Hospitals face increased scrutiny for charging facility fees

After Vermont hospitals started buying up local doctors’ practices, state Sen. Kevin Mullin of Rutland began hearing complaints that some patients were paying much more for routine care.

One family accustomed to paying about $120 in out-of-pocket costs for doctor visits and other medical services was outraged when their costs for similar visits soared to $1,000, Mullin said.

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The reason for the increase: The physician practice had been bought by a local hospital, and “all of a sudden everything was charged differently,” said Mullin, a Republican.

The higher bills reflected “facility fees.” For years, hospitals that own physician practices and outpatient clinics have been allowed by Medicare to tack on these fees, separate from bills for doctors’ services, for the use of the facilities. As hospitals buy up medical practices and set up outpatient treatment centers, more of these fees are showing up on patients’ bills.

Hospitals argue they need the fees to keep operating. Critics say the fees needlessly add billions of dollars to the nation’s health-care bill. Insurers in some cases have refused to pay them, which can add to the patient’s costs. But getting rid of the charges — or even requiring offices to post them — has proved daunting.

Mullin introduced legislation this year to stop Vermont hospitals that buy out local doctors from suddenly imposing facility fees, but the bill failed.

Nationally, Medicare pays an estimated $1 billion or more a year in facility fees, according to a commission that advises Congress. The fees are facing new scrutiny as Capitol Hill looks hard at Medicare costs. Hospitals are fighting back with support from the Service Employees International Union, which represents more than 1 million health-care workers.

A decision by Medicare to quit allowing the fees would almost certainly lead private insurers to do the same.

“This is low-hanging fruit [for cutting costs],” said Kevin Kavanagh, a retired physician who heads HealthWatch USA, a patient advocacy group.

Tom Nickels, the American Hospital Association’s vice president for federal relations in Washington, defends the fees, but he agrees the issue “is clearly in play.”

Patients can face facility fees when they seek care from hospitals or from physicians who sold their practices to a hospital and stayed on as employees, outpatient medical centers that are in a hospital-owned network, urgent care centers established by hospitals and outpatient surgery centers.

The fees date to April 2000, when Medicare clarified its policy. The Centers for Medicare and Medicaid Services acknowledged that some critics said that it should forbid hospitals from buying up medical practices solely to convert them to hospital “facilities” designed to rake in higher fees for similar services. But the agency said that it lacked authority to ban the practice.

Last year, the House passed legislation that included a provision to cut about $6.8 billion in Medicare costs over a decade by targeting facility fees in hospital-owned doctors’ offices. But the cuts didn’t pass the Senate.