You’ve Got Facility Fees!

In a beautiful community on the Olympic peninsula, just north of where I live and practice, it happened again; another private clinic sold to a large medical corporation.

Peninsula Children’s Clinic was a bustling pediatric office meeting the vital complex healthcare needs of children in Port Angeles, WA for the commercially insured as well as Medicaid patients.  Why were they forced to close?

A phone call with their office manager six months ago foreshadowed the outcome, “we are losing a great deal of revenue seeing Medicaid patients making it difficult to survive.

Peninsula Children’s Clinic was unable to remain financially solvent, so they were purchased, like a horse on the auction block, by the Olympic Medical Center.  Their website recently posted the following:

“Peninsula Children’s Clinic is now licensed as part of Olympic Medical Center. Patients seeking care at these hospital-based clinics may receive a separate billing for a facility-fee. This fee could result in higher out-of-pocket expenses for patients.
Patients should contact their insurance company to determine their coverage for hospital-based clinic facility charges.”

Hospital-based clinics tack on “facility fee” charges, which are separate from the bill for the doctors’ services, for the use of the room in which the patient was seen. One hospital administrator told me to think of it as “room rental.”

Facility fees bring in a considerable flow of cash and have the secondary benefit of incentivizing hospitals to buy independent practices because then the hospital can charge two to five times more.  Buying independent practices, like Peninsula Children’s Clinic, expands the hospitals’ market share and allows greater leverage when negotiating reimbursements.

Payers must acquiesce and pay the facility fees.  As the payers are forced to pay more to the hospitals and hospital-based clinics, guess where they make cuts? They cut their fees to the independent private practice physicians, already struggling to make ends meet.  My practice was notified of the impending 50% cut in reimbursement from Kaiser Permanente for specific codes just last week for private providers.  In the meantime, as the government incentivized hospitals, are costs getting lower? Are consumers spending less? Are outcomes improving at record speed? Nope, and they won’t be anytime soon.

Medicare pays twice as much for office visits at hospital-owned clinics as compared to private physician practices, according to 2012 and 2014 reports by the Medicare Payment Advisory Commission (MEDPAC), an agency that advises Congress on Medicare spending issues. For example, Medicare paid $453 for an echocardiogram at hospital-owned facilities, yet the same test performed at a privately owned offices cost $189, according to the 2014 report. In its 2012 report, MEDPAC found Medicare paid $124.40 for a 15-minute visit at a hospital-based practice compared to $68.97 at a private practice — an 80 percent difference.

Based on the prediction Medicare spending would increase $2 billion by 2020, MEDPAC lobbied Congress to equalize payments between hospital-based and private physician offices by eliminating the onerous facility fee. If the facility fee were eliminated and hospital reimbursement equivalent to that of independent physicians for 66 procedure groups, Medicare would save $900 million per year. However, eliminating the charges has proved daunting, for $3 trillion “reasons.”

Although MEDPAC has long argued for “site neutral payments,” the hospital lobby has deafened Congress to the recommendations of its own commission.  The American Hospital Association opposes MEDPAC’s recommendations on several grounds, including facility fees are justified because they create the incentive hospitals “need” to shore up “loss leaders” like the ER, where they are obligated to treat everyone, regardless of ability to pay. Hospitals say the money helps make up for low government reimbursement rates and pay expenses outside of patient care, ranging from electric bills to hospital administrator salaries.

Consumer groups, however, say hospitals are charging patients, insurance companies and Medicare more without justification.  It’s essentially double billing, and I have not seen any evidence of an increase in quality of service,” said Kevin Kavanagh, board chairman of Health Watch USA, which opposes the fees.  Kavanagh believes the federal government has continued to allow the fees in an effort to encourage integration between hospitals and clinics. “It’s generated more profits, but not savings to the patients,” he said.

The facility fee adds billions of dollars to the nation’s health-care costs. Patients with private insurance are responsible for as much as a 15% portion of the facility fee. One family in Port Angeles accustomed to paying $125 in out-of-pocket costs for doctor visits saw their costs skyrocket to more than $500 overnight.  The increase reflects the new “facility fee” charge.  Now, this family drives 2 hours each way to see me, because after accounting for gas and time, it costs less to visit my office than to visit Olympic Medical Center.

The movie, “You’ve Got Mail,” succinctly illustrates the differences between small and large practices. Meg Ryan closes the doors to her specialty bookstore, Little Shop Around the Corner, for the last time and wanders over to the newly opened big-box Fox Books to browse the children’s section.  In one memorable scene, a desperate mother runs in asking an employee where to find the “Shoe series” of books for her daughter. The hapless clerk blankly repeats “Shoe books?” Meg rolls her eyes and rattles off a list of multiple books in the series from memory, including her recommendation of which to read first, to which the mother was extremely grateful.

