Hospital consolidation trend leads to rise in facility fees

One of the effects of the healthcare industry’s consolidation has been the rise of the facility fee. When hospitals acquire independent medical practices, they will now often reclassify the practice as an outpatient facility. Doing so allows them, under Medicare rules, to add a separate facility charge to a patient’s bill, sometimes increasing the cost for relatively simple medical procedures by hundreds of dollars.

While the practice has helped hospitals’ bottom lines, it has generated protests from patients and their insurance companies, who say that the practice is driving up healthcare spending. “Facility fees are a way to allow hospitals to earn more for a simple office visit,” is how a spokesman for the Medical Group Management Association put it to Medical Economics in 2013.

Hospitals say the fees are necessary to cover the costs of the services provided (or available) to patients after the medical practice becomes part of a hospital system.

National data on the extent of facility fees does not exist, but the Medicare Payment Advisory Commission (MedPAC) estimated in 2012 that facility fees for office visits would add $2 billion annually to Medicare spending by 2020. MedPAC also found that the percentage of doctor visits classified as “outpatient”-meaning it took place in a hospital-owned facility-grew from 5% in 2004 to about 7.5% in 2010.

Although comprehensive data on the size of facility fees is also not available, plenty of anecdotal evidence exists. For example:

In a 2012 report on facility fees, the Center for Public Integrity tells of a Florida woman who took her eight-year-old daughter to a hospital-owned urgent care center for treatment of a dog bite. The doctor’s bill was $233, to which the hospital added a $275 facility fee.

The same report includes an anecdote of a woman in Iowa City, Iowa who had nasal polyps removed at an ambulatory surgery center, a 45-minute procedure. The center billed her for almost $26,000 in facility fees, for which her portion was $1,086. The center said its rates were in accordance with national standards, the Center says.

The spread of facility fees represents both a threat and opportunity for independent practices, say management consultants. The threat is the appeal of “one-stop shopping” offered by practices that become part of a hospital system-even if it is accompanied by a facility fee. On the other hand, if you can show patients that your practice provides high-quality care at a lower price than does a hospital-affiliated practice, it could prove to be a competitive advantage in the local marketplace.

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