National Emergency Care Enterprise: Advancing Care Through Collaboration: Workshop Summary (2009)

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6 Emergency Care Economics Guy Clifton, former chair of neurosurgery at the University of Texas– Houston and a national authority on health policy, chaired the panel ­session on emergency care economics. He opened the session by saying, “I’ve learned that if you want to know the priorities of any organization, business, or nation, just follow the money.” Back in 1976 while Clifton was training in neurosurgery, he remembers having discussions about how a neurosurgeon practicing in a community of 100,000 people will operate on only about six aneurysms per year. This is not enough to maintain an adequate skill level. However, if all the a ­ neurysms in a larger area were performed in one location, the results would be better and total costs would be less. He said the previous panel’s discus- sion on workforce made him wonder whether the economics of emergency medicine and trauma will compel us to move in this direction in order to do more with less; that is, to create efficiencies by centralizing certain hospital functions and perhaps closing an additional number of rural hospitals over the next decade. He said this will never been done through regulation, but it may be done through economics. Impact of the Economic Downturn on Emergency Care The first session panelist, Catherine Hoffman from the Kaiser Commis- sion on Medicaid and the Uninsured, described how the current economic crisis has influenced emergency care. She said that emergency departments, with their always-open door, may be particularly vulnerable to the fallout 61 

62 NATIONAL EMERGENCY CARE ENTERPRISE that is occurring from rising unemployment and the consequent growth in the number of uninsured and Medicaid and State Children’s Health Insur- ance Program (SCHIP) patients. Hoffman noted that the monthly unemployment rate grew from an average of 4.6 percent in 2007 to 8.9 percent in April 2009. She said analysts expect that this high unemployment rate is going to persist well into the period of economic recovery, which is expected to be sluggish ­(Holahan and Garrett, 2009). This degree of job loss creates a marked drop in employer- sponsored insurance. In addition, as family incomes drop, more patients will become eligible for Medicaid and SCHIP. Evidence shows that the uninsured do not disproportionately use emer- gency departments (EDs) for care. But even if their ED use rate stays the same, more uninsured patients will be coming to the ED because there will simply be more of them. In contrast, Medicaid patients, many of whom have one or more chronic conditions, do disproportionately visit emergency departments. Studies indicate that adult Medicaid beneficiaries who are frequent emergency department users do not use the ED as a substitute for primary care. Rather, they are a less healthy group who needs more of other kinds of out-patient services as well. Rising unemployment decreases state tax revenue and affects the state’s ability to pay for programs, including Medicaid and SCHIP. For this reason, public health insurance programs could face large funding cuts this year. Moreover, because the federal government matches state dollars spent on Medicaid, every Medicaid dollar cut actually means a decrease in Medicaid spending that is twice as large. To ease the states’ budget challenges, the federal stimulus package provided approximately $87 billion in increased Medicaid spending over 2 years through a temporary increase in the federal matching payment rates. Even so, states are likely to work hard to control their Medicaid bud- gets. In the last recession, all 50 states adopted measures to reduce provider payments and prescription drug spending, which had an immediate effect on Medicaid spending. As a last resort, some states made changes in their enrollment procedures that they knew would decrease the number of benefi- ciaries. The practical effect was to push people off the state Medicaid rolls and into the ranks of the uninsured. Provider payments from public plans remain low relative to other health care payors. In addition, utilization and cost controls that were put in place to limit state prescription drug expenditures are largely still in place. With these policy options already employed, states have less latitude to lower program costs, knowing that further reductions could deeply jeopardize access to care. 

EMERGENCY CARE ECONOMICS 63 Medicare Payments The next panelist, Marc Hartstein, deputy director of the Hospital and Ambulatory Policy Group at the Centers for Medicare & Medicaid Services (CMS), discussed financing issues from the viewpoint of Medicare. Specifi- cally, he described the role Medicare plays in providing fee-for-service Medi- care payments for emergency services. His group within Medicare sets rates for 10,000 ambulance providers (those that are associated with hospitals or hospital outpatient departments) and suppliers (which are independent ambulance companies). Total payments in 2008 were $5.4 billion, including both emergency and nonemergency transport. Medicare’s Hospital and Ambulatory Policy Group also paid $1.9 bil- lion to 3,200 hospitals for outpatient emergency department visits in 2008. These visits also resulted in $2.1 billion in payments to physicians and non- physician practitioners. These payments were for patients discharged from the ED and not admitted to the hospital. For admitted patients, CMS does not separate out the ED portion of the hospital charge. Hartstein offered some observations about the previous panel’s discus- sion of Medicare’s subsidies for graduate medical education through direct and indirect medical education payments. He said the Hospital and Ambu- latory Policy Group writes the policies and regulations that govern those programs. In 2009, CMS estimates Medicare will spend about $9.2 billion on indirect and direct medical education subsidies to teaching hospitals. The vast majority of that money is for indirect medical education, he said, about twice as much as what CMS spends on direct medical education. Indirect medical education is intended to compensate hospitals for the higher costs associated with providing inpatient care in facilities with residents in train- ing. However, Hartstein said that residents’ training time is counted even when they are not actually treating patients in the hospital (e.g., outpatient rotations) so some of the rationale behind current formulas for indirect medical education probably has been lost over the years. The Hospital’s View of the ED Gary Little, medical director at the George Washington University Hos- pital, provided the hospital’s perspective on the emergency department. He had served as a chair of an emergency department at another hospital and remembers trying to convince administrators how important the ED was to the hospital’s bottom line. Now, he said, he is on the other side. To illustrate the hospital’s perspective, he recounted that Ray Kroc, the founder of McDonald’s, was once asked about his line of business. Rather than saying he was in “the restaurant business” or “the franchise business,” Kroc responded that he was in “the real estate business.” Kroc’s remark highlights a key consideration for any business, especially the hospital busi- 

