Before my vacation, there was a comment asking about facility fees attached to medical bills. Facility fees are charges from hospitals or hospital owned outpatient clinics that are supposed to cover the cost of running a hospital. That makes some sense as hospitals are expensive to run and expensive to open the door. I don’t have a problem of paying more to keep Community Hospital General open. From an insurance point of view, these facility fees are one of the big drivers of insurers trying to divert patients to lower cost outpatient facilities as usually a service that is performed in a hospital is more expensive than a service performed anywhere else.
However the problem is that the definition of outpatient clinic is extremely variable and expansive. The common source of complaint about facility charges is when a hospital buys out a private physician practice and the only visible change in the situation is new signage and stationery for the office. Patients who have been going to see their doc at 123 Main Street for years are still seeing their doc at 123 Main Street. They are still paying their regular PCP co-pays when they see Dr. Jones, but then they get hit with a $347 facility fee for a visit that they had done dozens of times at $20 co-pays. What changed is that the hospital now is claiming the office location as an outpatient clinic and can now legally charge a facility fee.
It is legal, and it is scummy. I’ll talk about where this came from below the fold.
Medicare billing procedures are the source of this hack and exploit.
The Medicare fee schedule system is designed to do several things. At the most basic level of simplification, it is designed to pay roughly the average aggregate cost of a service while Medicaid tends to pay marginal cost of a service and Commercial billing pays significantly above average costs. Most commercial contracts for fee for service are some variant of Medicare plus a large kicker. Medicare policy thus influences commercial billing policies.
The aggregate average cost of a service includes salaries, supplies, depreciation, rent, capital investment, return on investment, training costs and a small fudge factor. Determining all of those variables is a level of expertise that I don’t have and it is a source of continual fighting. The Center for Medicare and Medicaid Services (CMS) has long recognized that running a hospital and running an actual outpatient clinic is expensive as the fixed costs are high. CMS has always allowed a facility fee to be charged to help cover those fixed costs of maintaining a radiology lab, of keeping a specialist on call, of having a crash cart available and of the thousand other things that a hospital or a full scale outpatient clinic will have that a typical doctor’s office won’t.
The problem is the hospital owned groups are the ones who designate which locations are typical doctor offices that they own and thus get paid the base rate without facility fees, and which locations are hospital based clinics that get paid an enhanced rate and facility fees. Hospitals have every incentive to designate every location that they own as either hospital based facilities or outpatient clinics. This can mean a doctor’s office that has always been as 123 Main Street which is thirteen miles from the hospital can be considered for billing purposes, part of the hospital.
What to do about this? Right now, there is an interesting court case in Pittsburgh where a major hospital chain has been charging facility and outpatient services at a hospital clinic rates for chemotherapy treatments that are performed off-campus at doctors’ offices. A major local insurer thinks they are being ripped off and has sued to stop the practice. This is the first time that I’ve been aware of such a suit by an insurer against a provider.
From a policy point of view, CMS could either start auditing declarations of hospital facilities and applying the duck test to whether or not a location is a provider office or a clinic, or the fee schedules can be rejiggered to make exploiting this loophole far less lucrative.
Another good piece.
Minor nit: stationery = paper products; stationary = at rest.
My PCP office is hospital owned but does not have facility fees. However, what the hospital has done is call some of their locations immediate care facilities, which for all practical purpose means that someone can go in without an appointment and be seen. They are still regular doctor offices but require an extra person on staff to triage the drop in patients and handle special referrals. For those locations they do charge facility fees.
In general, you are right. Facilities are taking advantage of insurers and Medicare by using these fees in places where they are not appropriate.
Another place where hospitals tend to try to get extra blood out of the turnip is through observation services. This is where a patient may be seen in ER and then is put in a regular bed in a special unti where they are observed to determine if they actually need full admission.
The thing is, during that time they are receiving all the services of inpatient status. However, observation charges, on a per hour basis, are more costly than inpatient charges and Medicare allows, IIRC, 48 hours of observation before it flips over to inpatient. For the patient, this means that this falls under outpatient benefits, which are different than inpatient, and between the patient and Medicare the hospital is getting more money.
