Hospital Clinic/Technical Fees Can Affect Employed Physician Compensation

Shifting from private practice to hospital employment might adversely affect a physician’s future patient or services volume from three distinct causes:

• The hospital might bill the physician’s patients a clinic/facility fee related to office visits
• The hospital might bill current in-office ancillary services as hospital-based services
• A specialist might lose referrals that used to come from physicians affiliated with a competing hospital

This article discusses the first two potential causes.

Clinic Fees for Office Visits

Physicians who become hospital/hospital practice employees - and their patients - might be in for an unpleasant billing-related surprise. A hospital might relocate employed physicians to a hospital-operated clinic or might obtain provider-based status for the physicians’ legacy office locations. In either case, the hospital may bill a separate facility fee for routine office visits. This means that a patient could visit his/her private physician one week and pay a single professional fee and then visit that now-hospital-employed physician the next week in the same office and receive a bill for a professional fee and a facility fee.

If hospital does not properly disclose the separate clinic fee, then it could violate specific disclosure requirements in the provider-based rules.

The potential patient reaction to significantly-higher charges for the “same” services can be just as damaging. A recent article, “Outpatient sticker shock: $538 for a 3-minute treatment,” provides an extreme example of patient “dissatisfaction” regarding unanticipated facility fees. After receiving a $318 bill for a facility fee for an office visit that involved wart removal, a patient’s mother filed a class action lawsuit alleging that local non-profit hospitals engage in “deceptive practices” by charging undisclosed facility fees related to acquired physician practices.

An employed physician paid on a productivity basis is at risk that the facility fees will reduce patient volume and, therefore, physician compensation.

Ancillary Services Billed at Hospital Rates

Even if a hospital does not bill a clinic fee, it might convert certain office-based ancillary procedures to hospital procedures. If a hospital is able to convert a portion of a private office location into a “provider-based” location, then the hospital may bill at hospital rates procedures that the practice formerly billed as in-office procedures. For some procedures, such as cardiovascular diagnostic imaging, hospital-based reimbursement is significantly higher than office-based reimbursement.

The potential surprise for patients is not that they are receiving a bill for the procedures - it is the amount of that bill. Hospital billing for formerly-office-based procedures might adversely affect patients in two ways. First, the co-insurance they will owe on an allowable charge will be higher if that allowable charge is higher. Second, commercial plans typically have separate deductibles and co-insurance percentages for physician services and hospital services. Therefore, a commercial patient who might have owed co-insurance at the physician rate (or even just an office visit co-pay) might instead owe the entirety of the allowable charge for the same procedure billed as a hospital-based procedure.

Higher patient out-of-pocket costs can cause patients to decline ancillary services or to obtain them elsewhere. This could affect employed physicians by decreasing their patient base and by reducing the volume of professional services. Fewer diagnostic imaging studies means fewer interpretations, which means lower productivity.

The point of this article is not that facility fees are necessarily “bad” for patients. Near-term higher costs are an integral part of the reimbursement incentives the government and commercial payers are offering to encourage integration.

The message is that physicians contemplating hospital employment should ask whether the hospital intends to “split bill” by charging a clinic/facility fee for office visits or “provider-base” the ancillary services currently provided in the physician’s office. The answer will likely depend on the nature of the local market. If it is an open issue, then a physician should nearly always seek to obtain agreement that the hospital will not bill a clinic fee. If a clinic fee or provider-based ancillary services are inevitable, then the physician should model the likely adverse effect on patient volume and the physician’s compensation and, if possible, negotiate to mitigate those effects.

Find out more about John C. Erickson and our other Practice Notes bloggers.