Hospital Facility Fees Raise Out-of-Pocket Costs for Medicare Patients

Outpatient service fees are a cash trove for physicians at hospitals, and Congress should cut them.

Doctor with stethoscope
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Kevin Kavanagh is the board chairman at Health Watch USA.

The issue of facility fees is multifaceted, involving cost shifting, increasing costs, and the driver of physician hospital employment.

Doctors are flocking to work at hospitals and, within two years, 75 percent of newly hired physicians are projected to be hospital employees. A rural doctor's office can now be classified as a satellite hospital facility, and patients seeking medical care often find themselves receiving two bills: One for the routine doctor visit, the other for using the hospital's facility. According to a 2012 report by the Medicare Payment Advisory Commission, which advises Congress, hospital facility fees result in an 80 percent increase in reimbursement for a 15-minute office visit.

[Rich Umbdenstock: Congress Can't Cut Medicare Hospital Outpatient Payments]

The same is true regarding surgical services, where surgeons are choosing hospital employment over independent practice. Between 2006 and 2011 there was a 32 percent relative increase in hospital employment of surgeons. Instead of handling cases at independent surgery centers, hospital-employed surgeons are moving them to their employer's outpatient surgery departments, where they can almost double their Medicare reimbursements. And this payment discrepancy continues to widen, as hospital outpatient surgery departments will receive a 1.9 percent payment increase for 2013 compared to a 0.6 percent increase at free-standing surgery centers.

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The healthcare industry often argues for cost shifting, maintaining that facility fees are used to offset other expenses. However, as our system is reformed, the income from these fees is not staying constant but actually increasing. As more physicians become employees of hospitals, then more outpatient services will be provided at these facilities, which will produce an ever-increasing cash trove for them, while raising the out-of-pocket costs of patients and draining Medicare's financial reserves.

Ironically, one of the reasons given to justify mergers is that these developments will create a more efficient system and save costs. Yet the healthcare industry still has advocated to keep the ever-growing facility fee financial windfall that this integration creates.

The unrelenting rise in healthcare costs is due to a multitude of factors including overutilization of tests, medications, and procedures; the building of billion-dollar expansions of medical facilities; and the ever-increasing non-profit administrative salaries, which are approaching seven figures. In such an environment, it is not realistic to expect that monies saved or given will necessarily go toward improving healthcare quality.

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The United States has the most expensive healthcare system in the world, spending over 50 percent more per capita than the next highest industrialized country, Norway, despite having a below average per capita number of hospital beds. The quality of our healthcare system is mediocre at best, with below average life expectancy and above average infant and maternal mortality rates as compared to Western Europe.

The seemingly endless building boom of hospital towers, sometimes approaching a billion dollars, and the assertions they will support the economy are not realistic. Healthcare costs are projected to account for 20 percent of our GDP by 2021.

Congressional action to cut facility fees should be a first step in changing a system of runaway costs and below average quality. It may also send a message to the healthcare industry that they need to conduct business differently and realign their principles.