Why are they just outright stripping this feature instead of just paying the patent fee? (As in literally removing the chips, actually stripping it.)

They're not. Despite some misleading press coverage, Apple never remotely suggested they were removing any hardware. They're just going to start importing them without the "functionality." They're disabling it in the US via software while they go through the legal process. When it's all done, they can activate it for everyone.

As for why they're not paying, Apple's position is that their product does not infringe any patents, and this is not an outlandish position. Apple has already had most of Masimo's patent claims from a dozen total patents invalidated. The ITC ban is a result of a single patent still currently left standing that Apple believes should never have been issued and is working to have invalidated.

I think there's a very good chance Apple succeeds and Masimo is left with no relevant patents. If they go through everything and Masimo is still left with something, at that point Apple can negotiate with them on a reasonable fee, and they'll be doing so from a position of relative strength. Masimo was obviously hoping an ITC ban would cause Apple to blink and pay whatever Masimo wanted. Clearly that didn't happen and Apple would prefer go for total vindication.