Published — December 20, 2012 Updated — May 19, 2014 at 12:19 pm ET

Hospital ‘facility fees’ boosting medical bills, and not just for hospital care


Charges also added for hospital-owned urgent care centers, medical practices; Medicare budget-cutters want changes


After Vermont hospitals started buying up the medical practices of local physicians, state Sen. Kevin Mullin of Rutland, began hearing complaints that prices some patients were paying for routine medical care had soared.

One family accustomed to paying about $120 in out-of-pocket costs for doctor visits and other medical services was outraged when they ended up forking over more than $1,000 for similar visits, Mullin said, mostly for seeing doctors whose practices had been bought out by a local hospital.

“The only thing that was different was the office was [now] hospital-owned,” said Mullin, a Republican. “All of a sudden everything was charged differently.”

The root of these increases are controversial charges known as “facility fees,” and they are routinely tacked on to patients’ bills not just for services actually provided in hospitals, but also by outpatient care centers and doctors’ offices simply because they’ve been purchased by hospital-based health care systems. Hospitals argue they can’t afford to keep the doors open without facility fees.

Hospitals have billed them at least since 2000 when Medicare set billing standards for doctors employed by hospitals, and private insurers went along. Since then, the fees have grown increasingly common, costly and controversial. Critics argue that the billing practice needlessly adds billions of dollars to the nation’s ballooning health care costs and needs to be revamped. Some private insurers have protested the fees and in some cases even refused to pay them, which can add to the patient’s share of the bill. But getting rid of the charges — or even requiring medical offices to post facility fees — has proved daunting, reformers say.

Mullin introduced legislation earlier this year to ban the practice in his state, only to see the bill “watered down” to simply require that the fees be disclosed in advance. The state Senate approved the amended bill, but it failed to pass in the House, even though the state hospital association supported it.

Now, as budget cutters on Capitol Hill drill into Medicare payment policies in hopes of finding new veins of cost savings, the fairness of these fees is facing new scrutiny — including from the federal commission that advises Congress on Medicare spending policy. Hospitals are fighting back and have enlisted support from the Service Employees International Union, which represents more than one million nurses, doctors and other health care workers.

The stakes are high indeed. A decision by Medicare to quit allowing the fees would almost certainly lead private insurers to do the same across the country and all but put an end to them.

“This is low hanging fruit [for cutting costs],” said Dr. Kevin Kavanagh, a retired physician who heads HealthWatch USA, a patient advocacy group based in Kentucky.

Tom Nickels, the American Hospital Association’s vice president for federal relations in Washington, strongly defends the fees. But he agrees that the issue “is clearly in play” as lawmakers scramble to slash health care costs in coming months.

Fees for more than hospital care

Facility fees are a routine part of any hospital bill. But patients can also be hit with facility fees when they seek care from:

· Private physicians who have sold their medical practices to a hospital and stayed on as employees. More than half the nation’s doctors now work on salary. When that happens, patients may suddenly get a bill from the doctor and a separate one from the hospital that owns the office. Some prestigious health systems, such as the Cleveland Clinic, also put their doctors on salary and charge a facility fee for office visits.

· Outpatient medical centers that are part of a hospital-owned network, including centers treating serious diseases such as cancer or operating specialized clinics for the elderly.

· Urgent care centers set up by hospitals largely to treat relatively minor ailments. Thousands of these centers exist nationwide, about one third believed to be hospital-owned. Some don’t tell patients in advance about facility fees.

· Outpatient surgery centers where doctors perform routine operations. The centers can charge facility fees that run into the thousands of dollars. As deductibles rise on some insurance policies, patients may not realize they can get stuck with paying larger hunks of these bills than in the past.

The fees date back to April 2000, when Medicare clarified its policy for billing by health groups that hired physicians. At the time, CMS officials acknowledged that critics wanted the agency to forbid hospitals from buying up medical practices for the purpose of converting them to hospital “facilities” that could tender higher fees for the same services.

In a response published at the time in the Federal Register, CMS said it understood the concerns, but lacked the authority to “prohibit this practice.”

The issue popped up last year when the House passed legislation that extended the payroll tax holiday and unemployment compensation benefits. Tucked into the “Middle Class Tax Relief and Job Creation Act” was a provision to cut about $6.8 billion in Medicare costs by targeting doctor services in hospital-owned offices.

The hospital industry fought back hard — and ultimately successfully. The cuts never passed the Senate and were not in the final conference committee bill signed by President Obama in February.

Making the case

The health care industry argues that prices must be based at least in part on where a medical service is rendered. That means hospitals, which have high overhead and substantial costs for equipment, technology and personnel, expect to collect more money for the same service than at a doctor’s office. Similarly, outpatient centers impose fees to cover the cost of supplies, equipment and space and in most states aren’t obligated to tell patients about the fees in advance so they can shop around.