I am the Little Shop Around the Corner, as are many surviving, independent physicians across this great nation.  We know our patients, their healthcare, and are effective, efficient, well-oiled machines.  Facility fees must be made transparent for patients or abolished, like they did by law with Public Act No. 15-146 in Connecticut.  Studies continually show small clinics provide better quality care for lower cost, have fewer hospital admissions, and keep patients healthier than the hospital-based clinics.  We must eliminate the onerous facility fee to level the playing field, eliminate the incentive for hospitals to create monopolies, and save Americans 100s of billions of dollars per year.

Niran al-Agba is a pediatrician and THCB’s private practice editor.

12 replies »

  1. Steve, as I said before your understanding of the willing seller/ willing buyer concept of Adam Smith lacks understanding of what a willing buyer or seller is.

    Monopoly and monopsony do not leave willing buyers or sellers.

    One sided regulations do not leave willing buyers or willing sellers.

    Based upon the logic you are using the Mafia kingpin selling one a jukebox is a willing seller and one’s purchase of that jukebox makes him the willing buyer. That is why I referred you to Hobson’s choice. Obviously you made the decision to buy the jukebox, but you didn’t really want to buy it. You just wanted to stay alive.

    Do I have to list all the government rules and regulations that favor Kaiser and large groups. That is not a level playing field. That kills the Adam Smith requirements. You can look these things up yourself and see the tens of thousands of pages of regulations, many inhibiting a free market.

    Take one example, Medicare. Are people on Medicare free to privately contract directly with physicians who are on the program? No. Patients cannot make a special deal even if the contract specificially excludes any Medicare payments from ever being made. That ends the Adam Smith concept where Medicare is concerned. It’s not a free market even though there is some small degree of choice.

    Healthcare is littered with regulations and all sorts of anti-competitive aspects so that the classic Adam Smith willing buyer/ willing seller cannot exist. Government is acting in behalf of the Mafia and physicians are greatly restricted from a free marketplace. As free marketplaces start to open up government shuts them down with new rules and regulations.

  2. Steve- I want you to understand this better. Kaiser and I are not “reaching” an agreement. They sent me an informational letter, much like your credit card company does when they change this or that rule or fee. It is not up for discussion or negotiation. I have no signed contract with Kaiser as of yet. They are absorbing/buying out Group Health, an HMO company. They sent the same letter to the other independent practice with four (soon-to-be three) pediatricians down the street.
    You are confusing my position on third party payers (this article above) undercutting private practice docs to pay onerous facility fees to hospital based clinics with my posts disliking government mandates for certified EHR systems, submitting nonsensical “quality” data, and being reimbursed based on Press-Ganey surveys.
    Remember, I have said if pediatricians were reimbursed at Medicare rates without all the overarching requirements, then independent pediatricians could probably survive.

  3. “A freemarketplace is where the buyer and the seller ***willingly*** make a deal. Government healthcare starting at the end of WW2 and third party payer do not meet that criteria.”

    I specified that this was Kaiser and I specifically said “private insurer”. A private insurer and NIran are reaching a private agreement. No one is forcing NIran to accept Kaiser patients and no one is forcing Kaiser to pay NIran. Niran as a solo practitioner has relatively little ability to influence pricing by Kaiser. If Niran was in a group with all of the other pediatricians in her area, then she might have significant leverage. While her focus seems to be on problems caused by government, it was a private insurer that just cut her fees by 50%.


  4. Thanks meltoots as always… You are correct that we will have assembly line healthcare and then patients will be looking for alternatives. I hope to survive until that day and send my positive private practice thoughts your way for the same!

  5. Its probably all clinicians. So, I have stopped accepting new Kaiser patients as a result. I only have about 60 patients on this insurance, so it is not going to kill me off, but if the other insurers follow suit… then I have a bigger problem on my hands for survival. There are three Kaiser peds in the area who are full, so the remaining patients will see other types of PCP’s for their children, NP’s or PA’s. If patients are not happy (such as with Group Health before Kaiser), they will insist their employers offer another type of insurance plan and that usually balances everything out. It will be interesting to watch how things unfold.

  6. Steve – As others have pointed out below, I am, in fact a female physician, though more importantly, I am an independent physician in private practice.
    1) ED’s probably do not lose as much money as they claim. I am inclined to believe they break even. Thank you for the link.
    2) I am not referring to facility fee’s charged for surgery.
    3) The facility fees allowed at ambulatory surgery centers are considerably lower when compared to hospitals even when outcomes are the same. That is not a free market system. That is not a level playing field. Maybe you believe that to be fair. I do not. However, if there are extenuating circumstances requiring a higher level of acute care, then the differential in cost would make sense.
    4) Funny you should mention Wal Mart. Last time I checked, the law does not provide Walmart with extra subsidies for selling things cheaper than say, Target. Both may run their businesses as they see fit i.e. not required to have a specific electronic inventory system meeting specific (government developed) criteria, or force the businesses to “document” every purchase by every consumer and turn that information over to the government for inspection (or quality determination.) The government does not survey customers as to their “satisfaction with shopping experience” and then reward Walmart with additional funds because their results are higher. What you are describing is not a free market. The rules are written in favor of the hospital, which will ultimately results in the government sponsoring creation of monopolies throughout the country.