The way insurance companies have gotten around this is either through more stringent limits on the hours allowed for observation, or two other methods. The first is the Midnight rule. If a patient occupies and observation bed past midnight, it is considered inpatient. The other is the 24 hour rule. If a patient is at the facility more than 24 hours, it is considered inpatient.
Hospitals frequently try to fight these, specially the Midnight rule, and specially if the stay is 23 hours. Generally, an observation bed might be paid at $200/hour and an inpatient day at, say $1,800, so they are losing money (from the hospital’s perspective) once they go beyond 9 hours in an observation bed.
Could it be that ObamaCare has divided the hospitals and insurance companies?
I long have felt they were co conspirators in fucking over consumers but this seems to quash that theory.
CMS doesn’t have a list of requirements for what counts as a hospital facility? Even something like your initial list: crash carts, radiology, X number of specialists. Maybe that would encourage overspending through conversion of all those doctor’s offices to high end facilities, but at least the hospitals will think twice when they have to actually invest something to justify the extra charges instead of being able to pocket windfall profits by just changing the letterhead.
pseudonymous in nc
They also have every incentive to buy out every PCP and specialist they can get their mitts on. And I assume there are incentives (carrot and stick) for PCPs and specialists to sell out.
This has been happening near us, as City/Small-Regional Hospital Giant aggressively acquires every PCP and specialist it can to avoid being gobbled up by State/Regional Hospital Giant, and people aren’t happy to see their specialist copays turned into outpatient fees, or their in-house testing now being billed from the hospital.
It’s bullshit, and the auditors need to make an appearance.
I had an outpatient biopsy done in Texas. Regular doctor’s office (called a clinic) in the same giant building as the hospital. Hospital owned both, and for good measure owned my insurance company. (Scott & White)
45 minutes in the room, regular room, and the facility fee was $2500, none of which was covered by their own insurance. These battery’s are up there with the banksters as far as I’m concerned.
Thank you, Mr. Mayhew.
Do you mind if I pass this around via email?
@phein55: It’s public, Creative Commons, available and hopefully useful, so please do so.
@recurvata: Your insurance should cover the facility fee as part of the standard bill unless it was under your deductible and your deductible is covering the fee.
Slightly off topic: we just visited Swedish Hospital in Issaquah, WA. My husband is seeing a surgeon tomorrow about the pinched nerve in his back and we wanted to drop off his paperwork.
Beautiful new facility but I’ve never seen a hospital with a mall before. On the ground floor were two large gift shops carrying everything from purses to throw pillows ($199!!!) to China, a children’s clothing shop, an adult casual clothing shop, a Starbucks, and a large eating place calling itself a cafe. At the end of that corridor there was a dance class for Parkinson’s patients. Looking the other way there were signs marked SURGERY, ONCOLOGY, and PHARMACY.
It was a bit overwhelming.
Ok, what naughty word got my post kicked into moderation?
The last one in all caps. It’s a favorite of spammers.
Wow, I hadn’t heard of this. I can see the hospital saying that it still has the expenses of operating the practice, so there! What bothers me the most is patients (established and new) aren’t being notified that they’re walking into an off-campus branch of a hospital.
@SP: The problem is hospitals can (and do) have outpatient facilities that don’t have all of the traditional goodies associated with hospitals, but they are still considered a facility for payment purposes. (There are also huge medical practices that differ from hospitals only in that they don’t have an O.R. and beds, but they’re still non-facility.)
Highmark and Pitt Medical Center have been at war for a couple of years. Pitt, with the biggest hospital setup in the area, formed a health insurance company, and Highmark, the biggest health insurer in the area, figured Pitt was going to try to run Highmark out of business. Highmark bought a bunch of Pittsburgh-area hospitals that were on shaky financial grounds because Pitt insurance created networks of only its own hospitals. Etc.
I’m a couple of hundred miles away and not affected by or well read on the topic, just enough to know of the bad blood between the two and potential bad problems for their customers.