For both insurers seeking value and health systems pursuing all things integration, there is a huge conundrum waiting for an intervention: the hospital facility fee.
The facility fee has long been derided by the Medicare Payment Advisory Commission, which has repeatedly called for Medicare to adopt site-neutral payments to reimburse services, treatments, tests and drugs at the same rate, regardless of whether a hospital or an independent physicians group owns the clinic or office.
In 2011, Medicare paid 80 percent more for a 15-minute office visit in hospital-owned outpatient facilities than in freestanding physician offices, according to MedPAC. Between 2009 and 2011, Medicare was billed at least 25 percent more for chemotherapy administered in hospital outpatient facilities than in community-based oncology practices, according to another claims analysis.
The recent wave of health system mergers and acquisitions has only intensified facility fee trend. In the age of high deductible plans and provider-payer value contracting, the practice remains a major bone of contention and also a burden for paying patients, perhaps most perniciously in cancer care.
Pittsburgh, Pennsylvania offers one case study of the battles over facility fees. Last spring, Blue Cross insurer Highmark Health stopped paying "markups" in bills for cancer services like infusion chemotherapy at the University of Pittsburgh Medical Center's outpatient oncology facilities, including the famed Hillman Cancer Center.
It was an attempt to "restore more rational payments," and combat "grossly inflated prices for cancer drugs," the insurer said. "Because of this practice, many cancer patients in western Pennsylvania pay much more for their infusion chemotherapy treatments than they should, without any care improvements."
Highmark estimated that paying the bills without the fees is saving the insurer about $200 million per year and members thousands of dollars in extra out-of-pocket costs.
UPMC believes the fees are fair and contractually obligated, and is threatening to drop Highmark from its Medicare Advantage network if the insurer doesn't start paying the fees. In Pittsburgh, the saga continues.
Elsewhere, the rise of the facility fee is also causing a stir and garnering backlash.
As the Boston Globe wrote of Massachusetts residents in 2013: "Patients, angered by surprise surcharges that hospitals tack on bills for doctor visits, are increasingly challenging these fees--sometimes even refusing to pay."
States are stepping in to at least mandate disclosure, if not limit facility fees. Last year, Connecticut adopted a law requiring providers to disclose potential facility fees to patients prior to a treatment or service. Minnesota and South Dakota have healthcare fee transparency requirements and independent docs in Florida are rallying behind a bill that would mandate disclosure of facility fees.
Large hospital systems with vast outpatient networks are not going away, though, and at some point the market is going to force them to reckon with the facility fee.
One health system that could be on the forefront is Spectrum Health, an 11 hospital network in western Michigan that owns the 625,000 member health plan Priority Health.
Spectrum and Priority Health are not integrated like Kaiser Permanente. About 30 percent of Priority's members live in western Michigan and receive healthcare at Spectrum providers, while about 25 percent of the health system's revenue comes from its own plan.
Motivated in part by patients with high deductibles, Spectrum has published price information online for inpatient and outpatient procedures since 2006, showing average payments from Medicare, Medicaid and private insurance. Priority Health recently started offering rewards to members who shop around and choose a lower-cost site, with a cost-estimator application that lets members get personalized price quotes based for more than 300 tests and procedures.
This cost-comparison and reward program, however, has raised an inconvenient truth for Spectrum, the parent health system. "Many of our services are not the best-priced services," said Priority Health's chief medical officer, Jay LaBine, MD. "With endoscopy rates, members could be charged $1,000 or more out-of-pocket if they went to the hospital facility."
It's making leaders at Spectrum and Priority rethink their approach. "We don't have a streamlined bill as an integrated delivery network, but we have put it on our strategic plan to generate a streamlined bill for the consumer and all the other things that make the bill very messy," LaBine said.
Around 60 percent of the membership in Priority Health's commercial plans have high deductibles of more than $1,000, and LaBine thinks that reality will go a long way to making headway with billing and pricing. LaBine worked as a general surgeon and ICU physician in Grand Rapids for 13 years, leading such initiatives as infection reduction. He calls himself "an idealist," interested in designing financial incentives to change behavior.
"What the plan is doing in the cost-estimator is affecting change in the way our delivery system really thinks about the pricing of the services. There's nothing that says we have to charge the facility fee," LaBine said. "We feel that there's this tipping point where people are going to care about price, and our rewards program shows they are shopping. Delivery systems are going to have to pay attention to that.