  7. No, Steve, I don’t care to expand, but I will. A freemarketplace is where the buyer and the seller ***willingly*** make a deal. Government healthcare starting at the end of WW2 and third party payer do not meet that criteria.

    There is another thread on THCB called Hobson’s… Perhaps you should familiarize yourself with Hobson.

    Your world, perhaps doesn’t have free choice, but most of mine does. I buy a house willingly from a willing seller. Likewise, I willingly buy a household amenity from a willing seller. Niran isn’t as willing as you might think. Her choice is closer to a Hobson’s choice.

    What you seem to perceive as a marketplace is a controlled marketplace where rules and regulations are not meant to level the playing field rather they are there to create winners and losers.

  8. No biggie Steve but Niran is a woman and I love her posts. To clear up facility fee, it is a fee tacked on to an encounter completely separate from “surgical” facility fees. Lets use round numbers. If you go to see me at my office, I get paid $100 from Insurance Company A for the visit. As a private doc, I cannot charge a “facility” fee. If you see me in the same office, but I am employed by a hospital, the same exact visit (no surgery), charges an extra “facility” fee. Sometimes 2-3 times the amount I get paid. Yes it gets paid. Nice loophole huh? Room rental is the common language to explain. We have turned medicine into an industrial complex with DC policy, like HITECH (stupid CertEHR mandates), ACA (no MD owned hospitals), MACRA etc. When it all goes to hell soon, I mean real soon, it will be too late to have real experienced caring independent MDs come back. Welcome to Walmart Hospital or Postal Service Hospital System.

  9. ??? Care to expand? Kaiser has decided that they pay Niran too much, so they are offering to pay him less. Niran can either accept or stop taking payments from Kaiser. He can either stop seeing Kaiser patients altogether or see them on a cash basis. Niran risks losing certain payment, even if it is lower. Kaiser risks losing Niran as a provider, and maybe some of their patients change insurance or drop them to go cash. For Kaiser this is a pretty small risk since he is just one doc. If they risk doing this with every doc in his area, they risk losing every pediatrician and having very angry customers, probably losing market share. (Hence, the term market power.) For NIran, this is a big risk as his patients may just go elsewhere to a doc who will accept the 50% cut. He has already informed us that patients in his area will drive 2 hours to save money.

    This is exactly how markets work. Also, not all markets are free markets and the latter term is close to meaningless in the real world.


  10. For many years, Medicare reimbursed medical school employed physicians double the usual reimbursement to subsidize their medical school salaries. The delineation of the professional fee and the facility fee concept began nearly 50 years ago within the Current Procedure Terminology data set published sometimes annually by the American Medical Association. Initially, this list originated in California, I think, by one of their Blue Cross/Blue Shield units. I think, if their is a separate facility fee, the usual E&M fee should be paid at a lower level. Another divide and conquer tactic.
    The national discussion for healthcare reform seems to increasingly include references to reduce “physician burn-out.” Unless the institutional co-dependency between the payers of healthcare and the providers of Complex Healthcare is eliminated, the level of Primary Healthcare will continue to lose its connection to improving the Common Good of each community.

  11. Steve, you have an odd view of what a free marketplace is. Maybe your use of the shortened term “market” is telling us that your vision of a market is not one that is known as the classical free marketplace of Adam Smith.

  12. 1) It is not really so clear that EDs lose money. I suspect that on an individual basis it may be true, but this Health Affairs study suggests it is not true on a national level. (Your scare quotes probably imply this, but nice to have the study.)


    2) Just to clarify, I assume you are not referring to the facility fees used for surgical procedures? You need some way to pay for all of the equipment, instruments, etc.

    3) Recently, a partner did 5 EGDs at a surgicenter that receives much lower facility fees than does the hospital. Patients were all healthy. My first EGD came down bleeding heavily, had many co-morbidiites and needed lines and lots of products. Next was an LVAD patient. Should the facility fees for these two places be the same?

    4) Agree that it makes little sense to pay more to talk with someone in an office just because that office is in a hospital. However, that said, isn’t that how the market is supposed to work? If you don’t have much bargaining power, why wouldn’t the private insurer pay you less? I don’t think that the private insurers pay those facility fees because they are nice, but because the hospital has enough market power to get what it wants. WalMart put a lot of mom and pop stores out of business because they were so large that they could place large orders and get big discounts from their suppliers. I suspect Kaiser is being short-sighted, but management almost everywhere is overly short term oriented.