Two new papers in Health Affairs this month deal with a topic that has important implications for health spending: hospital outpatient department facility fees.
This prompted me to give myself a refresher course on what these fees are and why they might be an important target for future policy reform.
In educating myself, I was struck by the how difficult it is for researchers and policymakers to get their arm around the magnitude of these fees and their contribution to commercial spending growth.
What are Hospital Outpatient Department Facility Fees?
When payers receive bills for outpatient care provided by free-standing physician offices, a single bill includes charges for both the provider’s time and the overhead costs of running the practice.
This single bill allows the payer to understand the total cost for the service – a prerequisite for effective price negotiation.
This is not the case when payers receive bills for care provided in outpatient settings owned or controlled by a hospital or health system – known as hospital outpatient departments (HOPDs).
In that case, the payer often receives one bill for provider services, and a separate bill for “facility fees” – which are ostensibly a portion of what it costs the hospital or system to run its facilities.
From a patients’ perspective, it can be difficult to distinguish between free-standing outpatient offices and HOPDs; two such settings could literally exist in the same building.
But differences in the way these entities bill payers are drawing the attention of policymakers.
Why are Facility Fees in the Spotlight?
Facility fees were first adopted under Medicare as a way to ensure hospitals are properly compensated for the complex care they provide and for their role in ensuring access to care.
These fees have since migrated from Medicare to commercial markets, which have lately experienced high and rising spending growth rates.
As a result, some experts have raised concerns about whether these fees contribute inappropriately to health care spending growth or encourage harmful physician-hospital consolidation.
There are also concerns about consumers’ out-of-pocket exposure to these fees.
Facility fees have become more common as hospitals’ acquisition of physician practices has accelerated, bringing with it higher overall health care prices in the commercial sector.
Facility fees may well have a role to play in that dynamic.
The splitting of outpatient care bills into professional and facility fees essentially prevents payers from negotiating a single combined price for the total episode of outpatient care, leading to opacity for payers and concerns about potential abuses.
A growing body of researchindicates the same outpatient services often carry much higher charges in HOPDs than in free-standing practices.
However, there is little clarity about whether this price differential is fully warranted by the HOPDs’ higher overhead costs or their costs to ensure access to critical care elsewhere in the system, such as emergency departments.
In fact, research on physician-hospital integration suggests market power is also an important factor in this price differential. The question of whether policy intervention is warranted, therefore, remains under debate.
That’s where two new pieces in Health Affairs come into play. Both shed light on different ways that stakeholders can begin to establish a baseline read on these fees, in the interest of informing future policy directions.
State Efforts to Understand Facility Fees
In a Forefront article on states’ efforts to bring more transparency to facility fees, Julia Burleson and colleagues explain these fees are difficult to quantify because the claims data commercial payers generate or have access to do not allow them to systematically trace facility fees to specific outpatient visits.
They further explain:
Institutional claims often include addresses or National Provider Identifiers for the broader health system…rather than the actual site of care. Analysts thus may not be able to identify which hospital locations are billing facility fees or how much revenue they are generating from these fees. Without common identifiers across claims forms, analysts may also struggle to link facility fees and professional fees charged for the same service or visit. ... These inconsistencies….inhibit policymakers from readily assessing the full scope of outpatient facility fees in the commercial market.
While there have been many federal legislative proposals to increase the transparency of facility fees, to date, all have failed.
However, as Burleson and colleagues describe, several states are taking steps to collect and analyze facility fee data at the state level.
Colorado law established a committee to evaluate the impact of facility fees and report its findings to the legislature, using the state’s All Payer Claims Database (APCD).
Similarly, Maine required its own ACPD to publish annual reports on commercial outpatient facility fees.
Because both systems use claims data – with its aforementioned challenges – they cannot directly compare total prices for specific types of care provided in HOPDs versus other settings.
Both states, however, have gleaned other important insights.
In Maine, policymakers learned compliance with statutory prohibitions on certain types of facility fees was initially imperfect, but improved with public reporting.
In Colorado, analysts were able to document total outpatient facility fee reimbursement increased by an average of 6.5 percent per year from 2017-2022.
Connecticut, in contrast, has established special reporting requirements for hospital facility fees, beyond what can be found in claims data.
Hospitals and health systems must report total outpatient facility fee charges, total number of visits with facility fees by payer, and charges for the top ten procedures with outpatient facility fees by revenue and utilization.
The data reveal both the volume and dollar amount of facility fees have increased significantly from 2019 to 2023 (despite bans on certain types of off-campus facility fees).
Further, commercial insurance paid 2.5 to 3.5 times more in facility fees per visit at HOPDs than any other payer, including Medicare and Medicaid.
Variation among Payers
A new journal article in Health Affairs uses a fairly new dataset to make direct comparisons of total commercial prices for the same services offered in HOPDs versus free-standing ambulatory surgical centers (ASCs).
Importantly, these data include not only procedure codes but also insurer and provider identifiers, allowing the researchers to reveal significant differences in the HOPD/ASC price differentials among three major private payers – UnitedHealthcare, Cigna, and BlueCross BlueShield.
They found in 2024, across the three payers, commercial prices for 13 commonly performed outpatient procedures were 78 percent higher in HOPDs than in ASCs – which is consistent with previous research.
Perhaps more striking, however, was the significant variation they found in this price differential among the three payers.
Cigna had the lowest prices for both HOPDs and ASCs, but also the lowest price differential between the two settings, followed by BlueCross BlueShield and United.
Based on further analysis, Maughan and colleagues believe Cigna achieved these outcomes primarily by contracting with much narrower networks of lower-priced HOPDs than did the other two payers.
They conclude if the other two payers adopted Cigna’s average HOPD rates for these procedures, together they would save $1.4 billion per year.
To me, this kind of variation is always of interest, as it raises many questions worthy of future research.
As Maughan and colleagues ask: “if insurers can easily reduce spending with a narrow-network strategy focused on ASCs, why [don’t] two of the largest commercial insurers in the US…use this strategy?”
Is this a matter of catering to employer groups’ preference for broader networks?
Is there perhaps cost-shifting taking place among private payers? What does the “excess” $1.4 billion potentially paid by United and BlueCross BlueShield actually pay for?
Looking Ahead
Policymakers confronting facility fees face difficult decisions, given competing demands from consumers and employers for more affordable health care, and from hospitals and health systems for more revenue.
These new papers shed light on both the pervasiveness of the issue and the magnitude of the dollars involved, laying a foundation for future research to inform policymaking.
Author’s Note: Special thanks to Christine Monahan for her kind review of an earlier draft of this newsletter.
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About Health Affairs
Health Affairs is the leading peer-reviewed journal at the intersection of health, health care, and policy. Published monthly by Project HOPE, the journal is available in print and online.
Project HOPE is a global health and humanitarian organization that places power in the hands of local health care workers to save lives across the globe. Project HOPE has published Health Affairs since 1981.
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