Pros and Cons of Charging Administrative Fees in Healthcare

Executive Summary

As the administrative costs of healthcare continue to rise, healthcare organizations are increasingly relying on fees to support certain administrative tasks. Administrative fees are not all created equal, which has stirred much debate as to whether fees are worth charging in light of regulatory and reputational risk. This article provides guidance on how to charge fees, the types of fees available to healthcare organizations and the advantages and risks to be aware of when charging administrative fees. 

Recommended Actions

• Give notification and obtain consent from your patients before issuing an administrative fee.
• Avoid charging patients insured by Medicare or Medicaid an administrative fee. If you do choose to charge these patients, be extremely cautious.
• Ensure that the administrative fee is reasonable to avoid upsetting patients and raising red flags to payors and regulators.
• Have a plan in place for patients who refuse to pay, such as referring them to another physician or allowing patients to opt out of paying the fee. 

Types of Administrative Fees

Administrative Fees for Services

The typical administrative fee model uses a patient’s insurance for covered items, but charges a fee for uncovered administrative or operational tasks. Services covered by this fee include consulting patients over the phone, faxing documents to employers, calling in prescription refills and completing forms. This fee is usually small, ranging anywhere from $20 to $150 per patient annually.[1] Fees can be charged either on an annual or per-item basis. 

Direct Payment Fees

Direct payment fees cut out insurance altogether. The healthcare organization is paid directly by patients rather than by insurance. Also, the patient does not pay for each visit, but rather pays a monthly fee to be a member — generally, $100-$200 per month.

This model relies on time savings to make up for the fees the healthcare organization would charge the health insurance company. Since patients pay a flat rate and no third parties are involved, healthcare staff is less bogged down with billing and insurance paperwork.

Also, under this model, healthcare organizations can be more flexible in the way they see patients. Where many traditional health insurance providers require patients to come in for an office visit for billing purposes, healthcare organizations that use direct payment fees can determine whether a phone or virtual consultation will suffice, allowing the healthcare organization to use its time more efficiently. Further, healthcare organizations can focus on patient care and give special attention to patients who most need care.[2]

Concierge Medicine Fees

Concierge medicine differs from the first two types of fees in that it is generally a premium service, hence healthcare organizations charge significantly more for it. The fee is usually charged in addition to insurance and ranges from a few hundred dollars a year to tens of thousands depending on how comprehensive the coverage is. Concierge medicine often involves same-day appointment scheduling and yearly preventive check-ups.[3]

Benefits of Charging Fees

In recent years, healthcare organizations have begun spending more time on non-billable services.[4] Data indicates that physicians spend nearly twice as much time on administrative tasks as opposed to seeing patients.[5] The advantage of an administrative fee is that a physician and healthcare organization can be paid for their time performing these services and that they can provide them to patients in the most efficient way possible. 

Risks of Charging Fees

Charging fees can present both legal and reputational risks. If a fee doesn’t offer value to the patient, the insurance company or a regulator may determine that a practice is charging for services already covered by insurance. Federal law strictly prohibits billing for services already covered and imposes expensive fines to those in violation.[6] Health insurance contracts usually also have clauses to enforce this rule further.[7]  

Regarding reputation, consider whether fees will put a strain on the doctor-patient relationship. Fees may seem particularly unreasonable to those not accustomed to paying them.[8] Determine from a reputational standpoint whether an administrative fee may cause patients to leave your practice. 

Charging Fees to Medicare/Medicaid Patients

Charging Medicare/Medicaid patients an administrative fee can present significant risks because the line between what is covered and what isn’t is fuzzy. Charging administrative fees for Medicare patients varies depending on who the Medicare provider is and their contract with the government. Medicaid varies by state, and the majority of states ban administrative fees outright for Medicaid patients.[9] Many healthcare organizations exclude charging patients with insurance through Medicare or Medicaid because they feel the risk does not exceed potential reward. 

If a healthcare organization wants to explore this option further, they should consider utilizing a consultant on a per-practice basis to set up guidelines based on each Medicare provider and each state’s Medicaid guidance. 

Notifying Patients and Receiving Consent

Patients should be sent a letter notifying them of the implementation of any sort of administrative fee or a change in the fee charged at least 60 days in advance. With the notification, all patients should sign a fee agreement. Some items must be included in the fee agreement for it to be binding and effective against liability. In the agreement, the patient must:

1. Understand that their health insurance plan will not pay the fee because the services it covers aren’t covered under insurance. 
2. Assume financial responsibility for the payments.
3. Agree not to submit a bill to their healthcare insurance provider.

The healthcare organization may also wish to reserve the right to change the fee periodically. A template fee agreement including these items can be found here[SZ1].

[1] James F. Doherty, Jr. & Samantha E. Freed, User Fees in Health Care: Physician Charges for Administrative Services, 1, https://cdn.laruta.io/app/uploads/sites/7/legacyFiles/uploadedFiles/MSBA/Member_Groups/Sections/Health_Law/MBJ%20Article%20Final.pdf.
[2] Rob Lamberts, The value of the direct pay monthly fee to physicians and patients, Med. Econ. J., Vol. 95, Iss. 23, Dec. 10, 2018, https://www.medicaleconomics.com/view/value-direct-pay-monthly-fee-physicians-and-patients.
[3] James F. Doherty, Jr. & Samantha E. Freed, User Fees in Health Care: Physician Charges for Administrative Services, 9-10, https://cdn.laruta.io/app/uploads/sites/7/legacyFiles/uploadedFiles/MSBA/Member_Groups/Sections/Health_Law/MBJ%20Article%20Final.pdf.
[4] Rob Lamberts, The value of the direct pay monthly fee to physicians and patients, Med. Econ. J., Vol. 95, Iss. 23, Dec. 10, 2018, https://www.medicaleconomics.com/view/value-direct-pay-monthly-fee-physicians-and-patients.
[5] Danielle Ofri, The Patients vs. Paperwork Problem for Doctors, N.Y. Times, Nov. 14, 2017, https://www.nytimes.com/2017/11/14/well/live/the-patients-vs-paperwork-problem-for-doctors.html.
[6] No Surprise Act, 26 U.S. Code § 9816 (2022).
[7] Amy Lynn Sorrel, Extra Fee, Extra Hassle, Tx. Med., May 2013. https://www.texmed.org/Template.aspx?id=26991.
[8] Amy Lynn Sorrel, Extra Fee, Extra Hassle, Tx. Med., May 2013. https://www.texmed.org/Template.aspx?id=26991.
[9] See Ga. Dept. of Comm. Health, Policies And Procedures For Medicaid/Peachcare For Kids, I.106(CC) (2022).