Facility Fees—For-Profit Healthcare Scam

The more I learn about our “free-market”,  for-profit healthcare system, the more I am convinced that we need a single payer, universal system (like Medicare For All). Our for-profit healthcare system is riddled with abuses aimed at extracting the most money from unsuspecting patients. One of these scams is the facility fee, a charge that is tacked on to out-patient healthcare services when a doctor’s office is owned by a hospital.   If your doctor makes a deal with a local hospital to “own” his/her practice, then he can tack on facility fees to his/her bills through a legal quirk in the law. Every out-patient doctor’s visit equates to a “tax”  for your local hospital. I will illustrate how facility fees work with an example.

facility feesMy friend, Mick, recently sought the services of a local dermatologist because of a suspicious (cancerous?) lesion on his head. He decided to go to a dermatologist who was “associated” with a local medical college/hospital. In his first appointment, a sample of the lesion was removed for biopsy. Mick Total time with a doctor was 20 minutes. Although the lesion was found to be non-cancerous, Mick was given the option to do nothing, remove it totally by freezing (application of liquid nitrogen) or using a chemical cream.  While Mick was told that less than 10% of all pre-cancerous lesions go on to be cancerous, he opted to play it “safe” and have the lesion frozen off. Because the procedure is easy (a small amount of liquid nitrogen is applied to the lesion), Mick told the doctor to freeze off two additional sun-damaged spots on his head for good measure. Total time with a doctor for the second visit was less than 10 minutes.

Mick paid a $20 copay for the first visit and a summary of the insurance reimbursements are shown in the table below.

facility fees in out-patient bill

All the charges highlighted in yellow above are called facility fees and are paid to the medical college/hospital. The fact that these facility fees were going to be charged was NOTdisclosed to Mick anytime BEFORE his appointment. In addition, Mick’s insurance Explanation of Benefits (EOB) did not call the extra charges facility fees.

Simply because Mick’s two dermatological services were performed in hospital–owned buildings rather than non-hospital-owned buildings, his health insurance plan had to pay $797 extra! This is almost double the $470 (includes $20 copay) paid for the dermatologist’s services.  The subsidies to the in-patient hospital facilities are clearly seen below.

facility fees for 2 dermatological visits

The facility fees are not a flat rate (like an overhead charge).  As you can see in the table of charges above, they duplicate the doctor’s medical codes and add a dollar amount for each code and MORE. The dermatologist has to combine 2-14 lesions into one medical code (17003) while the hospital can tack on a separate facility fee for EACH lesion. I assume that if Mick had had a total of 13 lesions burned off, the bill would have contained an additional ten $76 facility charges for a total of $760 extra!

Hospital facility fees are allowed for in-patient care by Medicare as a way for the hospital to pay for its costly 24 hr/7 day staffing requirements and extensive medical equipment.  Although Mickey is not a Medicare beneficiary, Medicare sets the stage for all employer-sponsored health insurance plan interactions with the healthcare industry. Facility fees were not supposed to become hospital taxes on all healthcare services.

I do not know how the facility charges are exactly calculated since hospitals are not transparent about the calculations,  but I do know that they vary by medical code and are supposed to reflect the extent of equipment, supplies, and support staff needed. Mick’s dermatological services do not require any of the 24/7 hospital staff nor any of its expensive medical equipment.  He would not have cringed if the cost of the liquid nitrogen used in his actual procedure had been tacked onto his bill.  For cost-effectiveness, the dermatologist could have outsourced the pathology service to one of the many cheaper companies that perform that service, but affordability is not part of the facility fee equation.  I don’t know the justification of a separate $72 facility fee for “sterilization” of equipment, but it might be a way to force Mick to pay for the hospital’s cleaning staff. Mick’s out-patient facility fees are paying for hospital services that he did not need.

If a doctor operates as a private practitioner (as an independent business and not as an employee of the hospital), NO facility fees can be charged. The private practitioner sets his/her fees with overhead (building, administration, etc) costs included just like any other business.  The stores in a mall do not tack on facility fees with every purchase based on the price of the item you buy and reflecting the mall owner’s property and utilities costs for the entire mall!  Could you imagine buying a blouse for $20 and seeing a $40 facility fee added to your bill?  We wouldn’t stand for this behavior from one for-profit business why do we allow it for another simply because it is a hospital?

Why doesn’t every private practitioner simply get together with a local hospital and set up an “arrangement” where the hospital “owns” the building where he does business. They could split the extra facility fees obtained and thereby maximize income and profits for both. This is in fact what is happening as word spreads about these perverse financial incentives that favor hospital-owned out-patient facilities. In many small towns across America, the out-patient facility fees will hand local hospitals a monopoly in both in-patient and out-patient care services. Facility fees make healthcare less affordable for everyone.

How is Our Government Dealing with this Out-Patient Facility Fees Scam

Under its Bipartisan Budget Act of 2015, our government put a bandage on the facility fee scam. Under this two year budget deal, outpatient facilities that are bought or set up by hospitals after the date of enactment of the bill will not be able to charge facility fees. Our government left existing outpatient facilities owned by hospitals free to continue charging facility fees.

Why not eliminate facility fees for all out-patient services regardless of who happens to legally own the building? Our government understands that our inefficient, for-profit, network of hospitals is incapable of delivering quality inpatient care WITHOUT charging astronomical prices and receiving extra subsidies from taxpayers and patients. Someone has to pay for the six figure administrative and medical doctor salaries as well as $2.5 million CAT scanners and MRI machines.  Our government simply finds it easier to let facility fees continue instead of reforming the for-profit hospital network from the top down, especially in areas of the country where hospital profitability is lower.

When the federal government is lax on consumer protections, progressive states must take the reins.  Starting in 2016, Connecticut hospitals have to warn patients who receive outpatient services about the existence of facility fees and the patient has a right to request a reduction in the facility fee.  In all other states, a patient should ask a doctor before getting treatment if any facility fees will be tacked on to the bill.

Summary—Out-Patient Facility Fees Scam

It is widespread “working the system” abuses like the charging of facility fees to subsidize hospital in-patient services that make my skin crawl. As politicians today call for getting government regulation out of healthcare, expect to see MORE price-increasing abuses like facility fees to proliferate.  Government regulations protect patients and taxpayers from the profit and income maximization efforts of for-profit healthcare businesses. When our government and health insurance plans blame high healthcare costs on me, the patient, they are simply deflecting the spotlight from the real reasons for high healthcare costs; namely, the profit-and-income-maximizing healthcare business practices.

I do not understand why Mick’s insurance doesn’t exclude out-patient practitioners that are facility fee abusers. Mick’s health insurance plan is not a high deductible health plan and therefore the cost of the facility fee cannot be simply passed on to him.  Are these hospital-owned doctor’s offices so ubiquitous that the health insurance plan has no choice but to include them?

I find it ironic that healthcare reform efforts have moved many former in-patient hospital procedures to out-patient clinics for cost-effective care but want out-patient care to subsidize the resulting hospital loss in income through facility fees. Healthcare affordability is not achieved by simply “shifting” high healthcare costs around. One might even say that affordable care and a network of private, for-profit hospitals are simply incompatible. These hospitals struggle to provide a decent quality of care (that is worse than found in other rich industrial nations) and seem incapable of tackling the difficult actions needed to become efficient businesses.

Americans should demand that all out-patient facility fees be eliminated.  We do not need or want an extra “tax” on out-patient services disguised as extra charges to pay for inefficiencies in for-profit hospitals.

Leave a Reply

Your email address will not be published.