Facility fees added to patient bills have some crying foul

Clinics that charge patients extra say the cost of meeting Medicare standards justifies the fees, but the response is calls for more billing transparency.

By Victoria Stagg Elliott — Posted Aug. 10, 2009

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The news that the Cleveland Clinic started billing patients facility fees for visiting physicians at some outpatient offices as of March 1 stirred up shock waves. At a time when health care costs are increasing and many families are under economic strain, this practice may increase out-of-pocket costs that patients see only when they get the bill.

"This is like a barber charging you to sit in his chair when he cuts your hair," said Chuck Benedict, MD, a retired neurologist and a member of the Wisconsin State Assembly. "And it's very much a transparency issue." He has proposed legislation on this subject in his state.

The Cleveland Clinic, which adds up to $55 to a patient's bill in some cases, isn't the only hospital system in the nation charging a facility fee. It's not even the only one in Cleveland. "Provider-based billing," charging for physician services separately from building overhead, is an increasingly common way for hospitals to operate their outpatient facilities because it covers the additional cost of meeting Medicare standards for them.

"All of our facilities must meet stringent guidelines established by the Joint Commission and go through rigorous inspections to become accredited," wrote Heather Phillips, Cleveland Clinic spokeswoman, in an e-mail. "These are requirements that a private physician's office doesn't need to meet and that add substantial costs. These requirements include meeting national safety goals; meeting medication management standards and infection-control standards to name just a few."

Freestanding medical offices can't bill facility and physician fees separately under Medicare, which also means that private insurers most likely have similar policies when it comes to paying for care in these settings. Health care financing experts say the extra charges for seeing a doctor in a hospital-affiliated clinic, which can be hundreds of dollars but also can mean more immediate access to better technology, are justified.

"There's always been a lot of debate about facility fees," said Richard Gundling, vice president of the Healthcare Financial Management Assn. "The theory behind the fee is that hospital-based clinics have far more equipment and direct costs associated with that clinic. The payment for physicians is the professional and technical component. The facility fee is really to provide the higher level of facility."

Consumer advocates say, however, that this billing method drives up costs and is too complicated for many patients to understand. Patients often are not aware of these fees in advance and do not know that some physician services may be available for less at freestanding clinics.

"[Facility fees] add to both the confusion as well as the frustration," said Susan Sherry, deputy director of Community Catalyst, a nonprofit consumer health advocacy organization based in Boston.

But their increased use has been accompanied by a growth in efforts to make patients more aware of them.

At least two states -- Wisconsin and New Hampshire -- are considering bills that would require telling patients about facility fees in advance, although much debate concerns exactly how to implement this.

Also, class-action lawsuits were filed in 2006 against Virginia Mason Medical Center and the University of Washington Medical Center, both in Seattle, for charging these fees but not disclosing them to patients in advance. The resolution of these cases led to thousand of patients receiving refunds. Both of these institutions now provide this information on their Web sites, along with additional resources to help patients estimate bills.

"Consumers were being misled. There needs to be adequate information," said John Phillips, the attorney who filed these cases and the founder of Phillips Law Group in Seattle.

The Cleveland Clinic, besides posting information on its Web site, hung signs in affected clinics. More than 280,000 letters about this change have been sent to patients since February.

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