The Facility Fee Scam
How Medicare rules fuel consolidation and corporatization of American healthcare
By all appearances, nothing about your doctor’s office visit has changed. You sit in the same waiting room, see the same physician, and receive the same care. Yet somehow, the bill has doubled. The reason is buried in the fine print of the American medical billing system, where a little-known distinction known as “site of service” can dramatically alter what you pay.
This is one of the main forces driving up healthcare costs, hollowing out independent medical practices, and accelerating the corporatization of American medicine. The solution, known as site-neutral payment reform, is long overdue.
What Are You Really Paying For?
Every medical bill has two main components: the professional fee and the facility fee.
The professional fee is what your physician charges for their time and expertise. Whether the doctor is independent or works for a large system, this portion of the bill tends to be similar. The facility fee is something else entirely. It is an added charge that hospitals and hospital-owned clinics are allowed to tack on simply because the visit occurred in a facility they own.1
This fee is not small. In many cases, it can be several hundred dollars or more, applied on top of the standard charge for the visit. A 20-minute consultation that costs $150 at an independent practice can cost over $300 at a hospital-affiliated clinic, even if the doctor and the care are exactly the same. One study found that hospital-employed physicians generated $2,000 more in annual outpatient spending per patient than independent physicians, primarily due to facility fee billing.2
Who Gets to Charge Facility Fees?
Not everyone. Only hospitals and health systems that own the physical space can bill Medicare and insurers for a facility fee. Independent clinics, even those providing the same services with the same staff, are legally barred from doing so.3
This means two practices sitting on opposite sides of the street can be reimbursed very differently for identical services. One gets a basic payment. The other gets that plus a bonus for being affiliated with a hospital system.
Consolidation
This payment structure creates powerful incentives. Hospitals have rushed to buy up independent physician practices, converting them into outpatient departments under the hospital umbrella. Once acquired, these practices can begin charging facility fees immediately. From a business perspective, it is an easy way to increase revenue without improving care.
Private equity firms have also taken notice. By acquiring practices and affiliating them with hospital systems, they too can profit from this billing loophole.4
The result is a steady decline in small, physician-owned practices. These independent clinics often cannot survive when their competitors are getting paid twice as much for the same work. According to the American Medical Association, the share of physicians working in private practice dropped from 60.1% in 2012 to 46.7% in 2022.5 This downward trend continued into 2023, with just 22.4% of physicians remaining in independent practice.6
Why It Matters
When local practices disappear, patients lose. Large corporate systems may offer scale, but they often lack the continuity, accessibility, and personal connection that independent practices provide. Appointment wait times grow. Costs increase. Personalized care gives way to standardized protocols.
Meanwhile, Medicare and private insurers are left paying inflated bills. According to the Medicare Payment Advisory Commission (MedPAC), equalizing payments across sites of care could save billions of dollars annually, with one estimate suggesting over $6 billion in savings for Medicare and beneficiaries.7
Site-Neutral Payments
Site-neutral payment reform is simple in concept. It means paying the same amount for the same service, no matter where it is performed. A blood draw or follow-up exam should cost the same whether it happens at a small clinic or in a hospital-affiliated office suite.
MedPAC and other policy experts have endorsed site-neutral payments for years.8 The Centers for Medicare and Medicaid Services (CMS) has even begun pilot programs to test it.9 Yet progress remains slow, largely because of pushback from hospital lobbyists who argue that facility fees are necessary to support emergency departments and other essential services.
That argument deserves scrutiny. Many critics point out that the money generated by facility fees is often used not for charity care but for executive compensation, marketing, and system expansion.10
The Moral Question
At its core, this is not just an economic issue. It is an ethical one. Should your healthcare bill depend not on what care you receive, but on whether the owner of the building has lobbied some bureaucrats?
Imagine if grocery stores charged more for the same apple depending on who owned the store. Or if restaurants billed you an extra fee because the dining room was part of a corporate chain. We would never accept this logic in other parts of our lives. Yet in healthcare, it has become standard practice.
A Better Way Forward
Reforming site-based payment differentials will not fix every problem in American medicine, but it is a critical step toward fairness and sustainability. It would restore a level playing field for small practices, reduce costs for patients and payers, and slow the march toward corporate consolidation.
If we value choice, competition, and affordability in healthcare, then we should support policies that reward the quality of care, not the corporate structure behind it.
U.S. Government Accountability Office. Medicare: Payment Differences Across Ambulatory Settings. GAO-14-279. Published March 2014. https://www.gao.gov/assets/gao-14-279.pdf
Song Z, Rose S, Safran DG, Landon BE, Day MP, Chernew ME. Changes in health care spending and quality 4 years into global payment. N Engl J Med. 2014;371(18):1704-1714. doi:10.1056/NEJMsa1404026
Centers for Medicare & Medicaid Services. Medicare Learning Network (MLN) Fact Sheet: Hospital Outpatient Prospective Payment System (OPPS). CMS.gov. Updated January 2023. https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts
Singh Y, Whaley CM, Radhakrishnan N, Adler L. Growth of Private Equity and Hospital Consolidation in Primary Care and Price Implications. JAMA Health Forum. 2025;6(1):e245935. doi:10.1001/jamahealthforum.2024.4935.
Kane CK. Recent Changes in Physician Practice Arrangements: Shifts Away from Private Practice and Towards Larger Practice Size Continue Through 2022. American Medical Association. July 2023. Available at: https://www.ama-assn.org/system/files/2022-prp-practice-arrangement.pdf
Muoio D. More and more physicians are working under hospitals, corporate entities, report finds. Fierce Healthcare. January 24, 2024. Accessed May 30, 2025. https://www.fiercehealthcare.com/providers/more-and-more-physicians-are-working-under-hospitals-corporate-entities-report-finds
Physicians Advocacy Institute. Physician Employment Trends: 2019–2023. PAI-Avalere; April 2024. Accessed May 30, 2025. https://www.physiciansadvocacyinstitute.org/Portals/0/assets/docs/PAI-Research/PAI-Avalere%20Physician%20Employment%20Trends%20Study%202019-2023%20Final.pdf
Medicare Payment Advisory Commission. Report to the Congress: Medicare and the Health Care Delivery System. MedPAC. June 2022. Chapter 3: Aligning Fee-for-Service Payment Rates Across Ambulatory Settings. https://www.medpac.gov/document/june-2022-report-to-the-congress-medicare-and-the-health-care-delivery-system/
Ibid.
Centers for Medicare & Medicaid Services. CY 2024 Medicare Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System Final Rule (CMS-1786-FC). November 2, 2023. Available at: https://www.cms.gov/newsroom/fact-sheets/cy-2024-medicare-hospital-outpatient-prospective-payment-system-and-ambulatory-surgical-center-0
Bai G, Anderson GF. Extreme markup: the fifty US hospitals with the highest charge-to-cost ratios. Health Aff (Millwood). 2015;34(6):922-928. doi:10.1377/hlthaff.2014.1414
Corlette S, Lucia K, Hoppe O. Protecting Patients from Unexpected Outpatient Facility Fees: States Take Action. Center on Health Insurance Reforms, Georgetown University Health Policy Institute. October 2023.