Facility fees pressuring physicians to talk costs with patients

The growing national scrutiny of facility fees charged by hospitals is placing many physicians in the difficult position of factoring costs into treatment decisions, and prompting a debate on whether physicians have a responsibility to engage patients on the financial side-effects of recommended treatments.

Since October, hospital-owned physician practices in Connecticut that charge facility fees have been legally required to notify patients of the fees in advance, one of the latest developments in the ongoing contentious fee debate as more physicians nationwide opt for employment over independent practice.

Read more: How facility fees give independent physicians the advantage

The Connecticut law, believed to be the first according to that state’s attorney general office, builds on other recent scrutiny of facility fees, which are sometimes added on top of the physician’s professional fee. In nearby Rhode Island, the attorney general’s office also is monitoring fees, with the possibility of filing legislation to shed better light on medical pricing, according to a spokesperson there.

Earlier this year, the Medicare Payment Advisory Commission (MEDPAC) recommended adjusting the rates for some medical services provided in hospital outpatient departments “so they more closely align with the rates paid in freestanding physician offices.”

The American Hospital Association says the higher rates are needed to cover all of the additional facility and patient care requirements stipulated by the Centers for Medicare & Medicaid Services (CMS) and numerous other entities, once a physician practice bills under the umbrella of a hospital system. “All of those requirements that are on a hospital outpatient department-that’s why CMS pays at the higher outpatient rate rather than the physician fee schedule,” says Erik Rasmussen, AHA’s vice president of legislative affairs. 

Meanwhile, hospital employment is becoming increasingly common among physicians. In 2012, 29% of doctors worked
directly for a hospital or for a practice that was at least partially hospital owned, compared with 16.3% in 2007, according to the most recent survey data from the American Medical Association.

For doctors practicing on both sides of the fee divide, the costs and growing public discussion holds the potential to alter the competitive landscape as they jockey for patients. The higher price tag increasingly is being shouldered by patients, a result of the proliferation of high-deductible plans among both employer-funded policies and those sold through the health exchanges established by the Affordable Care Act. 

Among the emerging conundrums: When doctors who don’t charge a facility fee refer a patient, should they tell them which physicians do and which ones don’t? 

Another practical dilemma: How should newly-employed doctors educate patients about the additional billing cost?

Read more: Monopolizing medicine, or why hospital consolidation may increase healthcare costs

Doug Gerard, MD, a general internist in New Hartford, Connecticut, who submitted written testimony supporting the state law, says that now he avoids referring patients to employed doctors in his local community. At the same time, he sympathizes with those doctors who, he says, pursued employment to avoid the overhead, regulatory and other headaches of independent practice, and find themselves “stuck in this quandary,” as Gerard describes it.

“Now the patients are showing up in their offices, and poor old Dr. Jones looks like a mercenary when they see this extra bill that comes by,” Gerard says. “But it’s not him that’s getting the money. It’s the hospital that’s charging it. They [the employed doctors] are as upset about it as I am.”

NEXT PAGE: Legislative action prompts facility fee changes

The Connecticut law, which grew out of complaints and a report compiled by the state attorney general’s office, mandates that patients receiving non-emergency outpatient services must be notified in
advance about the fee, including an estimate of  how much they will be charged.  Depending on when the appointment is made, the notification must either be sent in advance, or provided at the time of the appointment. The fee details also must be posted in the practice, including the patient waiting areas.

The Connecticut attorney general’s office, which requested data on fees from the state’s 29 acute care hospitals, found that 22 charged a facility fee, according to its April 2014 report, with fees ranging from $100 to more than $1,000.

A common theme among the complaints was that the patient was only charged the physician fee at the time of the appointment, and  thus was surprised by receiving a separate facility bill later.

Those findings mirror similar financial concerns raised in the 2014 MEDPAC report, in which the commission recommended that “if patient severity is similar and a service can be provided in a lower cost setting without a reduction in quality or safety, Medicare should pay a rate based on the cost of the more efficient setting.”

As one example of the current cost differential, the commission detailed how Medicare’s 2014 reimbursement would be $228.02 to cover a Level II echocardiogram without contrast in a free-standing physician office. If the same service were to be provided in a hospital outpatient department, the total reimbursement including the facility fee would total $492.22.

In its report, the Connecticut Attorney General’s office cites financial incentives under the Affordable Care Act to create accountable care organizations, with the long-term goal of better care and lower costs, as one factor driving the hospital acquisition of physician practices. Others take a more pessimistic view. “They are basically buying referrals by purchasing physician practices,” says Steven Lester, MD, a radiation oncologist and board member of the Association of Independent Doctors (AID), a trade group created in 2013 in Winter Park, Florida.

Given the increase in high-deductible plans, many of these higher costs are coming straight out of patients’ pockets. In 2014, 20% of privately insured employees had that form of coverage versus 8% in 2009, according to an annual health benefits survey conducted by the Kaiser Family Foundation and the Health Research & Educational Trust. 

Gerard had already heard some patient complaints about the added fees when he  consulted a dermatologist in 2013 for a simple skin biopsy. Gerard received two bills-  $132 for the physician’s work and $213 for the hospital facility fee. Because his own coverage was through a high-deductible plan, he had to pay the additional cost.

Gerard has since changed his referral patterns, largely steering clear of employed doctors in his community. Along with larger bills for patients, the costlier referrals to those hospital-owned practices could affect his practice’s bottom line, as insurers increasingly monitor a physician’s total cost of care, he says.

