of Level 5 skin procedures performed at physician offices decreased by 44% from 2018 to 2022.
Imaging without contrast
Services within the "imaging without contrast" category range from simple X-rays (Level 1) to transthoracic echocardiography (Level 5). In 2022, the average price for Level 1 imaging services in hospital outpatient departments was $227, compared to $61 in physician offices—a price difference of 3.7 times. The price difference by site of care was greatest for Level 1 and Level 4 imaging without contrast categories. For example, Level 1 imaging and Level 4 imaging in hospital outpatient departments cost 3.7 and 3.65 times more than in physician offices, respectively. Level 2 and Level 3 imaging service prices were 3.16 times and 2.62 times higher in hospital outpatient departments compared to physician offices.
Among all four levels of imaging without contrast procedures, we found that the share of imaging procedures performed at physician offices remain unchanged. Although we observed minor fluctuations during this period, by 2022, we found that 58% of all Level 1 imaging, 73% of all Level 2 imaging, 57% of all Level 3 imaging, and 58% of all Level 4 imaging were performed at physician offices.
Pathology
Between 2018 and 2022, nearly 58% of site-neutral pathology services, such as tissue examinations, were performed in physician offices. In 2022, the average price for these services was $253 in hospital outpatient departments and $165 in physician offices—a price difference of 1.52 times. Although the price difference between these two settings is smaller than for other site-neutral services, the 2022 price gap has widened over time, increasing from 1.36 times higher in hospital outpatient departments in 2018.
Site Differential Payment Affects Spending and Affordability
This analysis found that, for the exact same service, prices between hospital outpatient departments and physician offices were substantially different in all years and for all services studied. Most services in this analysis were provided in lower-cost physician offices, which should put downward pressure on health spending. (If more people use lower-cost services, spending should be lower.) The prices at hospital outpatient departments, however, were so much higher that they can offset potential savings from higher use at physician offices.
The Medicare Payment Advisory Commission (MedPAC) and others have identified a number of services that could be provided either in a hospital or physician-office setting. Generally, these services have clinical inputs that do not require additional infrastructure found only in hospitals, such as trauma or life-saving care, and clinical outcomes should not be affected by site of service.
In many cases, higher payment rates for services rendered at hospital outpatient departments reflect higher overhead costs (e.g., hospital-level staffing or life-saving medical equipment). However, the hospital-level of care (and associated overhead) is not clinically necessary for all services. For those services that can be provided safely in either setting, the additional cost for hospital overhead could be considered extraneous with real impacts on patients. Specifically, stark payment differences between hospital outpatient departments and physician offices mean that patients are subject to higher out-of-pocket costs.