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One Reason Accountable Care Organizations (ACOs) are Doomed to Underperform

February 3, 2013

The PPACA (Obamacare) includes provisions for hospitals and other entities such as physician groups to cooperate to make systems work better, save money, and share those savings between Medicare, the hospitals, and the other entities.

These efforts are doomed to underperform for many reasons. One of the biggies is that these plans are too dependent on hospitals to change their ways. My observations (and others) have led me to believe that hospitals are too stuck in the status quo and their hefty procedural fees to make meaningful differences in their financing mechanisms.

One of the worst offenses is the fact that hospitals are allowed to charge much more for the same outpatient service as physicians in private practice. For example, if a patient sees a private physician for a relatively straightforward problem, Medicare allows about $70 in my region for that visit. If a patient receives the exact same service in a hospital-owned clinic, the physician’s fee is dropped to about $50, but the hospital is allowed to charge a facility fee of about $130 for a total bill of $180.

Of course, this example is small potatoes compared to the facility fees charged for services such as cardiac tests and other over-priced high tech services. The story below is from an article in the Boston Globe demonstrating the absurdity of the fees your federal government allows hospitals to charge (and why would the hospital both over charge for operating room time and have the gall to charge another facility fee in addition? Amazing).

Will hospitals give up their facility fees for the greater good of a less expensive healthcare system? Only if other strong-willed people pry those fees from the hospitals’ cold dead hands.


A hospital fee, minus the hospital (billing hosp fac fees w acquired practices)_Boston Globe Jan 27 2013

By Liz Kowalczyk

| Globe Staff

January 27, 2013

Robert Reed’s visit to a suburban dermatologist’s office last year seemed ordinary: He was led into a small exam room with a scratchy paper-covered table, where the doctor inspected his skin and squirted liquid nitrogen onto three pre-cancerous spots.

The statement he received a month later appeared anything but ordinary: It included $1,525 in “operating room’’ and hospital “facility’’ charges. Surely, Reed thought, it must be a mistake. There had been no hospital, no anesthesia, no surgical nurse.

And these charges were far more than what the doctor billed for her services — just $354. “I feel like I’ve been taken advantage of,” said Reed, a 57-year-old financial analyst. “They need a reality check on what they are charging.’’

To many people this may be the equivalent of billing for oral surgery after a teeth cleaning. But Lahey Hospital and Medical Center, which owns the dermatology practice, said Reed’s insurer allows the Burlington hospital to charge patients an overhead fee when they are treated by doctors it employs — even when their offices are not located in the hospital but in a medical building 1½ miles away.


This practice is common and has become more widespread in the past several years as hospitals across the United States buy up physician practices in the community. Now, facility fees for off-site care are drawing scrutiny from Medicare, some insurers, and consumers, who say that they are unfair and that hospitals are collecting more revenue and driving up health care costs.

“We’re trying to save money in our system and now we’re generating additional costs to the consumer,’’ said Dr. Paul Hattis, a member of the Health Policy Commission that oversees implementation of Massachusetts’ new health cost-control law. He said the panel should examine the issue.

The federal Medicare program, which covers 47 million people and is under pressure to cut costs, is taking a look at the practice. An independent agency that advises Congress concluded last year that the charging of facility fees at hospital-owned medical practices is costing Medicare millions of dollars a year. For a 15-minute office visit, for example, the federal health insurance program paid $44 more at a hospital-owned office in 2011 than at an independent office. Medicare patients pay more too: Their share of the bill for this standard visit was $11 more when they went to a hospital-owned office.

The facility fee can cause an even larger difference for some procedures, the Medicare Payment Advisory Commission found. Laser eye surgery, for instance, costs Medicare 90 percent more — $738 — in a hospital-owned facility than in an independent doctor’s office.

The advisory panel is recommending changes that would require Medicare to pay a single rate for a variety of medical procedures performed by doctors and for basic office visits, regardless of the site.

