EDs Are Profitable, But Just Barely

Wilson and Cutler analyzed several large databases to calculate the profit margin for all 120 million ED visits in the United States in 2009. The numbers for Medicare patients were real; the numbers for Medicaid and the uninsured were estimated.

Patients with private insurance (35% of visits) brought in $17 billion in profits (a 40% margin). However, EDs lost 16% of costs on Medicare patients (21% of visits), 36% on Medicaid visits (26%), and 54% on uninsured visits (18%), leaving them with just $6.1 billion in overall profits in 2009 (a 7.8% profit margin).

ED patients were admitted to the hospital for inpatient care 15% of the time resulting in a higher profit margin (22% for hospitalized patients versus just 3% for discharged patients). However, similar to a simple ED visit, hospitals profit by admitting privately insured and Medicare patients but actually lose money when admitting Medicaid or uninsured patients.

If all pre-2009 trends remain constant, the authors estimate that ED profit margin will decrease slightly to 7.3% in the year 2023. However, the shift of uninsured patients to private insurance and Medicaid could increase ED profit margins 4.4 percentage points higher than anticipated without health care reform.

There has been a lot of political discussion recently about how much Medicare pays hospitals and doctors and how much profit the health system is making. Although overall health care spending keeps rising, for EDs Medicare (and Medicaid) represent financial losses with every additional patient seen.

Though $6.1 billion in profits sounds like a lot, this number must be put into perspective: in 2009 was $2.5 trillion. The ED accounts only for 3.1% of total health care costs. The 7.8% profit margin for EDs is lower than Pfizer’s 15.3% profit margin in 2009 or Coca-Cola’s 22.9%.

EDs serve an important public role— they are available 24 hours a day in case you are in a car wreck, have a heart attack, or become the victim of a crime or terrorism such as the Boston Marathon bombing. Keeping staff and supplies always ready for the worst case scenario costs money. EDs serve more vulnerable (uninsured and mentally ill) patients than other areas of the health care system. For these reasons, it is vital to community health to keep EDs operating. Based on this analysis, Medicare and Medicaid are already underpaying. Government reimbursement of ED services cannot be cut further or society risks shutting down these critical health access centers.

by

Laura Medford-Davis, MD

Abstract

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. PMID: 24799576 Wilson, M and Cutler, D. Health Affairs 2014; 33 (5): 792-799.