Hospitals decry bill banning 'facility fees,' supporters call it more 'surprise billing'

A bill that seeks to ban so-called facility fees — charged by hospital outpatient clinics to pay for certain costs, such as nurses, security and janitorial services — could result in exactly the opposite of what bill sponsors claim it would do, which is lower health care expenses, the proposal's critics argue.

Not only that. Critics also claim the bill would drive doctors out of state and may even led to rural hospitals shutting down.

But supporters counter that these charges unnecessarily add to people's financial burden, making health care even more inaccessible for some populations — and they're unpredictable. 

House Bill 1215, sponsored by Democratic Reps. Emily Sirota of Denver and Andrew Boesenecker of Fort Collins, would prohibit hospitals that operate outpatient clinics from charging for outpatient services provided at an off-campus location or through telehealth — or for certain outpatient, diagnostic, or imaging services.

The Colorado Hospital Association and its member hospitals say eliminating facility fees, which are referred to in a myriad of ways in patient bills, would increase wait times and drive doctors out of Colorado when they can't count on the clinics being properly staffed. In rural communities, it could mean the death knell for hospitals, where 80% of their business lies in providing outpatient services.

The hospitals also claim the people backing the bill don't understand how the billing system works. 

Supporters of HB 1215, including the Colorado Consumer Health Initiative, claim facility fees are billed to patients on top of copays and that they vary widely — from hundreds to thousands of dollars. Among the group's mission is to protect consumers from industry practices it says jeopardize the health and financial security of Coloradans. 

"Patients rarely know when or why these fees are added to a bill, making health care costs next to impossible to predict or plan for," Colorado Consumer Health Initiative said in a statement.

Supporters call the practice yet another example of "surprise billing," which lawmakers at the General Assembly have been cracking down on for the past several years. 

The CCHI statement noted a recent investigation by KDVR, which said a Colorado Springs family was charged a facility fee after taking their 5-year-old son to a pediatric neurologist for a brain scan. After paying $238 out of pocket for the 90-minute visit and scan, the family received a separate bill of $2,500 for “hospital services.”

The reasons why these fees get charged to patients are multi-layered and are tied to what insurance providers negotiate with the hospitals. Facility fees are not part of the benefits covered under insurance plans. Some insurance plans do pay the fees; others pay a portion. Some require the fees to be paid by the patient as part of their deductible. 

Facility fees became part of the health care billing practices back in the 1960s, when Medicare was first set up, according to Julie Lonborg of the Colorado Hospital Association. The fees show up as office visits, service fees, or as provider-based care that isn't from the doctor.

In a Wednesday media call, Lonborg noted that hospital-owned outpatient facilities, which include emergency rooms, telehealth, urgent care, even cancer and behavioral health clinics, don't pay doctors. Those charges are billed separately to the insurer; the hospital doesn't get any of that money. 

But when a patient walks into an outpatient facility, that's when the facility fee begins to kick in, Lonborg said, adding the charge pays for all the staff of an outpatient facility, except the doctor or sometimes an advanced nurse practitioner. The money pays for every person a patient encounters and even staff the patient never sees but is an integral part of the outpatient facility, such as nurses, registration staff, technicians who take care of medical equipment, medical record personnel, lab techs, security and cleaning workers.

The amount of the fee is based on the intensity of the care the patient receives, Lonborg said.

While the Colorado Department of Health Care Policy and Financing recently issued a report claiming Colorado hospitals are the most profitable in the country, CHA noted the data was from 2020, before COVID, and that the financial picture is considerably different now.

"We’re dependent on revenue from facility fees because of the financial circumstances," Lonborg said.

For example, Denver Health reported a net loss of $35 million in 2022, and with less than 100 days of operating revenue, asked the General Assembly for $5 million to keep it financially stable, a request the General Assembly approved last week. The hospital provided $120 million in uncompensated care in 2022, according to Dr. Steve Federico, a pediatrician and the hospital's chief of government affairs.

But consumer advocates claim physician fees should cover the cost of the service, as well as some of the administrative costs.

Adam Fox of the Colorado Consumer Health Initiative said, "(We) see this as a problem, breaking out a separate fee and passing it along to consumers."

It's not that insurance doesn't cover those fees, Fox said, adding the insurance company has a negotiated rate with the hospital for the physician fee but not for the facility fee, and insurance operates under the assumption that the physician fee is what's needed to cover the entire cost of the service. As more consumers have higher deductible plans, the insurer pays the physician fee but the facility fee gets passed to the consumer, unless the deductible has been met, Fox said.

Given that the facility fee is not part of the negotiations with the insurer, there's no predictability on costs, either for the insurer or for the consumer, Fox said. And because the facility fee is not part of the physician fees, the insurers say it isn't their responsibility to pay, he added.  

Fox told Colorado Politics it's no coincidence that the facility fees have surfaced after legislative protections for surprise billings went into place.

"I think we are seeing them proliferate at a much more rapid rate" since the surprise billing law was enacted, he said.

The Colorado law, which took effect last year, limits the amount a patient can be charged for receiving emergency care from an out-of-network facility or for getting care from a doctor who's not part of the work in an in-network facility. 

The Colorado Hospital Association said facility fees are on the rise because of the move to an integrated care model, one in which only the sickest of the sickest end up in inpatient care in a hospital. The drive to encourage people to take advantage of outpatient care means that, for Children's Hospital, for example, 98% of its business is outpatient care. 

Colorado has done a good job implementing the integrated care model, Lonborg noted. The state is rated third in the nation for avoidable use and costs, according to the Commonwealth Fund. 

The hospitals' trade group said the risks arising out of HB 1215 include longer wait times and driving vulnerable populations that rely on outpatient clinics back to the emergency rooms for care. The latter resulted in millions of dollars in uncompensated care for hospitals in the early 2000s, until Colorado lawmakers passed the hospital provider fee, which helps pay part of the costs for uncompensated care. 

The outpatient clinics also serve a higher portion of Medicaid and Medicare clients, Lonborg said, adding those patients will also face the risk for less access to care. 

"Eliminating the fee will mean no patient care other than the physician — no nurses, ER, security, and no way to pay for those folks," she said. 

Denver Health could lose $97 million under the bill at a time when the hospital is already struggling financially, she said.  

HB 1215 is assigned to the House Health & Insurance Committee. A hearing date has not yet been announced.