When Brittany Tesso’s then-3-year-old son, Roman, needed an evaluation for speech therapy in 2021, his pediatrician referred him to Children’s Hospital Colorado in Aurora. With in-person visits on hold due to the coronavirus pandemic, the family met with a panel of specialists via video chat.
Tesso thought the $676.86 bill she received for the one-hour session was pretty steep. When she got a second bill for $847.35, she assumed it was a mistake. Then she learned the second bill was for the costs of being seen in a hospital: the equipment, the medical records and the support staff.
“I didn’t come to your facility,” she argued when disputing the charges with a hospital billing representative. “They didn’t use any equipment.” This was the facility fee, the hospital employee told her, and every patient gets charged this. “Even for a telehealth consultation?” Tesso laughed in disbelief, which soon turned into anger.
Millions of Americans are similarly blindsided by hospital bills for doctor appointments that did not require setting foot inside a hospital. Hospitals argue that facility fees are needed to pay for staff and overhead expenses, particularly when hospitals do not employ their own physicians.
But consumer advocates say there is no reason hospitals should charge more than independent clinics for the same services. “If there is no change in patient care, then the fees seem artificial at best,” said Aditi Sen, a health economist at Johns Hopkins University.
At least eight states agree that such charges are questionable. They have implemented limits on facility fees or are moving to clamp down on the charges. Among them are Connecticut, which already limits facility fees, and Colorado, where lawmakers are considering a similar measure.
Together, the initiatives could signal a wave of restrictions similar to the movement that led to a federal law to ban surprise bills, which took effect last year. “Facility fees are simply another way that hospital CEOs are lining their pockets at the expense of patients,” said Colorado Rep. Emily Sirota, the Denver Democrat who sponsored the state bill.
Generally, patients at independent physician clinics receive a single bill that covers the physician fee as well as overhead costs. But when the clinic is owned by a hospital, the patient generally receives separate bills for the physician fee and the facility fee. In some cases, the hospital sends a single bill covering both fees.
Medicare reduces the physician payment when a facility fee is charged. But private health plans and hospitals do not disclose how physician and facility fees are set. Children’s Hospital Colorado officials declined to comment on the specifics of Tesso’s experience but said facility fees cover other costs of running the hospital.
“Those payments for outpatient care are how we pay our nurses, our child life specialists, or social workers,” Zach Zaslow, senior director of government affairs for Children’s Hospital, said in a February call with reporters. “It is how we buy and maintain our imaging equipment, our labs, our diagnostic tests, really all of the care that you expect when you come to a hospital for kids.”
Research suggests that when hospitals acquire physician practices and hire those doctors, the physician professional fees go up and, with the addition of facility fees, the total cost of care to the patient increases as well. Other factors are also in play. For instance, health plans pay the rates negotiated with the hospital, and hospitals have more market power than independent clinics to demand higher rates.
Those economic forces have driven consolidation, as hospital systems gobble up physician clinics. According to the Physicians Advocacy Institute, three out of four physicians are now employed by hospitals, health systems or other corporate entities. And less competition usually leads to higher prices.
One study found that prices for the services provided by physicians increase by an average of 14 percent after a hospital acquisition. Another study found that billing for laboratory tests and imaging, such as MRIs or CT scans, rise sharply after a practice is acquired.
Patients who get their labs drawn in a hospital outpatient department are charged up to three times what they would pay in an office, Sen said. “It is very hard to argue that the hospital outpatient department is doing that differently with better outcomes,” she said.
Hospital officials say they acquire physician practices to maintain care options for patients. “Many of those physician practices are not viable, and they were having trouble making ends meet, which is why they wanted to be bought,” said Julie Lonborg, a senior vice president for the Colorado Hospital Association.
Along with Colorado and Connecticut, other states that have implemented or are considering limits on facility fees are Ohio, Texas, Indiana, Minnesota, Washington and New Hampshire. The Colorado bill would prohibit facility fees for primary care visits, preventive care services exempt from cost sharing, and telehealth appointments. Hospitals would be required to notify patients if a facility fee would apply. The ban would not apply to rural hospitals.
The bill presents particular challenges for health systems such as UC Health and Children’s Hospital, which rely on the University of Colorado School of Medicine for staffing. For outpatient appointments, the medical school bills for the physician fee, while the hospital bills a facility fee.
“The professional fee goes solely to the provider and, very frequently, they are not employed by us,” said Dan Weaver, vice president of communications for UC Health. “None of that supports the clinic or the staff members.”
Without a facility fee, the hospital would not receive any payment for outpatient services covered by the ban. Weaver said the combination of the clinician and facility fees is often higher than fees charged in independent clinics because hospitals provide extra services that independent physician clinics cannot afford.
“Prohibiting facility fees for primary care services and for telehealth would still cause significant problems for patients throughout our state, forcing some clinics to close, and causing patients to lose access to the care they need,” Weaver said.
Backers of the Colorado bill disagree. “The data on their costs and their revenue paints a little different picture of their financial health,” said Isabel Cruz, ]the policy manager at the Colorado Consumer Health Initiative, which backs the bill.
From 2019 to 2022, UC Health had a net income of $2.8 billion, including investment gains and losses. Consumer complaints helped pave the way for the federal No Surprises Act, which protects against unanticipated out-of-network bills. But far more people get hit with facility fees, about half of patients compared with one in four hospital patients who receive surprise bills, Whaley said.
Mark Fendrick, a health policy professor at the University of Michigan, said facility fees are also generally surprises but do not fall under the definition of the No Surprises Act. And with the rise of high-deductible plans, patients are more likely to have to pay those fees out-of-pocket. “It falls on the patient,” Fendrick said. “It is a tax on the sick.”
Tesso held off paying the facility fee for her son’s visit as long as possible. When her pediatrician again referred them to Children’s Hospital, she called to ask what the facility fee would be. The hospital quoted a price of $994 on top of the physician fee. She took her son to an independent doctor instead and paid a $50 copay.
Kaiser Health News is a national newsroom that produces journalism about health issues. Together with Policy Analysis and Polling, it is one of three major operating programs at the Kaiser Family Foundation, an endowed nonprofit organization that provides information to the public on health issues in the United States.