Profits Are Likely To Continue As The Affordable Care Act

To better understand the financial viability of hospital emergency departments (EDs), we created national estimates of the cost to hospitals of providing ED care and the associated hospital revenue using hospital financial reports and patient claims data from 2009. We then estimated the effect the Affordable Care Act (ACA) will have on the future profitability of providing ED care. We estimated that hospital revenue from ED care exceeded costs for that care by $6.1 billion in 2009, representing a profit margin of 7.8 percent (net revenue expressed as a percentage of total revenue). However, this is primarily because hospitals make enough profit on the privately insured ($17 billion) to cover underpayment from all other payer groups, such as Medicare, Medicaid, and unreimbursed care. Assuming current payer reimbursement rates, ACA reforms could result in an additional 4.4-percentage-point increase in profit margins for hospital-based EDs compared to what could be the case without the reforms. T here is increasing financial pressure being placed on hospitals. Payment cuts inMedicare andMedicaid, coupled with tighter restrictions from private insurance, have reduced the rate of hospital revenuegrowth to its lowest level in decades. Although all parts of hospitals are under financial pressures, the emergency department (ED)may be particularly vulnerable. Emergency care has high fixed costs in terms of standby capacity, or the additional resources needed to accommodate large increases inpatients that could result, for example, from natural disasters, accidents, or pandemics. EDs also provide care for low-acuity visits at a substantially higher cost to insurers than similar outpatient care, and they treat many patients who do not have insurance or have insurance that pays poorly. To date, however, little is known about ED finances. Are EDs significant money losers, as a cursory look at their payer mix would suggest? Or are they gateways to admission for complex, well-insuredpatients andotherdownstreamoutpatient services, and thus profitable aspects of the health care system for hospitals? The literature is mixed on this topic. There are some indications that EDs are profitable for hospitals. From 2000 to 2006, despite an 11.6 percent decrease in inpatient bed capacity, the average ED bed capacity increased by 15 percent. Indeed, the majority of ED closures are associated with the closing of the entire hospital, not a selective closing of that department. Furthermore, the emergence of freestanding EDs in somemarkets suggests that emergency care is profitable—at least for some visits. There are also indications to the contrary. ED payment for the most vulnerable patients, who frequently depend on ED availability, has declined in real terms. Between 2003 and 2008 Medicaid physicianpayments for careother than primary care grew at 1.5 percent annually, compared to growth in the Consumer Price Index of doi: 10.1377/hlthaff.2013.0754