People in the waiting area of a hospital

When Dan Sokol saw an orthopedist for shoulder pain in January 2018, he got an X-ray and then a cortisone shot to treat what the doctor said was bursitis. It all took less than 30 minutes at the doctor’s office, and his shoulder pain went away.

So a few weeks later when Sokol, a 61-year-old bank credit officer who lives in Los Angeles, got a bill with more than $3,000 in charges from Cedars Sinai Medical Center, a hospital near his doctor’s office, he was sure there was a mistake.

His health insurance covered most of the $1,700 charge for the exam, X-ray, and injection. But there was an additional $1,375 fee for hospital operating-room services even though he wasn’t treated in the hospital. His insurance covered only a small portion of that fee, leaving him on the hook for $1,039.  

Sokol’s insurer said there was no error, though. That’s because the doctor he saw works for Cedars Sinai Medical Center, a major hospital in LA. Hospitals can charge a facility fee for services provided by any healthcare provider it employs and at any facility it owns, even if the patient never sets foot in the hospital.

Sokol eventually got the facility fee reduced to $700, which he paid. But he calls the charge outrageous. “If I was told that ridiculous facility fee would be charged, I would have declined having the injection and gotten it somewhere else,” Sokol says. 

More on Hidden Fees

Steep hospital facility fees aren’t new. Federal regulations have long allowed hospitals to charge patients a fee, on top of the tab for medical services, to help cover the high cost of running a hospital.

What is new is that patients are increasingly getting hit with facility fees when they get care outside of a hospital. It’s happening because hospitals are rapidly building or buying up not only doctor practices but also urgent-care centers, walk-in clinics, and standalone surgery complexes—pretty much all the places one might go to get healthcare.

As hospitals turn into healthcare behemoths, the ability to choose a doctor or health services provider who is independent from a major hospital system in your region is shrinking.

It’s often not obvious to a patient that a doctor is employed by a hospital or that a facility is owned by a hospital, which is why getting billed for a hospital facility fee can be so surprising. It’s especially painful for people who must meet high deductibles before their insurance starts to cover some of the bill.

While facility fees vary widely by hospital and service provided, they can add hundreds or thousands of dollars to a medical bill. The fees are often high relative to the cost of the service provided. In an example cited in Health Affairs, an academic health policy journal, a patient was charged $1,100 for a 30-second procedure to determine whether she had fungus under her toe. The facility-fee portion of the bill turned out to be $418, almost 40 percent of the bill.

Hospitals say they need to impose facility fees over their entire network to offset the cost of providing access to care 24/7 to anyone who comes through the doors of their hospital, regardless of the ability to pay.

“The cost of care delivered in hospitals and health systems takes into account the unique social good that only they provide,” says Ashley Thompson, senior vice president of policy at the American Hospital Association.

Thompson says a hospital outpatient facility is also costlier to run because these facilities tend to treat patients who are sicker and because they must meet stricter regulatory standards than independent healthcare providers.

But consumer advocates, health policy experts, and regulators say that the fees are poorly disclosed and that it’s unfair for patients to pay more than they would at an independent healthcare provider for the same services.

Patients see little benefit when they get outpatient services by doctors or facilities affiliated with large hospital systems, says Aditi Sen, an assistant professor at the Johns Hopkins Bloomberg School of Public Health in Baltimore. Sen is studying how facility fees affect patient care.

“The data we have shows that these big healthcare systems aren’t raising quality, but they’re raising prices,” Sen says. “We have to ask what you are getting for the additional fees.”

Why Facility Fees Are Spreading

The revenue from facility fees is a major reason hospitals want to own doctor practices and offer outpatient services, says Christopher Whaley, a health policy researcher at RAND Corporation, a nonprofit policy think tank. Whaley says hospitals also benefit because hospital-employed doctors are encouraged to make referrals to other doctors or to order tests at health service providers owned by the hospital that pays their salary.

Many doctors are happy to leave private practice because of the high overhead and heavy administrative obligations, says Fred Bentley, a managing director at Avalere, a healthcare industry consulting firm. Physicians who are part of a big hospital network deal with fewer of those burdens, and they benefit from being part of a big hospital network with more leverage negotiating prices with private insurers.

