Colorado lawmakers are targeting hospital facility fees. Here's why that's a big deal.

Last year, Diane Kruse and her husband, Kevin, went to visit the doctor.

Kevin needed to get some things checked out with his heart, nothing urgent or out of the ordinary. After looking through their insurance network, they settled on a cardiologist working at a satellite clinic on the National Jewish Health campus in Denver. The visit felt routine — the only piece of equipment the doctor needed to use was a stethoscope.

But it was the bills that came as a surprise.

They had been prepared to pay a $150 copay to cover the office visit. But they also received a second bill for another $150 for "facility and nursing services," the billing statement read.

Confused, Diane called the National Jewish billing department, thinking she had been mistakenly double-billed.

"The person checked it out and said, 'That's the hospital,'" Diane recalled. "And I said, 'We didn't go to a hospital.' And they said, 'Well, that's the facility fee.'"

What exactly was going on in Diane and Kevin Kruse's medical bills — what they were charged and why — is now the subject of the biggest health care fight at the state Capitol this legislative session.

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Targeting facility fees

The issue has to do with facility fees, charges that hospitals bill to insurers and patients to cover their own costs of providing care, separate from what a doctor gets paid. To consumer advocates, these fees too often seem like predatory add-on charges meant to enhance the hospital's bottom line at the expense of the patient's pocketbook. Hospitals say these fees are vital sources of revenue — often the only way they can get paid to keep nurses employed, the lights on and the floors clean at the clinic.

The practice of charging facility fees has proliferated in recent years — both in Colorado and nationally — as hospitals acquire once-independent doctor's offices, open their own off-campus clinics and increasingly encourage patients to receive treatment in outpatient settings.

But this has created confusion and frustration for patients. Doctor's visits that used to come with only one charge now come with two. And the facility fee can also hide in bills, often not being labeled even as clearly as it was in the Kruses' bills.

Now, Democrats at the state legislature have introduced a proposal to ban hospitals from charging facility fees in most outpatient circumstances. The legislation, House Bill 1215, would prohibit facility fees for outpatient visits at clinics and offices that are not on a hospital's main campus. It would also prohibit hospitals from charging facility fees for outpatient services at on-campus locations, such as in the hospital, if the state Medical Services Board rules that the service could have been provided safely at an off-campus location.

"Facility fees are simply another way that hospital CEOs are lining their pockets at the expense of patients, and we simply can't let this continue," state Rep. Emily Sirota, D-Denver, said in a statement after the bill was introduced last month.

That's one version of what the bill would do: reduce runaway health care costs for patients while not really harming hospitals' ability to provide needed care.

Hospitals, of course, see it differently. They estimate the financial hit to hospitals statewide would be $9 billion, and they warn that could result in hospitals closing outpatient clinics and shifting more people to costlier inpatient care, while pushing some rural health systems to the brink of insolvency.

"This proposal is so incredibly vast and all-encompassing, it's just completely disconnected from the way things really work," said Zach Zaslow, the interim vice president of population health and advocacy at Children's Hospital Colorado.

Finding the truth in the rhetoric

These two versions of the story can't both be true. So, which one is?

Glen Mays, an expert on health systems at the Colorado School of Public Health, says both stories contain a bit of truth. Undeniably, facility fees are being charged more often in more places, he said. And those fees increase the overall cost of health care.

But hospitals also have come to depend on facility fees. If they lose much of that revenue and can't replace it by increasing charges elsewhere, they could be in a real bind.

"The question would be: What is the magnitude of that kind of impact?" Mays said.

To understand the potential magnitude, it helps to know what goes into a medical bill. Hospitals — and their affiliated clinics — can charge for the drugs they administer or the equipment they use. But a bill is generally made up of two big fees.

The first is what is called the professional fee. This is the money that goes to the doctor, and in olden times it was likely the only major charge that patients saw. You had an earache, you went to your local, independent doctor's office and the doctor charged you a professional fee for the treatment visit. That fee covered the entire cost of care — from the doctor's salary all the way down to the clinic's trash bill.

But hospitals were in a unique spot: Especially in places like their emergency departments, hospitals needed to be fully staffed and ready to go even when patients weren't coming in. Thus was born the facility fee, something that hospitals could charge patients to help fund the facility's operations, and it's been around for decades.

"It's a distortion in payment that's been baked into Medicare and it's been baked into a lot of private health insurance plans," Mays said.

As hospitals have bought up outpatient clinics — or opened their own — facility fees have begun popping up on bills in more places, even on things like telehealth visits where a patient doesn't leave their own home for care. Citing Medicare data, Mays said professional fees charged at a clinic often decrease when the clinic becomes affiliated with a hospital system. But, with a facility fee added on, the overall cost of care goes up, putting more burden on insurers and patients.

"The combined fee is higher than a single fee," Mays said.

So, for proponents of the new legislation, this suggests a tidy solution: If facility fees are banned in most outpatient settings, hospitals will switch to recouping their expenses through the professional fee and the entire charge will be less than what it was when facility fees were being charged.

"We see that these facility fees do not always connect to the cost of care in any understandable way," said Isabel Cruz, the policy manager for the Colorado Consumer Health Initiative, which supports the bill. "And our understanding is that the professional fee does reimburse them for costs."

But what happens if the answer isn't so tidy?

When hospitals don't employ doctors

Children's Hospital Colorado is one of the U.S. West's premier pediatric health systems. But, despite expecting nearly 1 million patient visits this year, Children's employs almost no doctors.

Instead, nearly 98% of the physicians who work at the hospital are employed by CU Medicine, an arm of the University of Colorado School of Medicine. What this means from a billing perspective is that CU Medicine charges the professional fee, not Children's.

"Children's Hospital Colorado does not and cannot benefit from this fee," Dr. David Brumbaugh, Children's chief medical officer, wrote in an email.

The hospital also does not charge its physicians for the use of its facilities. That means, according to the hospital, that the facility fee is the only way for Children's to get paid for the care its nurses and therapists provide, for its administrative staff, for its child life specialists who make the hospital a less-scary place for young patients.

Roughly 98% of the care that the hospital provides is outpatient — part of a concerted effort by hospitals across the state and country to move patients from costlier inpatient settings into more efficient and accessible outpatient ones.

"It's a misguided approach that will only intensify access-to-care challenges," Zaslow said.

"This thing comes out of nowhere at you."

Kruse said she and her husband did all the due diligence they could to avoid an unexpected medical bill. But facility fees often hide under other names.

"If you go online, they roll the facility fee into something that looks like it's doctors care," she said.

This only adds to the confusion when patients receive a separate charge or bill for the professional fee.

As an example, look at UCHealth. The giant health system, Colorado's largest, posts price lists online for all the services it offers, in compliance with federal rules. If you are insured through Anthem, for instance, and you get an outpatient colonoscopy at the University of Colorado Hospital, the price list says the charge will be $2,394.76.

Except, that's not the full price. It's just the facility fee — even though it's not labeled as such. The cost for the doctor and potentially other services, like anesthesia, will be more.

This confusion shows up again and again in patient stories. A dad in Colorado Springs who thought he was only going to be charged $238 professional fee for a brain scan for his son was shocked when a $2,518 facility fee bill later arrived.

"There's nothing you can call it besides a surprise bill," he told Fox 31, which investigated the bill and was told that it was ultimately reduced.

When Kruse realized there was a difference between the doctor's fee and the facility fee for her husband's cardiology visits at National Jewish, she was upset. Why hadn't anyone explained this to her?

"They said you have to ask about it," she said. "How do you ask about something you don't know exists?"

"This thing comes out of nowhere at you."