David Spackman, Lahey’s general counsel, pointed out that Medicare permits hospitals to bill facility charges for care in a physician’s office as long as they inform patients in advance. At the Wall Street dermatology office in Burlington where Reed had his procedure last January, signs posted in the lobby tell patients, “The offices at this location are operated as part of the main hospital facility. Because of this, the care you receive may have a hospital facility charge in addition to a provider charge.’’

Reed said he did not notice the warning — which, he pointed out, gave no indication of the size of the fee.

His share of the Lahey fee is $678.91, which he has appealed repeatedly to his insurer, Cigna. Patients such as Reed, who is covered under a new high-deductible health insurance plan at work, are increasingly responsible for at least a portion, if not all, of these facility fees.

“Of course he’s upset,’’ said Spackman, a former state assistant attorney general.

Erik Rasmussen, a senior associate director at the American Hospital Association, said the extra fees are a way to have patients served at all of a hospital’s locations cover overhead costs unique to hospitals, such as having emergency room staff available 24 hours a day.

Many doctors’ practices are losing money and would be forced to close if a hospital did not step in to support them, said Timothy Gens, general counsel for the Massachusetts Hospital Association. “One of the greatest challenges for hospitals is to find the resources to subsidize physician practices so they stay in their communities,’’ he said, explaining that facility fees help pay for technology and staff and meeting regulatory requirements in these offices.

Insurers have long paid facility fees for care that occurs in a hospital to help cover overhead costs. Eliminating these fees for hospital-owned off-campus practices can be hard, because hospitals do the billing and often do not indicate where the patient was treated. Insurers — and consumers — also are charged facility fees for care at outpatient surgery and urgent care centers that are in hospital-owned networks. Partners HealthCare and Steward Health Care, two large hospital networks, said they charge facility fees at some doctors’ offices.

Dolores Mitchell, head of the Massachusetts Group Insurance Commission, which insures 375,000 state employees and retirees, said she is working with health plans to eliminate these fees. Meanwhile, the commission advised members in a newsletter to question doctors about whether a visit will generate a facility fee; if yes, let the doctor “know you are not happy about’’ it, it said.

Consumers should at least know ahead of time if they are going to have to pay a facility fee, said Eric Linzer, spokesman for the Massachusetts Association of Health Plans. Eventually providers and insurers will have to make detailed price information, including facility fees, available to consumers under the state’s new cost-control law.

Cigna spokesman Mark Slitt said he could not discuss Reed’s case because of patient privacy laws. But the insurer is talking to providers about limiting facility fees in contracts, he said. Meanwhile, members can log on to the company’s website to compare costs for certain procedures at different sites, including whether they will be charged a facility fee.

Reed, who has been trying to untangle his dermatology bill for nearly a year, said he did not research the procedure on Cigna’s website, because he did not know he was going to have it until he was in the ­exam room. When he looked it up after the fact, there was no cost information on the Wall Street location. And even the prices listed for the main Lahey campus were difficult to understand and seemed far below the amount of his bill, he said.

Since his family has a history of skin cancer, his primary care doctor had recommended he see a specialist. The Wall Street practice is near his office, so he made an appointment with Dr. Ava Khosraviani, who is no longer employed by Lahey and could not be reached for comment.

The first bill Reed got was the $354 for her services, of which his share was $210.59. The second bill was for the operating room and facility charges. When Reed complained to Cigna about the bill, saying he never had an operation, he received another bill that called the $1,525 charge just a facility fee.

However, the amount he owed grew, because Cigna’s negotiated discount had shrunk with the change. Now he has complained to his employer, which is appealing the bill to Cigna and Lahey.

“If I had known it would have cost $1,500 to have my face squirted, I would have walked out,’’ Reed said. “This is a doing-business-with-Lahey charge. They’re saying we get a premium because we’re Lahey Clinic. It doesn’t have to do with the cost of the facility.’’

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