The transformation is happening fast. About 45 percent of all physicians work for hospitals today, up from 25 percent in 2012, according to a recent study [PDF] by Avalere Health and the Physicians Advocacy Institute, a nonprofit organization representing physician groups. The study also found that hospitals own 31 percent of doctor practices, up from 14 percent in 2012.

At the same time, hospitals are aggressively getting into outpatient services because that’s where consumers are going. Hospitalizations are declining as consumers seek out less costly, more convenient care in outpatient settings, such as surgery centers, walk-in clinics, and imaging centers, Bentley says.

More on Managing Healthcare Costs

Hospital outpatient visits have grown from about 600,000 a year in 2000 to 800,000 in 2017, according to the American Hospital Association’s 2019 Hospital Statistics report. At the same time, inpatient hospital admissions have stagnated at about 34,000 annually. 

Hospitals are expanding into outpatient services at a fast pace. HCA Healthcare—the largest for-profit hospital chain in the U.S., with 165 hospitals—has increased the number of urgent care centers it owns by 40 percent in the past two years and doubled the number of stand-alone emergency rooms it operates, to 64, according to Dimensional Insights, a data analytics firm. HCA also runs 113 freestanding surgery centers, the firm says.

Nonprofit hospital systems, including Sutter Health in Northern California and Advocate Health Care in Chicago, are also investing heavily in outpatient clinics.

Federal and state lawmakers are well aware of the controversy over facility fees in outpatient settings. In 2015, Congress passed legislation requiring hospitals to charge Medicare the same fee for outpatient services at its off-site clinics as independent doctor practices. But the law didn’t eliminate facility fees and applied only to hospital-owned facilities opened or acquired after 2015.

This year, the Centers for Medicare & Medicaid Services extended those limits by doing away with exemptions for off-site hospital clinics bought or opened before 2015.

Connecticut is aggressively cracking down on outpatient facility fees. It’s the first state to require clearer disclosure of facility fees at physician practices and outpatient facilities owned or operated fully or in part by a hospital or health system.

Starting in 2016, hospitals must notify patients who have used a doctor or an outpatient location in the past three years that ownership has been transferred to a hospital. The notice must also include an estimate of the facility fee that may be incurred. For example, when Oncology Associates, based in Hartford, Conn., was acquired by Hartford Hospital in 2017, patients were sent a letter estimating that facility fees could range from $117 to $309.

Connecticut also bans facility fees on certain outpatient services and limits what uninsured patients can be charged. For example, a doctor can’t charge a facility fee for new-patient visits.

“So far, only a handful of states have investigated and addressed consumer problems with facility fees,” says Chuck Bell, programs director at Consumer Reports, who works on surprise medical bill issues. “Congress and the states should investigate the fees, and ban or restrict their use. If they are permitted at all, the fee amounts should be clearly disclosed well in advance, along with whether they are covered by insurance.”

How to Fight Facility Fees

As facility fees proliferate, consumers need to be proactive about finding out whether they will incur one. Here’s what to do.

Check with your insurer. Many insurers don’t cover facility fees or cover only a portion. Talk to your insurer to find out what its policy is on facility fees.

Talk to your doctor. It’s hard to tell whether a facility is hospital-run or whether your doctor works for a health system. When you call to make an appointment, ask whether you will be charged a facility fee. Some doctors may practice at other locations that don’t charge one.

If your doctor refers you to a specialist or you need treatment, such as an MRI, at another facility, you also need to find out whether there is a facility fee and what your insurer will charge you if go to a nonhospital provider.

Negotiate. It’s difficult to fight a facility fee because it’s legal in most places. But you can always talk to the healthcare provider about waiving or lowering the fee. You can also appeal to your insurer to cover more of the cost.  

For more information on how to appeal a medical bill, use this free guide to health insurance appeals from the Patient Advocate Foundation.

What the Fee?!

Are you tired of the endless stream of add-on charges that appear on your bills? On the TV show “Consumer 101,” Consumer Reports’ expert explains to host Jack Rico how to avoid these pesky fees.