Why Are the Professional Fees So Low and the Institutional Fees So High?
In U.S. healthcare billing, charges are split into two categories:
- Professional Fees – The physician or surgeon’s charge for their time, expertise, and direct care.
- Institutional (Facility) Fees – The hospital or surgical center’s charge for use of their space, staff, equipment, and supplies.
Why the Difference?
- Hospitals Drive Revenue Through Facilities: Hospitals treat the institutional side as a profit center. Facility charges can be several times higher than the actual cost of service.
- Physician Compensation Model: Physicians are typically paid a modest, fixed professional fee—even for complex surgeries.
- Opaque Cost-Shifting: Hospitals inflate facility fees to subsidize other areas (uncompensated care, admin overhead, capital projects).
- Revenue Strategy: This creates an imbalance where the facility portion dominates the bill.
Typical Split of Costs
On a large hospital claim (surgery, infusion, imaging):
- Professional Fees: Often 5–15% of the total bill
- Institutional (Facility) Fees: Typically 85–95% of the total bill
Example: A surgery with a $50,000 total bill might include $3,500 for the surgeon (professional) and $46,500 for the hospital (facility).
How Self Fund Health Addresses This
- Preferred Providers: Independent surgeons and surgical centers align both professional and facility fees with fair, transparent benchmarks (≤200% of Medicare).
- Steerage: DPCs and Nurse Navigators guide members away from inflated hospital-based settings and into these fair-priced facilities.
- Savings Reports: Employers can see the impact in monthly reporting, comparing inflated hospital facility charges with Preferred Provider alternatives.
Key takeaway: On a typical hospital bill, the facility accounts for the vast majority (85–95%) of charges, while the physician fee is just a fraction. Self Fund Health reduces costs by steering members to settings where both fees are reasonable and transparent.