The Connecticut law, which went into effect in October, was endorsed by the Connecticut State Medical Society. The society  believes all pricing should be open, including facility fees, says Robert Russo, MD, the society’s president. AHA’s Rasmussen declined to comment on the law, saying that the national organization doesn’t weigh in on state legislation.

As of early October, Gerard said it was unclear if the prior written fee notification had resulted in patients choosing other doctors. If a similar law were passed in Florida, AID’s Lester think it would influence patients “initially” to opt for doctors that weren’t employed by hospitals. “But I think in the end it would probably balance out,” he says, “because the hospitals would quit charging these exorbitant facility fees once it was published.”

NEXT PAGE: Talking about cost with patients

A physician practice that’s considering possible hospital employment should discuss any additional fees early on in the negotiations so it’s not a surprise for them or their patients once the deal has been completed, says Anders Gilberg, senior vice president of government affairs for the Medical Group Management Association (MGMA). In some health systems, the fee is not charged for hospital-owned practices, he says. 

“From an ethical or patient-centered standpoint, they choose not to, because they don’t feel comfortable with the double bill,” Gilberg explains.

MGMA also is advising primary care physicians who don’t charge fees to keep a close eye on where they refer, because accountable care organizations and other new payer models increasingly are tracking the total cost of care, Gilberg says. 

“If you’re referring into a system that is twice as expensive as an independent practice, those costs will be attributed to you under these attribution models for value-based care, and you could potentially be dinged or face a penalty as a result,” Gilberg says.

While cost is important, it’s far from the only factor that influences a patient’s perception of their doctor, says Meryl Luallin, chief executive officer of the consulting firm SullivanLuallin Group in San Diego, California. “If the physician is inexpensive but at the same time is brusque and rough, cost is only one small element of how the patient feels about their experience,” she says.

Still, if a doctor’s practice becomes hospital owned, it’s important not to surprise existing patients with any related fees, she says. One of Luallin’s clients encountered precisely this scenario when a practice that delivered chemotherapy in the same office suite was now billing patients roughly double after a hospital acquisition.

Among the measures Luallin suggests is that the practice provides current patients with written details about the acquisition, either at the time of the visit or mailed a few days before. That letter, while referencing that there may be a difference in fees, should outline the patient care benefits of practicing within a larger hospital system. “If you are educated ahead of time as to what to expect, you’re not likely to complain,” she says.

Doctors who continue to practice independently also can position themselves competitively by compiling a short summary of what that practice model can offer, says Judy Bee, president of Practice Performance Group in La Jolla, California, and an editorial consultant for Medical Economics. Keep the writing concise and frame the points in a positive tone, she says. “It’s always in the vein that it’s in the patient’s best interest to get all of the facts.”

The fact sheet can describe how one fee will be charged for an office visit at that practice, whereas some practices will charge two, Bee says. Perhaps incorporate an example to illustrate the difference, she says. It can explain that referrals to specialists will be made “to specialists that we know and we trust,” she says. “Specialists that we think would be a good fit for you. We don’t care what system they belong to.”

In the Orlando area, Lester’s radiation oncology practice encloses a similar letter with its information package to new patients. “We would like to reassure our patients that we have not been acquired, nor do we have any intention of being acquired, by a hospital system,” the letter states at the outset.

The letter goes on to explain that hospital-owned practices charge higher costs that are passed along to insurers and patients. In contrast, “The only partnership we seek is with our patients and with our goal of the best care possible for each individual,” it says.

When making referrals, Lester doesn’t flinch from discussing cost differences. For example, if a patient needs a colonoscopy, he will spell out several physician options, and that the total cost likely will be higher when one of the doctors is employed. “Most patients will say,`If it’s equivalent quality, then I will go where it’s less expensive,’” Lester says.

NEXT PAGE: How fees put strain on physician-to-physician relationships

Those higher costs, though, aren’t billed in a vacuum, AHA’s Rasmussen points out. 

“We have to be able to have an emergency department and ambulances and surgical suites and doctors on call,” he says. “There is a reason why people run to hospitals in times of emergencies and aren’t running to a physician’s office. And all of those capabilities need to be paid for.” 

For their part, doctors describe the resulting strain on referral relationships and friendships. “Say you have worked with another doctor for 20 years,” Lester says. “Say that you’ve even cared for their family members, and then suddenly you get no more referrals when that doctor is employed by the hospital.”

Russo, the Connecticut medical society’s president, instead views employment as “kind of a box that doctors were squeezed into.”

In his own specialty of radiology, a series of Medicare fee cuts since 2006 have resulted in 70% of the state’s radiologists either shutting down their practice or moving to hospital employment, Russo says. Along with the cuts, the costs related to implementing electronic health record systems, complying with regulations and administrative overhead continue to accumulate.

That costly overhead is what the facility fee is covering, when physicians move to hospital employment, Russo says. “The devil isn’t the facility fee,” he says. “The truth is, it’s the cost to do business. It’s the cost of the doctor’s office.”

Nevertheless, employed physicians feel as though they are caught in the cross hairs of patient anger where these fees are involved, Russo says. “They say,`I’m the only one the patient has a relationship with, so they blame me for the fact that I couldn’t survive in the environment that the government and the insurance companies set up.’ ”