The American Hospital Association argues that phasing out the payments “threatens patient access to care.” The group said that hospitals tend to treat “sicker, more complex patients” and are better equipped than doctors’ offices and should be paid more. Cutting the fees would impact low-income and chronically ill people who depend on networks of hospital-based outpatient clinics, the group said.

Hospitals add that charging facility fees for medical care in doctors’ offices or care centers they own helps spread the cost of keeping expensive units, such as emergency rooms, open round the clock, and helps them absorb losses from patients who can’t pay their bills.

Some patients clearly disagree. Like Linda Romaniello, of Davie, Fla. After her 8-year-old daughter was nipped by a dog, she took her to a local urgent care center and left with a bill for more than $500. The child was treated with antibiotic gel and a simple bandage during her 15-minute visit, according to the South Florida Sun Sentinel, which reported on the incident last year.

Because the center was owned by Baptist Health South Florida, the hospital-based system slapped a $275 facility fee on top of the $233 doctor’s bill. The woman’s insurance refused to pay half the fee and Romaniello argued she would have gone elsewhere had she known about the extra fees beforehand. Florida has since passed a law requiring urgent care centers to post prices and all its clinics do so, a Baptist spokesperson said.

Dr. Marc Salzberg, president of the Urgent Care Association of America, said these fees “should be transparent to the consumer” and that people should know about them “before they get care.” Salzberg says his group believes there are between 6,000 and 9,000 of these centers nationwide, 30 percent to 40 percent of them hospital-owned.

Connie Peterson, 67, a retired graphics designer who lives in Iowa City, Iowa, also experienced the sting of facility fees. She was aghast after receiving a bill for nearly $26,000 in facility fees from an outpatient surgery center where she spent less than an hour.

“I was livid when I received the bill,” said Peterson. She spent months trying to get an explanation that made sense to her. “All I wanted was an itemized bill to let me know exactly what I’m paying for. I never got that,” she said.

Peterson had three procedures to remove nasal polyps during her 45-minute stay at the Iowa City Ambulatory Surgical Center in April. The center billed more than $8,000 in facility fees for each one, bringing the total to $25,872. She had to pay $1,086 of that.

In a letter responding to her complaint, the center said its rates were in accordance with national standards. Unlike hospitals, these centers don’t itemize charges, but bill all inclusive rates which include facility fees.

As more hospital systems set up specialty medical practices, there’s been some movement on requiring more disclosure, but it’s still not clear how many of these hospitals tell patients up front that they could be paying higher rates as a result.

“Hospitals are not really interested in being candid about what they are doing. They tell you that you will get two bills instead of one,” said John W. Phillips, a Seattle lawyer who has filed class action lawsuits seeking to make hospitals disclose the fees — and in ways people can easily understand. In one case he filed, a Seattle hospital agreed to refund the fees and post a price schedule in future.

Some hospitals do so already. New patients at the Senior Health Clinic at North Hills Hospital in North Richland, Texas, receive a letter advising that as an “outpatient department” of the hospital the center will add a facility fee, which “covers the cost of the clinic staff, supplies, equipment and space.” Similarly, Sarasota Memorial Hospital in Florida posts a notice on its website that advises those who schedule clinic visits that they will be charged a fee.

Responding to criticism, hospitals are supporting a bill in Congress that would require more disclosure so that patients can compare prices.

The Health Care Price Transparency Promotion Act of 2012 (HR 5800) introduced in May by U.S. Reps. Michael C. Burgess, R-Texas, and Texas Democrat Gene Green, directs states to pass laws requiring that hospitals notify patients in advance of out-of-pocket costs. It also orders up a study within 18 months to recommend ways in which to make information available to patients in an easy- to-understand format.

More than 30 states already require some degree of disclosure, though critics complain that what patients see often is difficult to compare or simply too dense for many people to decipher.

“Consumers ought to be told what they will be required to pay,” said Nickels, the hospital association’s lobbyist.

The battle is joined

Meantime, though, the broader fight over facility fees continues, albeit a bit under the radar. The Medicare Payment Advisory Commission, or MedPAC, which advises Congress, stirred up the debate in January when it recommended that the health plan for seniors pay for visits with doctors at the same rate, no matter where they occurred, and regardless of whether the doctor practices independently or is employed by a hospital.

The panel noted that hospitals buying up medical practices in recent years have been tacking on facility fees that increase the patient’s bill even when the doctor is working from the very same office. In March, the commission recommended standardizing payments over three years, sparking an outcry from the hospital industry.

MedPAC said that eliminating facility fees that Medicare pays for doctor services would reduce Medicare spending from between $1 billion and $5 billion over five years. The current system fails to create “clear benefits for patients,” the commission said, adding: “Medicare should be discouraging, not encouraging, expenditures by health care providers that do not benefit patients.”

