Facility fees – designed originally to compensate hospitals for “stand-by” capacity required for emergency departments and inpatient services – are increasingly added to bills for diagnostic testing and other routine services and are raising health care costs. One state employee health plan’s claims show that facility fees charged for COVID-19 testing conducted in outpatient hospital settings ranged from $53 to $150 per test — culminating in $344,589 in additional costs over several months.
Facility fees vary by health system/provider and procedure and can add up quickly. According to a Massachusetts claims data report, average facility fees for out-patient evaluation and management (E&M) services, such as colonoscopies and MRIs, can be over $1,000, which is double the price of the provider’s fee to conduct the procedure. Facility fees are also levied on lab tests, including those for COVID-19.
Restricting facility fees could help lower costs for consumers and combat the drive for costly health system consolidation. The National Academy for State Health Policy (NASHP) developed a model act – State Legislation to Prohibit Unwarranted Facility Fees – that states can use to prohibit certain facility fees from being charged to consumers accessing primary care and other routine services to which additional fees are inappropriately attributed.
As described during NASHP’s 33rd Annual State Health Policy Conference and in this report, State Policies to Address Vertical Consolidation in Health Care, the acquisition of independent physician practices by hospitals or health systems has been increasing for years and is driving up health care costs. Hospital acquisitions of physician practices increased 128 percent between 2012 and 2018. In 2012, 25 percent of physicians were employed by hospitals or health systems and by 2018 that number had increased to 44 percent. Evidence shows increased consolidation is driving up health care costs, including higher priced hospital services as well as 14 percent higher physician prices. As a result, per patient expenditures have climbed 10 to 20 percent over this six-year period.
Research indicates facility fees are one of the key cost drivers resulting from consolidations. Physician practices purchased by health systems become outpatient departments of their parent hospital, even if they are not located on the same campus. As a result, the services rendered by the acquired physician practices can be and are billed as a part of the overall health system that regularly charges facility fees – even for routine services delivered off the hospital’s campus.
Traditionally, hospitals charged these fees to ensure they could maintain 24-hour capacity to respond to emergencies or staff inpatient care units, where the number of patients that need that care can fluctuate day to day. However, facility fees are now charged on claims for E&M services, such as diagnostic testing and routine services provided by acquired primary care physicians.
NASHP’s model act does not eliminate all facility fees, but it restricts their use by location and service. This model law mirrors a similar Medicare provision and prohibits any health care facility that is located more than 250 yards from a hospital campus from charging a facility fee for services provided at that location. Therefore, services provided by acquired physicians cannot include these additional fees simply because the doctor’s office was purchased by a health system. The model also prohibits providers from charging facility fees for certain classes of outpatient services, including but not limited to E&M services, regardless of the location where that specific service was provided.
The model also requires health systems to report their facility fee charges to the state. Because these fees vary so greatly across services and providers, and are negotiated with systems differently by each health plan, it can be challenging for states to understand their impact on overall health care costs. For states without an all-payer claims database (APCD), these reports are essential to enforcing the prohibitions of certain facility fees.
Experts predict the current consolidation trend will accelerate as a result of the COVID-19 pandemic. Individuals are staying home and foregoing regular doctor visits, even after state stay-at-home orders are been lifted, leaving smaller providers struggling financially, which makes acquisition of these practices more attractive to hard-hit physicians.
However, as hospitals buy up these practices and consolidate the health care market in states, costs rise. This model act is one strategy states can use to curb vertical consolidation in their health care markets by eliminating the incentive of expanding a hospital’s facility fee charges to physician office charges. Restricting facility fees for certain services will also help reduce the effects of existing consolidation and ease some of the health care cost burden on individuals.
