Hospital mergers are giving rise to opaque ‘facility fees’ that add costs to medical bills

Consolidations throughout the health care system are giving rise to unexpected charges that experts say more and more patients are seeing on their bills.

These facility fees, which are separate from paying a clinician for their time and labor, ostensibly cover overhead costs, such as supplies or equipment maintenance.

But how medical systems actually use the revenue generated is opaque, said Christine Monahan of Georgetown University, who researches health pricing and insurance.

In this interview, which has been condensed for clarity and length, Monahan explains that as hospital networks purchase more independent medical practices and build more outpatient physician offices, people are more likely to pay a facility fee.

Spotlight PA: On the surface a facility fee seems reasonable. But I gather these payments cover more than just the cost of keeping a facility’s lights on?

Christine Monahan: Hospital industry representatives are telling us facility fees can cover a broad set of costs. That can include staffing and supplying ERs or other departments, which may or may not even be at the same location where that patient was treated. Or 24/7 security at the main hospital campus.

But facility fees also can encompass other expenses that don't directly relate to health care, be that CEO salaries, or fancy artwork on the walls of the hospital, and gourmet food services. I've even seen a story from New York about a health system that has started to build its own movie production studio to help create hospital promotional materials. All of those things count as hospital expenses, and thus can be what facility fees are paying for.

How much are these facility fees?

From anecdotal reports that I've seen, I think something in the range of a few hundred dollars seems pretty normal.

When you look at national-level data that compares what medical care would cost at an independent physician practice versus a hospital’s outpatient department, you do see some significant variation. Several hundred dollar differences can be pretty common.

Let's say an independent primary care practice is bought by a larger health system. Does that mean a patient is more likely to be billed a facility fee, even though they’re going to the same clinician at the same location and receive the same kind of care they’ve been getting for years?

Yes. And it's happening more and more as more hospitals acquire or build hospital outpatient practices, which has been a trend going on for the past 10 years or so.

If the care is the same and the location is the same, why would a patient suddenly have to pay a fee?

That's the big concern. In some instances, it totally makes sense. If you have inpatient surgery, then of course the hospital is going to have overhead costs. And you're expecting to pay for that.

But these fairness questions come up when we're talking about services that traditionally have not been in a hospital, and can be safely, effectively provided at independent settings, including via telehealth.

How do you know when the facility fee is being used appropriately?

Unfortunately, we don't have a lot of insight into how hospitals are using the money that's coming into them from facility fee billing or other services. Hospital financials is a really big black box.

Some policymakers have said, “If this service can be safely and effectively provided in an independent setting, then we shouldn't attach a facility fee for it, because we know the overhead costs are relatively limited.” So if we aim to pay that same amount, then we know we're covering the overhead costs that are necessary for that care, and not for all of the other things that might be baked into a facility fee.

Also, in some states, outpatient departments of hospitals and health systems can't bill a facility fee for certain services, including office-based, routine medical care. Therefore, all the insurer will pay, and all that the consumer could be asked to pay, is just for the professional’s bill.

Some people might reason, “Well, it doesn't really matter to the patient if these facility fees are getting tapped on because insurance is going to pick up that cost.”

There are several ways that consumers are impacted by outpatient facility fee billing. One is through their out-of-pocket costs. Particularly as we see health insurance plans increase their deductibles.

And a deductible is what you have to pay before your benefits kick in.

Yes, exactly. For example, you have a $2,000 deductible. And you go to the doctor where there's a facility fee that's maybe $500. Then you'll pay that whole $500 on your own before your insurance kicks in.

But ultimately, if insurance covers these facility fee bills, we're all paying for that through increased premiums.

And a premium is what people pay every month for their insurance coverage.

Exactly right. Insurers will calculate how much to charge you every month based on how much they expect to be paying in total health care costs for the year. And if the insurer is paying for all these outpatient facility fees, they'll calculate that into the premiums for next year, and your premium will go up.

What are other policy interventions to ensure patients aren’t charged outrageous facility fees?

Some states are exploring ways to get better information about facility fee billing. Other reforms include consumer notification requirements, and prohibitions on balance billing for facility fees in certain circumstances. [Ed. note: Balance billing is when a patient is billed for the difference between the cost of treatment and the amount that their insurance will pay.] And then actual facility fee prohibitions.

What can a patient or caregiver do to avoid paying these facility fees?

That's a really hard one. Consumers and caregivers can try to avoid getting care at hospital-owned facilities, but many may simply not have much of a choice as hospitals and health systems acquire more outpatient practices.

You can always try to reach out to your insurer to see whether they’ll cover more of the cost, or negotiate a lower bill. You can also ask hospitals about their charity care or financial assistance policies to see if they'll lower or even waive your bill. And there might be advocacy organizations who can help you navigate these processes, because they're not necessarily easy to do.

If Pennsylvania were to ban facility fees, what would stop medical systems from increasing other costs?

That is absolutely a big risk. And one of the big questions, if you're adopting the site-neutral policy or facility fee prohibition broadly, Is to ask, “How broadly does it apply?” The narrower the policy, the easier it is for hospitals to offset that cost and move it somewhere else.

This points to the much bigger issue: Hospital prices writ large are a concern, and likely need some broader forms of regulation to get them under control.

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