Sure, Get Rid of Facility Fees
They're Dumb, But the Problem is Flimsy Health Insurance
In 2012, the News and Observer published a Pulitzer-finalist series on the expansion of Duke and UNC medical centers. The paper reported that by taking over doctors’ practices, the hospitals could charge patients much more due to “facility fees.” Eleven years later facility fees are a candidate for the Next Bad Thing about American health care.
Current facility fees may be dumb policy, but they’re only a “problem” because American health insurance doesn’t cover enough people for enough things. The fact that it takes more than 20 years to (maybe) get rid of a single lucrative technical loophole shows how easy it is for policymakers to avoid covering everyone with comprehensive health insurance. Let’s break it down.
When you go to what the government calls a doctor’s office, Medicare and many private insurers pay for the visit from a set physician fee schedule. When you get the same treatment in an outpatient department of a general hospital, the hospital receives a physician fee that is actually a little lower than the standard physician schedule fee. Since hospitals have higher overhead costs than a doctor’s office, they’re also allowed to charge a “facility fee.” The two fees combined are much higher than the physician schedule payment.
In 2002 - twenty-one years ago for the math challenged - master retirement painter George W. Bush approved regulations that let hospitals treat offices miles away from the hospital campus as part of their outpatient departments. This made buying doctors’ practices profitable for hospitals, and accelerated the takeover of physician practices by hospital chains.
It also made treatment at one doctor’s office cost up to three times as much as another. Patients would go to their trusted cardiologist or oncologist for treatment, settle up their copay at the desk and head home. A few days later, a bill would arrive for a facility fee even though, as one Massachussetts patient put it, “I never set foot in the hospital.”
Healing and Stealing yields to no one in its zeal to oppose hospital greed. But that’s not really the problem with the proliferation of facility fees. The problem is that U.S. health insurance is horrible and employers and politicians with the power to change it can’t be bothered.
Health care systems need to pay providers, and hospitals do have overhead. Any rational system will have to distinguish between different sites of service. Medicare made a change in its regulations. Hospitals bought doctors even faster and charged Medicare and private insurers as if the doctors’ offices were outpatient departments.
Well, so what? It was dumb policy, but the mechanism for paying hospitals and doctors should be a matter between the organization(s) paying the bills and the providers delivering health care. Not patients. Patients getting socked by facility fees are a symptom of three underlying problems:
We don’t have meaningful health insurance. U.S. health insurance doesn’t cover enough people and for those with coverage, it doesn’t cover enough care without forcing people into debt. That’s true not only for people in employer-sponsored health insurance, but for Medicare as well. If patients were really covered for the care they need, facility fees would be a simple bureaucratic fight between payers and providers instead of a series of media patient horror stories.
The health insurance we do have is influenced by experts and policymakers who think we get too much health care. Our health plans inflict increasing amounts of pain as patients need more complex care. If you have insurance and your deductible hasn’t bankrupted you, a $20 copay for a primary care visit becomes a $50 copay in a specialist’s office, then perhaps a copay plus 20% “coinsurance” for more expensive hospital care. Most plans stop the bleeding with an out-of-pocket limit at some point, but the sicker we get, the more we have to pay because the people who run our health care system seem to think we view the ICU as a vacation destination.
No one’s in charge. We suffer that pain because the insurance industry is good at making money and sucks at managing actual health care. Our political leaders leave them and millions of employers who have no business meddling in our health care in the first place to figure it out. Insurers know that they’re probably only going to be responsible for any particular patient for a relatively short time. Rather than save money by keeping people healthy, better to extract cash now and use pain - cost-sharing, prior authorization and claims denials - to make money.
What’s most remarkable about our pain-enforced utilization management system is the laziness of the people with power. They make patients do their work for them.
Medicare makes a huge change in its rules, spurring a massive change in industry structure, but can’t be bothered to let people know they’re about to get walloped. Private insurers want us to get care at doctors’ offices, not hospitals, so they balk at paying facility fees, but they’re too lazy to fight it out with the hospitals or too weak to win on our behalf, so they charge us higher hospital cost-sharing instead of a doctors’ copay. The hospitals rake in the cash.
So we pay with our money and time when facility fee bills arrive in the mail. Not only do we have to figure out whether a particular clinic is “in-network”, but now whether it’s owned by a hospital. Employers and insurers expect us as dutiful consumers to fight the hospital over the fees, sucking more of our time and stress into dealing with bill collectors, insurance appeals, government regulators and employers’ HR staff.
The burden falls on front-line workers too. When the facility fee wave hit Connecticut a decade ago, unionized workers at Yale University’s faculty practice were deluged with inquiries from bewildered and outraged patients. Yale had started shifting legal control of the largest multi-specialty practice in the state to its nominally separate affiliate Yale-New Haven Hospital to capture the additional revenue. Along with charging patients and insurers more, the two organizations also began shifting work to the non-union hospital corporation, which had lower workplace standards.
In 2015, these trends prompted Connecticut lawmakers to include one of the earliest restraints on the impact of facility fees in a sweeping bipartisan consumer protection bill. The law prohibited facility fees for low-income patients and required prior notice to patients when they might face a facility fee. Along with dozens of UNITE HERE members and labor and community allies, I lobbied for the law. I was, and remain, proud of the coalition’s efforts to pass the law.
The facility fee portions failed.
The “notice” provisions were mostly useless. Earlier this year I got a notice that one of my providers might charge a facility fee - ten days after my appointment. More critically, in a system dominated by monopoly actors, what good does it do to be “informed” that the only provider of specialty services in your area may charge a facility fee? Even in areas where there are multiple providers, patients have to spend time they don’t have to figure out whether another practice is both in-network and not hospital-owned. Or better yet for for insurers, just skip needed health care that they’re allegedly covered for in fear of the cost, as nearly 40% of US adults did in 2022.
Eight years later, Connecticut has finally banned facility fees altogether. In the short term, this will provide a little relief for some people and some insurers. But Connecticut hospitals are going to find different ways to gouge patients and insurers. They’re monopolies and facility fees are just a symptom of a failed financing system that shifts costs - in time, money and stress - from powerful, profitable institutions to people already struggling with disease and injury.
Not to worry. In July, President Biden announced that the federal government is adopting the same kind of facility fee notice rules that failed for nearly a decade in Connecticut. Since it polls really well, with luck a few more states might outlaw facility fees altogether, or the feds may finally adopt “site-neutral pricing” through the “Lower Costs, More Transparency Act” 20 years after a foolish policy decision and years of failed state-level regulation. So instead of actually delivering real health insurance, the government, employers, insurers and hospitals may possibly eliminate one absurd bureaucratic technicality that steals our money and time.
We’ll still have the highest health care prices in the world by far, still have employers deduct thousands of dollars of our pay just for the privilege of paying thousands more in deductibles and copays when we’re sick or hurt, and still have the government stick us with unmanageable out of pocket costs in Medicare. But at least we’ll be consumers empowered to do our employers’ and insurers’ jobs for them and “shop responsibly,” as the House Energy and Commerce Committee puts it.
The health care cycle of OMG Bad Thing! → useless notification and complaint-driven regulation → recognition of failure after 5, 10, 20 years → abolition of extremely narrow “problem” → OMG Next Bad Thing! is one of the clearest examples of the utter disconnect between institutions with power and ordinary people in the 21st century United States.
As politicians pat themselves on the back for protecting “consumers,” the insurance and hospital industries will keep working the other levers they have to extract wealth from patients. So insurance company shareholders, private equity investors and senior executives at “charitable” tax exempt hospitals who pay themselves 7 figures will all be okay when we rack up big facility fee victories. In case you were worried.