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How Obamacare May Boost Hospital Emergency Department Profits

 |  By John Commins  
   May 13, 2014

With more people able to purchase health insurance under the healthcare reform law, a Health Affairs study projects that hospital emergency departments could generate an additional 4.4% in profits in the coming years.

Emergency departments will likely become money makers for hospitals as the Patient Protection and Affordable Care Act gins up and more insured patients walk through the doors, a study in Health Affairs suggests.

Michael Wilson, MD, an emergency physician at Boston's Brigham and Women's Hospital, and a healthcare economist, says the study he coauthored with Harvard economist David M. Cutler estimated that hospital emergency department revenues exceeded costs by $6.1 billion in 2009, representing a profit margin of nearly 8%.

The black ink was due largely to the $17 billion in profits EDs made from privately insured patients that covered underpayments for money-losing Medicare, Medicaid, uninsured and unreimbursed care.

The uninsured represent about 18% of patient volume in EDs and Wilson says that about 25% of those uninsured patients will gain coverage either through the health insurance exchanges or the Medicaid expansion. With more people insured under the PPACA, Wilson's study projects that hospital EDs could generate an additional 4.4% in profits in the coming years.

"Emergency departments have historically been part of the safety net for the American healthcare system," Wilson says. "People without insurance because of EMTALA and because of the history of hospitals know that if they show up in an emergency department they are going to receive care. If you take a look at the people who are uninsured and give them either private insurance or Medicaid then you would expect the revenue to hospitals to increase."

Wilson spoke with HealthLeaders Media about his study. The following is an edited transcript.

HLM: There seems to be confusion about whether or not EDs are profit centers. Why?

MW: Part of it is getting at costs. Getting at revenues is relatively straight forward. You can get Medicare revenue nationally pretty easily. Getting at revenue from private insurance companies you can do in some states. But getting national numbers is a little more difficult for revenue.

The larger problem has to do with costs and both how we use the Medicare cost reports, which I think is the most common way that you would approach a problem like this when you are trying to be nationally representative. But there are intricacies in this in terms of, for instance, when you look at the ED charges for admitted patients.

Hospitals don't get paid separately for the ED care versus the rest of the inpatient care. So, for those visits it becomes difficult to figure out how to disaggregate the revenue that the hospital received for the ED portion of the care versus the remainder of the hospital care.

HLM: Why did you choose 2009 as your primary metric?

MW: We had data from Medicare from 2011, but at the time we started the project, the national emergency department sample data set from 2009 was the latest data we had.
 
HLM: It seems counter-intuitive that ED visits would increase under the PPACA because of its emphasis on population health and proactive care management.

MW: We assumed that patients who would go from being uninsured to having private insurance behaved similarly to current patients with private insurance in terms of utilization of the emergency department. There is a misunderstanding that the emergency department is primarily being used by the uninsured for low or moderate acuity visits.

In fact, people with all kinds of insurance will sometimes chose the ED for a low- or moderate-acuity ED visit despite having a primary care provider. Sometimes that is because it's afterhours, weekends, evenings, and the primary care provider is not available.

Sometimes these are visits that when you look at administrative records they appear to be low-acuity visits because the final diagnosis is gastritis. But at the time the patient was making the decision about where to go, he was thinking 'I am a 60-year-old man with diabetes and I'm having chest pains. I should probably be in the ED.'

Or they will call their primary care physician who will tell them to go to the ED.

HLM: Won't high-deductible plans discourage ED use?

MW: I don't know if the high-deductible plans include ED care or not. Let's say there is no carve out for ED. Then I think it will have an impact on utilization. But again, I am concerned about those types of attempts at controlling demand for ED care. It is difficult for the patient's physician sometimes to make a decision about if this is something the patient should go to the ED [for] or wait to be seen by [the primary care provider] the following day.

And now we will be asking patients to make these decisions for themselves. For the absolute lowest acuity, say for an ankle sprain, yes you could safely decide to wait until the following morning. But I'd be surprised if that had a very large impact on overall ED utilization.

HLM: Based on your study, what will the ED look like in five years?

MW: In general, ED visitation rates will continue to increase as they have in the past as patients get insurance. There seems to be more of a consensus now that ED utilization in the short term will increase. In the five-year timeframe if you take people who had no insurance and give them insurance then both ED and inpatient utilization will increase.

HLM: Did anything in your findings surprise you?

MW: How dependent the overall profitability of the emergency department is on the privately insured patients.

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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