Hospital consolidation hurts consumers' wallets, report finds

Photo: SDI Productions/Getty Images

Hospitals have been acquiring ambulatory care centers at a decent clip in many markets, and this could have a detrimental effect on consumers' premiums and out-of-pocket spending due to the resulting outpatient facility fees, according to a new report from Georgetown University.

Facility fees are charges from hospitals, including hospital outpatient departments and clinics, that ostensibly cover the institution's operational expenses for providing care. Hospitals bill facility fees separately from the professional claims that physicians, nurse practitioners, and other healthcare professionals submit for reimbursement for their services and expenses.

Because of that, when hospitals acquire physician practices – as has been the trend in recent years – ambulatory services once provided by an independent practice often generate a second bill for the facility fee.

One result of the expansion of outpatient facility fees is higher commercial payments for outpatient services, not to mention confusion and increased costs for consumers, such as greater out-of-pocket costs and higher premiums. 

WHAT'S THE IMPACT?

The Georgetown team analyzed current laws and regulations in 11 states: Colorado, Connecticut, Florida, Indiana, Maine, Maryland, Massachusetts, New York, Ohio, Texas and Washington. They supplemented this with insights from more than 40 qualitative interviews conducted between November 2022 and April 2023.

Consumer advocates, payers and state regulators flagged a range of issues related to outpatient facility fees. Both consumer advocates and regulators expressed concerns about the financial exposure facility fees created for consumers via increased out-of-pocket spending – driven by plans with high deductibles and other benefit design features that increase patients' exposure to cost-sharing – and higher premiums resulting from increased spending on ambulatory services. 

Several interviewees also flagged consumer confusion as a concern, noting that patients may not be aware that their established provider has become affiliated with a hospital and, as a result, they could receive a bill for a facility fee.

Payers, meanwhile, characterized facility fees as a tool for maximizing hospital revenue, and criticized the opacity of facility fees, specifically the lack of transparency around when hospitals charge facility fees and how hospitals calculate the amount of the charge. They also chafed at hospitals' allocation of certain overhead costs, such as for on-call surgical suites, to off-campus clinics and on-campus primary care offices.

For their part, hospitals argued that facility fees provide a necessary mechanism to pay for critical overhead costs, including round-the-clock staffing, personnel costs, security and supplies. 

Payers, researchers, and regulators all noted that limitations in claims forms, and how hospitals and healthcare professionals complete these forms when billing, makes it difficult to identify where care actually occurred. This means payers can't always make accurate decisions about reimbursements and coverage that are fully informed by the location of care, while researchers and policymakers don't have enough information to understand and respond to the full scope and impact of outpatient facility fee billing.

Each state in the study has enacted laws regulating outpatient facility fees ranging from outright prohibitions on fees for certain services or settings, to consumer out-of-pocket cost protections and disclosure requirements, to hospital reporting and provider-transparency requirements.

Some state agencies may be able to leverage their existing authority to address facility fees even without new legislation, the authors said. For example, interviewees reported that state authorities may be able to demand information on facility fee charges and billing practices from healthcare providers and insurers as part of consumer protection investigations, or require hospitals and health systems to agree not to charge facility fees to consumers as a condition of approving a merger or other transaction.

On the other hand, interviewees acknowledged that state efforts, with or without legislation, can be hampered by factors such as limited enforcement capacity, regulatory capture and poorly specified reporting requirements.

THE LARGER TREND

Consumer advocates, payers and regulators emphasized that the hospital industry is a powerful political and economic player at the state level, with the ability to water down or scuttle efforts to rein in facility-fee billing practices or establish new reporting and transparency requirements for these charges.

Nevertheless, many interviewees expressed their belief that changing dynamics at the state level – including greater engagement by business coalitions, new state agencies focused on healthcare costs and affordability, and bipartisan interest in facility fees – may create new momentum for significant reform.

Moving forward, interviewees cautioned that advocates should be realistic about the effects reforms are likely to have. Because of hospitals' ability to leverage their market power in negotiations with commercial payers, interviewees were uncertain whether policy changes, even outright bans on facility fees, would ultimately realize meaningful savings in the commercial sector without other constraints on provider reimbursement.

At the same time, many interviewees emphasized that consumers may benefit significantly from limitations on outpatient facility-fee billing due to their current out-of-pocket cost exposure.
 

Twitter: @JELagasse
Email the writer: Jeff.Lagasse@himssmedia.com