Is A Double Whammy Ahead for Hospitals and Healthcare Reform?

Healthcare coverage is both a blessing and a curse–it really all depends on whether you are the patient or the hospital. The newly signed Patient Protection Act is designed to help millions of uninsured patients get proper healthcare coverage, yet the fallout from that coverage is likely to have some less than desired effects for hospitals and their bottom lines.

At first blush the new law should help take care of the cost of the uninsured patients who are often arriving at the hospitals emergency department, however, it may also have an unintended side effect, which is that now patients may utilize both the ED and primary care doctors for their general care. In May, Chadds Ford, PA-based IMA Consulting released Will Healthcare Reform Alter the Landscape of the Emergency Department?, looking at the impact new legislation may have on the ED environment. Some of what they found wasn't surprising, such as:

• Uninsured ED patients are the primary cause for ED overcrowding and excessive lengths of stay.
• Uninsured patients do not see primary care physicians or delay care to the point at which the ED provides the only alternative.
• When seen in the ED, their diagnostic course is more complex and time consuming, hence the longer length of visits.

However, what may go against the general thought process is the idea that when people have health insurance they are less inclined to visit the ED.

"One of the pieces of research we looked at was that people who tend to have insurance—particularly Medicare and Medicaid, tend to access the ED more than people who are uninsured," says IMA Consulting Director Bob Gift. "This is possibly because they're not necessarily stuck paying the entire bill."

Gift says people who don't have insurance—though they may opt for the ED when they do become sick—also tend to avoid care altogether, waiting until the last possible moment to access the system.

"Now patients may think, I have insurance so 'what the heck; I may as well go to the ED'," he says. Unfortunately, as most hospital financial leaders will tell you, EDs are already operating at or near capacity and there's already a dearth of primary care physicians. Consider these national statistics:

• More than 325,000 patients per hour or more than 119 million annually, seek care in the ED.
• From 1993 through 2006, the compound annual growth rate of ED visits was 3.6% and that number continues to climb.
• Since 2000, the number of EDs and hospital beds has decreased either due to facility closures or eliminated services (i.e., Deaconess Hospital in Cincinnati, OH and St. Vincent's Hospital in New York, NY).
• Just 13% of ED patient visits result in inpatient admissions, with hospitals reporting that currently an increased number of their inpatient admissions are coming through their EDs.

Interestingly, though they are currently seeing more inpatient admissions through the ED, that's likely to change for hospitals in the future, and therein lays the rub. Revenue generated from inpatient admissions that offsets the cost of the ED. In the California HealthCare Foundation report, California's Emergency Departments: Do They Contribute to Hospital Profitability?, far from being a cost burden, the ED actually has a positive influence on hospitals' financial performance. Though EDs lost an average of $84 on each patient treated and discharged, patients admitted to the hospital from the ED generated an average profit of $1,220 per admission—thereby covering any losses generated by patients who were discharged.

However, if the new legislation works correctly, the expectation is that patients will use their new insurance coverage to access primary care and prevent potentially serious problems altogether. Ideally that would decrease the number of visits to the ED or at a minimum the severity of the visit; that would ultimately reduce the number of inpatient admissions as well. While that certainly would be a positive step for patients, it may not turn out so great for the hospitals' financials.

"By opening enrollment to larger numbers of participants who heretofore didn't have coverage, we may find that patients are accessing the system more freely than when they paid of pocket—that's what a number of folks who are looking at this tend to anticipate happening," concludes Gift.

If patients use the primary care physician in conjunction with the ED, then their ED visits are less inclined to need an inpatient stay, causing those admissions to decline. In turn, this will result in the revenue that the inpatient admissions generate to support the ED declining. In essence, a double whammy; hospitals will be providing more care but generating less revenue to pay for the care.

Only time will tell if patients access care in this manner. However, financial leaders should begin tracking how their ED and inpatient admissions are being impacted as individuals are rolled onto government insurance in the coming year. Additionally, facilities should track their primary care physicians usage to see how those numbers change and how they may, or may not, correlate to their ED stats.

What CFOs may find in the coming year is that their EDs are now losing even more money than before and they will need to step up their cost reduction efforts and do an efficiency analysis in order to keep these vital departments viable in the coming years.