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Originally published Saturday, November 3, 2012 at 8:03 PM

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Why you might pay twice for one visit to doctor

More patients are being confronted with hospital "facility fees" for routine doctors' office visits. Hospitals say the fees are needed to cover overhead as they consolidate and buy clinics and practices, but the trend has spurred calls for more scrutiny.

Seattle Times health reporter

The facility fee, by the numbers

Medicare Payment Advisory Commission does the math

This 2011 example of Medicare rates shows different payments for a midlevel routine visit to a physician's office and to a clinic or office licensed as a hospital outpatient department.

Service in physician's office:

• Payment to physician: $68.97

• Total: $68.97

Service in outpatient department:

• Payment to physician: $49.27

• Payment to hospital: $75.13

• Total: $124.40

Source: Medicare Payment Advisory Commission, Report to the Congress: Medicare Payment Policy, March 2012.

For more information

Starting Jan. 1, hospitals and clinics must notify patients about facility fees: http://1.usa.gov/U0WlLR

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Joanne Silberner stood at the podium, about to referee a CityClub panel on health-care costs.

As a former health-policy correspondent for National Public Radio, Silberner knows a lot.

But, she told the panelists and the audience, she was baffled when she got two bills after a recent visit to a dermatologist.

One bill, for $109, was for the doctor, who saw her in his office at the Roosevelt Clinic. Then, to her dismay, she got another bill — $228 — for using the space.

The care she got seemed identical to an earlier visit with a dermatologist at another clinic — except for the two-bill whammy.

Such add-on facility charges are increasingly common for office visits — even routine ones — as hospitals around the country consolidate and buy independent practices. Clinics and practices operated by hospitals can charge the fees, as Silberner discovered at Roosevelt Clinic, licensed by UW Medicine, a hospital system.

Hospitals that charge facility fees in some clinics include the UW, Swedish Medical Center, Seattle Children's and others. They say the fees are needed to defray overhead such as equipment, staff, medical-records systems, diagnostic imaging and care not covered by insurance or underpaid by Medicare or Medicaid. The fees are justified, they argue, because integrating clinics with hospitals improves care.

The costly trend has caught the attention of the Medicare Payment Advisory Commission. Facility fees for simple office visits, it estimated, will add $2 billion a year to Medicare spending by 2020. For a middle-range doctor's office visit, such fees increase the total charge by more than 80 percent, the commission calculated.

For patients being urged to become choosy health-care consumers, the fees are not only perplexing, they're one more out-of-pocket burden.

Patients with no insurance or with high deductibles may be stuck with the whole bill, which — for a routine visit or minor procedure — can be several hundred dollars.

Even those with insurance don't skate: In addition to the typical flat co-payment of $25 or so for the doctor visit, they'll pay co-insurance, typically 20 or 30 percent of the facility fee, which is often bigger than the doctor's bill.

A month ago, Group Health Cooperative, which as an insurer pays bills when members seek care at outside clinics, fired a shot across the bow: It notified all the hospital systems it contracts with that it will no longer pay facility fees for routine doctor's office visits, and it won't stick patients with the bills, either.

Over the past three years, Group Health says, facility-fee payments for office visits, ranging from $56 to $268, have increased 10 to 15 percent per year and now total about $2 million per year.

"Facility fees demonstrate how the fee-for-service system can inflate cost without in any way contributing to the health of patients," said Group Health CEO Scott Armstrong.

"There's a principle: We're not going to pay more just because the structure of the practice is different. It's not fair."

Hospital "departments"

When hospitals license clinics or practices as outpatient "departments," Medicare allows them to bill facility fees. And most insurers go along.

Under this billing system, the doctor's charge is less, but with the facility fee, the total is typically higher.

Group Health found that when one hospital started facility fees for primary-care visits in its clinics, costs increased by $171. Last year, Seattle Children's began facility fees for clinic and urgent-care visits, ranging from $140 to $570 per visit.

"Children's avoided facility charges for as long as possible," said spokeswoman Mary Guiden, "but needed to implement them because of government funding cuts and the likelihood of more cuts in the near future."

Also last year, five locations of Skagit Regional Clinics added fees when the group became a part of Skagit Valley Hospital.

Some hospitals don't bill facility fees for office visits.

Franciscan Health System's leaders decided years ago that its primary- and specialty-care clinics around Puget Sound wouldn't charge the fees, said spokesman Gale Robinette.

Others may charge facility fees only when visits include procedures. Such clinics may also bill higher, hospital-level rates for services such as imaging or labs.

One example is chemotherapy. Nationally, costs rose 34 percent for infusions in a hospital-based outpatient clinic versus a doctor's office, a 2012 study by research consultant Avalere found. Even adjusted for factors such as age or health history, costs rose 24 percent.

Cardiology is another example. Over the past 2 ½ years, hospitals acquired many independent practices. In 2007, hospitals employed 2 percent of the state's cardiologists, according to the American College of Cardiology's state chapter. Today, hospitals employ 42 percent.

"The hospitals have been able to offer cardiologists compensation much higher than a free-standing medical group ever could," says Denis McDonald, senior vice president of business services for The Polyclinic, a Seattle multi-specialty group owned by its doctors. "It's a concern for everybody."

For Group Health, such changes have been costly.

