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Do facility fees pay for better care or upcharge patients?

Hospital-owned practices and clinics may charge facility fees

Topics: Finance

November 08, 2012

The Seattle Times last week explored the increasing trend of hospitals adding "facility charges" to patient bills—even for routine checkups—as hospital systems consolidate, buy independent clinics, and offer more integrated care at outpatient facilities.

The fees are used to cover overhead costs such as those for EHRs, imaging, equipment, and care not covered by insurance, Medicaid, or Medicare, the Times reports. Some providers charge facility fees only when a visit includes a procedure and others charge hospital rates for imaging or lab services, even if they were performed in a clinic.

Overall, a physician’s fees may be reduced under the billing system, but the total bill is higher with facility fees.

According to the Times, patients with insurance will pay 20% to 30% of the facility fee in addition to a flat $25 co-payment. But patients with no insurance or with high deductibles may have to pay the whole bill, which for even a primary care check-up could total several hundred dollars.

Medicare covers facility fees when they are designated as "outpatient" services—when a hospital leases a clinic or practice outside of the campus—but facility fees could add a $2 billion a year in Medicare spending by 2020, according to the Medicare Payment Advisory Commission (MedPAC).

Earlier this year, MedPAC advised Congress to mandate that patients pay the same for a doctor’s visit whether it occurred at a hospital outpatient department or at a private practice. MedPAC estimated that a bill for a middle-range doctor's office visit would increase by more than 80% with facility fees.

Many payers go along with the outpatient billing process too, according to the Times, but a few are fighting back.

Health care group says it will not pay facility fees

For example, Group Health Cooperative last month notified all the hospital systems it contracts with that it would no longer pay facility fees for physician checkups, nor will the company pass on the bill to patients.

Group Health’s CEO Scott Armstrong says that the move is not meant to hurt hospitals, but that they want payments linked to better care, not location.

"We're talking about the revenue stream for hospitals,” Scott says, adding "We don't take this step lightly."

Facility fees currently cost the company about $2 million a year, and over the past three years those fees have increased 10% to 15% per annually.

"Facility fees demonstrate how the fee-for-service system can inflate cost without in any way contributing to the health of patients," says Group Health’s CEO Scott Armstrong.

As an insurer, Group Health used to pay about $1,832 for a heart-catheterization procedure at a cardiology group practice. After a hospital bought the practice, the insurer is now charged nearly $7,000 for the same procedure.

That trend may continue to spread.

According to the American College of Cardiology's Washington state chapter, in 2007 hospitals employed 2% of the state’s cardiologists and now they employ 42%.

Cardiologists are attracted into partnerships because hospitals offer them much higher compensation than a free-standing medical group can, according to Denis McDonald, vice president of physician-owned group The Polyclinic. "It's a concern for everybody."

Physicians counter that facility fees mean better care

"There is no overarching strategy to convert physician practices into provider-based billing clinics," says Todd Strumwasser, COO at Swedish Medical Center's First Hill and Cherry Hill campuses.

Strumwasser says that only 5% of the system’s 124 clinics, such as the True Family Women's Cancer Center, charge facility fees. He argues that facility fees are justified because patients are paying for better care—when a hospital operates a clinic or a practice, the overall care quality improves and the clinic can offer a wider variety of services.

The fees at the True Family Women’s Center cover many extra services available through Swedish, such as social workers, psychologists, financial counselors, and the hospital’s outpatient chemotherapy infusion center.

"It's a much more robust service than if you go to Dr. X out in Lynnwood and he examines you for your breast care," Strumwasser told The Times.

Moreover, just to stay in business, hospital must charge the fees to continue serving Medicare and Medicaid patients with low reimbursements, according to Washington State Hospital Association spokesperson Cassie Sauer.

Sauer says that physicians often are the first to make a move toward a hospital-physician partnership, instead of being overwhelmed with subsidizing care for beneficiaries. Still, Sauer says that shifting bills to privately insured patients does not solve the problem.

"Why aren't we all paying for it?" Sauer asks, adding "This is really an artifact of our wacky financing system for health care" (Ostrom, Seattle Times, 11/3).

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