Hospitals are gobbling up doctor’s offices – and they’re bringing higher prices to patients when they do, even if a patient never sets foot on a hospital campus.

Enter the “hospital facility fee”: a charge hospitals can add to bills from doctors’ offices, outpatient surgical clinics and diagnostics centers that they own, rebranding them as “outpatient hospital departments”, even if the facility is miles from a hospital campus.

“It’s one of the most egregious examples of hospital financing at the expense of consumers,” said Liz Hagan, director of policy solutions at the United States of Care, a non-profit advocacy group that released a new report on the practice.

The report, “Behind the Bill” argues that “hospitals are at the center of a massive market failure”, where consolidation is driving price hikes for patients.

There is no data on how often people are hit with the charges. But it’s widespread enough that one of US of Care’s own staff members was charged while writing the report – a facility fee of $154.52 was added to a bill for a flu test.

“Ultimately, consumers are left paying the price for that – either through higher [insurance] premiums, because hospital costs are built into premium costs, or at the point of service,” Hagan said.

Illustration: Guardian Design

Facility fees are rooted in how hospitals have historically billed patients. For decades, hospital bills have been broken into two parts – “professional fees” charged by doctors and “facility fees” charged by institutions.

Trade groups such as the American Hospital Association have lobbied against efforts to rein in facility fees.

“The cost of care delivered in hospitals and health systems – and any associated sites of care operated by the hospital – takes into account the many unique services that only they provide to their communities,” the American Hospital Association (AHA), a trade group, said.

“This includes the costs of maintaining standby capacity for traumatic events and delivering 24/7 care to all who come through the emergency department, regardless of ability to pay or insurance status.”

Prohibiting facility fees would constitute “substantial and unprecedented cuts to hospitals”, they argue. The AHA also argues that private equity, not hospitals, are purchasing the majority of physicians groups.

What is not in dispute is accelerated consolidation in healthcare, and how facility fees have increased alongside. As of 2022, 41% of doctor’s offices are now affiliated with hospitals, up from 29% in 2012, according to the Kaiser Family Foundation.

“We have data showing, for the same service, hospital fees are about 150% higher than ambulatory surgical centers in the same county,” said Ge Bai, a healthcare accounting professor at Johns Hopkins Carey School of Business, referring to a 2023 research letter published in Jama Health Forum. An ambulatory surgical center is any clinic that provides surgical services outside of a hospital.

One study, which used data from private insurers, found 10% of physician practices were bought in a six-year period from 2006-2013. In that study, merging with a hospital led to an average 14.1% price increase.

Notably, facility fees are often impossible to anticipate or estimate. They can range “from $0 to thousands, without any relationship to the particular service being provided,” according to the journal Health Affairs.

In just one example of how facility fees vary, a study of Florida hospitals found facility fees ranged from $5,213 to $15,759, with for-profit hospitals charging the most.

That study’s author, a Miami emergency room physician, Dr Tony Zitek, said he chose the topic because he believes fees should be transparent. His own mother was hit with a facility fee at a clinic – she was “very annoyed”, he said.

“My mom goes to hospital-based clinics, and then [was] surprised by a facility fee,” said Zitek. Patients can “go to another clinic that offers exactly the same service and you don’t get that fee”.

Critics argue government policy incentivizes consolidation. Care provided by hospitals is paid more by Medicare and Medicaid, public health insurance programs which cover seniors, the disabled and low-income Americans – 115 million Americans together. Once a clinic is purchased by a hospital, it can be reclassified as an “outpatient hospital department” – then a “facility fee” can be charged.

Large hospital groups can also demand more money from private health insurers – the companies that provide care to Americans through their employer – because they are now more essential to have in an insurer’s network.

The AHA argues that insurers, not hospitals, are responsible for price hikes by concocting complicated reimbursement schemes, such as one recently revealed with a company called Multiplan.

Facility fees have attracted the attention of bipartisan state lawmakers. However, despite growing consolidation and concern over how hospitals have leveraged their status to increase payments, Congress ditched reforms in February, according to Stat.

Authors of the report by US of Care called on legislators to stop paying more to hospital-affiliated doctor’s offices, require reporting on facility fees and facility fee disclosure in bills, noting: “In many ways, hospital facility fees … and the growing affordability burden they are placing on patients are the symptoms of rampant provider consolidation.”