More states are cracking down on hospital prices, despite a lag in federal policy reform.
Last year, Indiana, Colorado, Connecticut and Maine passed laws restricting facility fees, which are additional charges hospitals bill to patients who receive care at hospital-owned clinics and outpatient facilities. About a dozen states, including those four, have or are considering passing such laws, which range from prohibiting facility fees for certain services to disclosure requirements.
Related: Battle looms over proposal to expand site-neutral pay
Independent physician clinics generally charge patients a single bill that covers a doctor’s fee and the cost of maintaining the practice. Patients who receive care at hospital-owned clinics typically receive separate bills for the physician fee and facility fee, which can vary significantly from hospital to hospital.
States are stepping up as the latest federal push to equalize payments for care delivered at independent physician offices versus hospitals-owned outpatient facilities sputtered. Policy experts, employers and physicians are not counting out congressional action this year. However, more states are expected to introduce facility fee legislation in the meantime.
“The failure to include it in current legislation is more reflective of Congress running out of time as opposed to a lack of interest in doing it. I’m pretty confident it will come back,” said Paul Ginsburg, health policy professor at the University of Southern California and senior fellow at USC's Schaeffer Center for Health Policy and Economics. “States that are taking a different approach to site-neutral policy moves the federal discussion forward.”
Policymakers in Washington state, which already banned facility fees for audio-only telehealth visits, introduced a bill in January that would place stricter limitations on facility fees. The legislation would prohibit hospitals from charging facility fees except when services are provided to patients on their campuses. That includes provider-based clinics within 250 yards of hospitals' main buildings.
Massachusetts and Arizona legislators are considering similar bills. In addition to banning facility fees for certain types of care, Massachusetts legislation would cap patients' costs for facility fees and require hospitals to tell patients when such fees would be charged.
“We will likely see more activity on the state level this year,” said Karen Davenport, senior research fellow at Georgetown University’s Center on Health Insurance Reforms who studies related state-led legislation. "State legislators' constituents can feel the pain from facility fees."
Facility fee criticism resonated in Indiana, which passed a law last year to prevent large health systems from charging those fees at outpatient facilities.
Connecticut, which has some of the most robust facility-fee protections, continues to expand them. It passed a law last year that, starting in July, will prevent hospitals from charging those fees for a range of preventative care delivered at on- and off-campus locations, excluding services provided at an emergency department and observation stays. In addition, hospitals must report their revenue from facility fees.
“We hear from people who are getting charged for care at a hospital they were never at,” said Denise Giambalvo, director of member engagement and business strategy at the Washington Health Alliance, a coalition of employers, unions and other healthcare purchasers. “State laws can plug holes in federal legislation, that is the intent.”
State and federal lawmakers have, for years, pushed legislation designed to rein in hospital prices by clamping down on facility fees. Related regulation cutting Medicare reimbursement for evaluation and management services provided at hospital-owned clinics led to a multi-year legal battle.
Site neutral policy supporters argue patients, and ultimately taxpayers, shouldn’t pay a premium for the same care just because it was provided at different locations. They say facility fees tend to increase patient costs and inflate the total cost of care, while incentivizing hospitals to acquire physician practices.
But hospital associations argue hospitals need higher pay, even for basic care, to offset overhead costs, such as the expenses of around-the-clock care, specialized equipment, additional regulatory requirements and licensing costs.
"Site-neutral proposals do not account for key differences between [hospital-owned outpatient departments] and other sites of care. The cost of care delivered in hospitals and health systems takes into account the unique benefits only they provide to their communities,” American Hospital Association CEO Rick Pollack said in a March 15 blog post.
Despite support from Democrats and Republicans, the Senate this month stripped provisions of the Lower Costs More Transparency Act of 2023 that would have prevented hospitals from charging the same for providing drugs at outpatient locations as they do in inpatient settings. The site neutral policy would’ve saved Medicare roughly $3.7 billion over 10 years and reduced copays by about $40 per patient, the Congressional Budget Office estimated.
"There is still plenty of time for Congress to come back to this," said Nicolas Ferreyros, managing director of policy, advocacy and communications at the Community Oncology Alliance.
State legislation can drive action at the federal level, said a spokesperson from the US Oncology Network, which is a member of the Alliance for Site Neutral Payment Reform. For instance, the No Surprises Act was enacted in 2022, after many states implemented laws designed to stop surprise bills.
Federal lawmakers focused on hospital prices and concentration will be motivated to pursue or expand site neutral policies, Ferreyros said. Hospitals would lose some financial incentives to acquire physician practices if they aren’t able to charge facility fees. Research has shown healthcare prices tend to increase when hospitals employ physicians, he noted.
“Site neutral reform is incredibly important because of the incentives facility fees drive for consolidation. There is too much money involved with paying hospitals differently for the exact same care,” Ferreyros said. “I don’t think the appetite to change that will go away.”