As part of the Biden administration’s broader efforts to lower health care costs, the White House announced new guidelines on Friday targeting a few of the most common sources of sticker shock. The new policy initiatives target some of the usual suspects: surprise billing, which was restricted in 2020 yet persists as health care providers exploit loopholes; short-term insurance policies that often fail to cover essential treatment; and high-interest credit cards and payment plans especially marketed to help patients cover medical debt.
The proposal also takes aim at surprise facility fees — a controversial charge that’s received less widespread attention. Facility fees are the extra charges tacked on by hospitals when they provide services in an outpatient location. For instance, patients might be expected to pay a facility fee for seeing a physician in a hospital-operated clinic or office. Independent doctor’s offices, as well as freestanding clinics, aren’t allowed to charge facility fees.
Biden plans to force health plans and providers to share information about these fees, with the goal of making them more transparent and less of a shock to patients who might not be informed about the fees ahead of time or even be familiar with the concept.
Hospitals have been charging these fees for more than two decades, ostensibly to cover the maintenance costs of the facilities they operate. “What the hospitals try to do is unload some of their fixed costs or overhead costs onto each of the facilities they control,” said Alan Sager, a professor of health law, policy, and management at Boston University.
The charges can be hefty, and are often liberally applied. One woman who received regular steroid injections to treat her arthritis was startled to receive an additional $1,262 facility fee when the office where she received the injections was re-classified as a “hospital setting,” despite not being located in a hospital, KFF Health News reported. Another hospital attempted to charge a patient a facility fee of up to $350 for a telehealth visit because the doctor was on hospital property.
These charges can significantly up health care costs for both patients and insurers. In 2022, a 15-minute doctor visit in a hospital-owned clinic cost Medicare $189, of which facility fees accounted for $121 of the total charge (see page 146 of this report). The same visit cost $92 in a freestanding doctor’s office.
And because hospitals aren’t required to have any particular method required for determining facility fees, they can hike prices at will. Between 2004 and 2021, facility fees in emergency departments rose by 531%, according to research from KFF — four times as much as professional fees from emergency health care providers, which rose by 132%.
Hospitals say that facility fees cover the cost of maintaining equipment, medical and technical supplies, and support staff. Critics aren’t so sure. “Do hospitals really need this extra money? The answer is no one knows. I don’t think they do,” said Sager. But it’s hard to prove either way, he said, since there is not “solid evidence on how much revenue they require to deliver efficiently the services that patients need.”
The Biden administration is targeting the “surprise” part of the charges rather than trying to eliminate or reduce the facility fees themselves, requiring health plans and providers to “make information about these facility fees publicly available to consumers.”
Whether that measure will have any effect in lowering health care costs remains to be seen. The approach is similar to the requirement that hospitals be transparent about their pricing, based on the free-market economic belief that patients who are aware of pricing are empowered to shop comparatively, therefore keeping health care costs down. Yet while transparency is important for fair billing practices, so far hospital price transparency has shown limited impact in reducing the financial burden of health care for patients.
Some states have introduced bills that aim to actually curb facility fees. The National Academy for State Health Policy, a nonprofit research and advocacy group, has put forward a legislation template that can be adapted by states looking to prohibit unjustified facility fees. In March, the Texas legislature examined a proposal to ban facility fees, to the outrage of hospitals. Colorado, Massachusetts, and Indiana are considering similar proposals. And in New York state, as of this year, providers can charge a facility fee but have to inform patients ahead of time.
For now, there is little reason to believe transparency in facility fees will have more sizable effects, said Sager. In his view, the idea that it would move the needle is “either a delusion, or a cynical attempt to shift the burden of cost control, shift the job of containing cost from payers who actually have leverage to patients who are sick and don’t have leverage.”