As an insurer, it formerly paid about $1,832 for a heart-catheterization procedure. But when one hospital bought a cardiology group, despite a drop in the doctor's fee, the total rose to nearly $7,000 — an increase of more than $5,000.

An insured patient with a 20 percent co-insurance would pay an additional $1,000 out-of-pocket, noted Group Health's Suzanne Daly, vice president of provider relations and network services.

"Nothing changed except ownership of the group."

Even doctors can find the fees irritating.

Dr. Ronald Brazg, who practiced endocrinology for 20 years, was surprised when he saw two bills for his wife's 15-minute office visit — all talk, no procedures — in a clinic owned by a large Seattle hospital system.

Vanessa Brazg's bill for the doctor — $139 — reduced to $91 by contract with the insurer — made sense to him. But the additional facility charge — $177 — did not.

"You don't pay your hairdresser a facility fee for sitting in their salon, or a dentist for occupying a chair," Brazg said. "Why should patients and payers be paying facility fees for routine office visits?"

He calculated the numbers: A 15-minute visit @ $177 per visit = an hourly rate of $708 — $1,472,640 per year.

Annual rental for this 10-by-10 foot space — no view, no waterfront, Brazg notes — $14,726 per square foot.

"Even Donald Trump would consider this a great piece of real estate."

Funds "robust service"

Hospitals bristle at the suggestion they're gobbling up practices just to charge more.

"There is no overarching strategy to convert physician practices into provider-based billing clinics," says Dr. Todd Strumwasser, chief operating officer of Swedish Medical Center's First Hill and Cherry Hill campuses.

Most of Swedish's 124 clinics don't charge facility fees, he says. For the 5 percent that do, such as the True Family Women's Cancer Center, where Vanessa Brazg was seen, or the hospital's outpatient chemotherapy infusion centers, the fees cover many extra services available through Swedish, he said.

Strumwasser says cancer-center fees cover social workers, psychologists, occupational therapists and financial counselors. "It's a much more robust service than if you go to Dr. X out in Lynnwood and he examines you for your breast care."

At 57, Strumwasser says he and his contemporaries always assumed they'd practice independently. Now, costs are so high "it's just entirely unrealistic to think you can do that anymore."

And he's come to believe such integration is better for patients, too.

"When you get hospitals and physicians working together, you can achieve better outcomes because you're not working in 'silos,' " and that ultimately reduces costs, Strumwasser says.

Cassie Sauer, spokeswoman for the Washington State Hospital Association, says in most cases it's the doctors who make the first move, overwhelmed by the business side and unable to keep subsidizing care for patients on Medicaid or Medicare.

Cardiologists, for example, were hit with a drastic reduction in Medicare reimbursement in 2010, said Lianna Collinge, CEO of the local cardiologists' organization.

"The practices simply couldn't afford to stay in business," Collinge said.

Sauer says hospitals must charge the fees to continue serving Medicare and Medicaid patients despite low reimbursements. Still, she concedes shifting costs to privately insured patients isn't the fairest way.

"Why aren't we all paying for it?" she asks. "This is really an artifact of our wacky financing system for health care."

Armstrong says Group Health, which owns no hospitals, wants to rock the boat to link payments to better care, not location. But it's not aiming to sink hospitals.

"This is controversial," he acknowledges. "We're talking about the revenue stream for hospitals. We don't take this step lightly."

Earlier this year, the Medicare Payment Advisory Commission advised Congress to pay the same for a doctor's visit whether in an independent clinic or in a hospital outpatient department.

More recently, leaders of the Legislature's health-care committees have called on Attorney General Rob McKenna to investigate the growing consolidation of doctor groups and hospitals. In an Oct. 23 letter, Sen. Karen Keiser and Rep. Eileen Cody said such purchases "are driving up medical costs and may very well violate antitrust regulations."

Although advertised as "a win for the consumer as costs will decrease, that is often not what happens," the lawmakers wrote.

The hospital association says the attorney general already has examined antitrust issues in many acquisitions and consolidations.

Patients in the dark

Cost wasn't the only issue in class-action lawsuits in 2005 against Virginia Mason Medical Center and the UW. The patients said they weren't told of the fees ahead of time. Some got refunds, and both hospitals changed how they informed patients.

John Phillips, the lawyer in those cases, is now suing two St. Louis hospitals on similar grounds.

"Hospitals have to become much more transparent in letting patients be consumers," he says. "Patients can't do that if hospitals don't tell them clearly about those costs."

People have no difficulty differentiating Target from Nordstrom, Phillips says. "But the smartest among us are clueless, apparently, about the difference between going into one clinic versus the other, and what we're going to pay for that."

State lawmakers this year voted to require hospitals to report information about facility fees to the state and also better notify patients.

Many hospital systems and clinics do notify patients, often with a sign on a wall, that they may face two bills; Seattle Children's and Virginia Mason specify typical charges on their websites.

Brazg argues that patients should be given a separate, "informed consent" fee schedule — not just a "you could pay two bills" statement, but an actual amount.

He prescribes transparency of this sort: "If you go to Doctor A's office across the road from Hospital X, you'll pay $91. If you go to Doctor B's office on Hospital X's property, you'll pay $268 for the exact same service without added value."

Carol M. Ostrom: 206-464-2249 or costrom@seattletimes.com.

On Twitter @costrom.

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