The current system also can leave elderly patients liable for a heftier chunk of the bill. The commission noted that in 2011 Medicare paid doctors $68.97 for a 15-minute office visit, of which the patient was responsible for a co-payment of $13.79. For that same service in a hospital-owned medical practice, Medicare paid a total of $124.40. In that case, the patient co-payment was $24.88.

“I don’t see a policy justification for why a physician’s time is worth more as a hospital employee,” said Jeff Goldsmith, a Virginia health care consultant. Goldsmith said Medicare is paying a “subsidy” that is “encouraging hospitals to buy up practices and dramatically increase the cost of their services.”

Dr. Robert Berenson, a former MedPAC vice-chairman, said the proposed changes would lead to “major league savings” and could prove tempting if Congress “gets serious about reducing Medicare spending.” But Berenson conceded that hospitals opposing the changes are “pretty damn powerful.”

A September letter sent to members of Congress by five hospital groups said the changes proposed by MedPAC would reduce payments to hospitals by 71 percent for ten common outpatient visits. “To pay a hospital — with our emergency department, surgical, nursing, emergency transportation and myriad other costs — the same as a physician office does not make sense,” the letter stated.

Those five hospital groups have plenty of muscle on Capitol Hill. The five organizations together spent at least $22 million in political contributions and lobbying costs this year, according to the Center for Responsive Politics.

Nickels, the hospital association lobbyist, said Congress is looking for ways to finance the so-called “doctor fix,” an annual ritual passed to prevent Medicare payments to physicians from plummeting by 27 per cent, as required by a 1997 law. Hospitals are worried because adopting MedPAC’s recommendations could bring in enough cash to partly pay for the ‘fix.’

To complicate matters further, nearly two dozen prestigious health systems, such as the Cleveland Clinic, which employs physicians and charges facility fees for services rendered in their offices, also are fighting to maintain the status quo. These systems often have been credited with offering higher quality care and for keeping costs in check. To penalize them would be a “giant step backward in [health] delivery system reform,” Dr. J. James Rohack, co-chair of the 19-member Integrated Health Care Coalition, wrote in a July letter to the House Ways and Means Committee.

The health groups also have some powerful allies. In a Dec. 4 full-page ad in The Washington Post, the service employees union argued that hospital-based clinics “have provided the primary — and sometimes only — access to physicians for the nation’s underserved rural and urban communities.” Cutting back the fees “will force these clinics to close,” the ad states.

But MedPAC hasn’t shown any signs of giving up. Last month, the commission suggested that Medicare also pay a single rate for a variety of medical procedures, regardless of the site. The commission staff noted that Medicare pays 90 percent more for a laser eye procedure done in a hospital outpatient department than in a doctor’s office because of added facility fees. The commission is set to vote on a final recommendation in January, though it’s unclear whether Congress would support such a change.

Hospitals have argued that such cuts would impair their ability to keep staff on hand for emergency rooms and “disaster readiness.” In a letter sent to the Medicare advisory panel in late October, Rick Pollack, executive vice president of the hospital association, cited the “threat of terrorist attacks, recent mass shootings, the aftermath of Hurricane Katrina and the devastating tornados over the past year.”

But adopting what MedPAC calls a “site-neutral” payment policy would save Medicare $900 million over the course of a year and seniors would save $250 million more in out of pocket costs, according to the commission.

The controversy is erupting as the hospital industry faces tighter scrutiny over billing matters. In September, the Center for Public Integrity series Cracking the Codes documented how hospital emergency rooms have dramatically increased Medicare billings for facility fees and doctor services, adding more than $1 billion in costs to taxpayers over the past decade. Top government officials, including Attorney General Eric Holder, have since threatened possible criminal prosecution for doctors and hospitals that bill for more complex and costly services than they provided.

Insurers are getting more combative, too. Dolores Mitchell, who heads the state of Massachusetts Group Insurance Commission, said she is encouraging health plans and patients to resist paying higher prices for the same services.

“If the nature of the visit is identical, it shouldn’t cost more money,” said Mitchell, who oversees health plans that cover more than 400,000 government employees and their families. “It shouldn’t make any difference.”

Mitchell said that the fees may be justified when patients are treated in a room that requires a sterile atmosphere or other high-tech hospital equipment. “But where it’s simply an office visit, to charge a facility fee is inappropriate,” she said. But she added: “Once you get a revenue stream, it’s very hard to turn off the spigot.”

Whether Congress will cut off these payments is not yet clear. Former MedPac vice-chairman Berenson said that any policy change would need to account for losses hospitals incur to keep essential services open. That might happen, he said, if Congress considers the matter as part of a deal on taxes and entitlement programs such as Medicare.

“If not part of ‘entitlement reform,’ I think prospects for congressional adoption are less,” Berenson said.

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