Facility Fees for Hospital-Owned Physician Offices: A Nasty Surprise for Patients

When hospitals purchase free-standing physician offices they often convert them into outpatient clinics. The shift isn’t visible on the surface, but underneath the covers a powerful economic transformation has taken place, with the new owners now able to charge a so-called “facility fee” to cover the cost of their infrastructure. Medicare and commercial health plans routinely pay such fees.

When hospitals purchase free-standing physician offices they often convert them into outpatient clinics. The shift isn’t visible on the surface, but underneath the covers a powerful economic transformation has taken place, with the new owners now able to charge a so-called “facility fee” to cover the cost of their infrastructure. Medicare and commercial health plans routinely pay such fees. That can double or triple the price of a routine echocardiogram and other services, as the Raleigh News & Observer reports.  Hospitals try to justify the charges based on their higher obligations for service and the need to take all-comers, but that’s a pretty thin excuse especially when barely any changes are made to the acquired practices. Imagine trying to make an argument like that in any other business.

As a result, hospitals have a strong economic incentive to restructure the market in a way that drives up prices for everyone without adding value. The delivery of care is becoming less efficient and more concentrated at a time when small service providers are using technology to thrive in other sectors.

This artificial and costly distinction between physician offices and outpatient clinics (with facility fees) has been going on for some time now. You see it for colonoscopies and infused drugs, but there has been little public blowback until recently. In general health plans and self-insured employers have just put up with the high charges or haven’t made it a priority. The biggest difference now is that patients are being exposed to the facility fees and finding that they owe much more after a test than they used to. So while hospitals used to shrug their shoulders at the issue in the past, they find it a little harder now. The News & Observer article is a great example of a piece that raises awareness and will cause a lot of patients to speak up –or take their business elsewhere. Transparency tools such as Castlight Health, which enable employees to see the costs ahead of time, will also start to make a difference.

Payment reform and patient empowerment together are needed to beat back the facility fee for doctors office visits. While it’s disturbing to see what the trend has been up to this point I’m optimistic that the tide is turning and that we’ll see real progress over the next two years.

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