64 NATIONAL EMERGENCY CARE ENTERPRISE ness: financial viability is highly dependent on “location, location, location.” From a hospital’s perspective, its ED is a double-edged sword. Depending on the hospital’s geographic location, the type of community the hospital serves, and the payor mix of its patient population, the balance of benefit or harm from operating an ED can shift one way or the other. On the positive side, the ED is typically the largest entry point for access to the hospital and its services. The admissions that an ED brings in gener- ate vital revenue to cover the hospital’s bottom line. Moreover, serving as a safety net that is available 24/7, 365 days a year to provide emergency and trauma care and social services helps to solidify the relationship between the hospital and the community. The ED is often the hospital’s primary conduit to the community. On the negative side, as a round-the-clock service, the hospital must keep its ED geared up for whatever may arrive. That means paying to have equip- ment and personnel ready to go, even during hours of the night when they are frequently underutilized. Many hospitals must pay physicians to be on call and have to make up for losses they may encounter from delivering uncompen- sated care or undercompensated care. These commitments entail large fixed costs. If the ED’s payor mix declines or a community’s rate of uninsurance climbs, as is currently happening across the country, hospitals must cover the costs of uncompensated care. So, depending on where your hospital is located and the type of community it serves, the balance can tip negative—making the ED and the patients it admits money losers for the hospital. Financing Trauma Care William Schwab, Pennsylvania trauma surgeon and member of the 2006 Institute of Medicine Committee on the Future of Emergency Care in the U.S. Health System, said he has served on many different committees throughout his 30-year career, including the one that drafted the first model trauma systems plan. Through that time, he said, one thing has remained the same: It’s all about the finances. In his opening statement, he described two serious financial challenges facing providers in the state of Pennsylvania: trauma system funding and rising malpractice insurance rates. Enabling legislation for the Pennsylvania trauma system was passed in the mid-1980s. It created an oversight board of diverse stakeholders to manage all aspects of the trauma system, maintain standards, and track and publish outcomes. There are now 27 Level One or Two trauma centers in the state. More than 80 percent of the state’s population lives within 30 minutes of one of these trauma centers. Outcomes data indicate that Pennsylvania operates one of the top trauma systems in the nation. However, financing this system is a constant challenge. An exami- nation of 32,000 admissions to the 27 trauma centers for severe injury 

EMERGENCY CARE ECONOMICS 65 (patients that stay longer than 2 days, require an emergency life- or limb- t ­ hreatening operation, are admitted to an intensive care unit, or die) revealed that 40 percent of all care delivered by Pennsylvania trauma centers was either not reimbursed or under-reimbursed. This generates approximately $65 million a year in uncompensated care costs that the state’s trauma centers must absorb, Schwab said. In the principal urban academic medical centers where fellowship training programs for specialties such as trauma surgery, emergency medicine, neurosurgery, orthopedics, and obstetrics/ gynecology (OB/GYN) are located, there is a 65 percent nonpayment rate. Schwab believes the financial situation is so bad that Pennsylvania is approaching a crisis in 2010. At that point, he believes trauma centers and hospitals will no longer be able to cost-shift to maintain operations. Second, Schwab said, malpractice liability costs in Pennsylvania are escalating rapidly. In his own practice of trauma surgeons—which ­delivers care to 10,000 trauma victims per year at three trauma centers in the state—malpractice insurance costs pose a heavy burden. In 2002, he said, malpractice insurance premiums cost $32,500 per surgeon, about 23 percent of the revenue the group generated. In 2006, with an identical payor mix, costs reached $82,700 per surgeon. This year, he said, costs will be $118,000 per surgeon—more than half the revenue his group generates. At this point, these costs are being totally subsidized by the sponsoring hospitals. Schwab then made a key point: His group has never been sued. In 22 years, his group has managed approximately 40,000 cases and paid out five settlements, none for damages and none for greater than $350. How- ever, the rates his group is charged do reflect the fact that they practice in inner city areas and have an outstanding risk profile. “The fact of the matter is,” he said, “we are paying for everybody else.” Few young surgeons are entering the field because they see they cannot make a decent living without being a hospital employee, Schwab surmised. Treating the off-hour, very difficult, complex, high-risk cases is not neces- sarily the kind of practice that young doctors want if they are interested in maintaining a decent lifestyle. Schwab noted that state Good Samaritan laws allow people on the street to render cardiopulmonary resuscitation, stop bleeding, or put a tourniquet on someone without a fear of a lawsuit, but these protections end at the front door of the emergency department. Schwab argued that national standards and tort reform are needed for all people providing emergency care (broadly defined to include neurosurgeons, OB/GYNs, toxicologists, and others, not just the specialty of emergency medicine). “If you render emergency care to try to help someone, you should be relieved of the threat of lawsuit. The care that is delivered should be monitored and should meet high standards, but,” he continued, “this country has a workforce ­shortage—especially on the surgical side—that has become increasingly severe. Steps must be taken 

66 NATIONAL EMERGENCY CARE ENTERPRISE to address this before it becomes a major crisis, especially when the baby boomers retire.” Finally, Schwab noted that billing codes often do not recognize the complex and difficult care that trauma surgeons provide. The disparity in the financial margins between an elective neurosurgical case or an elective transplant case versus the life- or limb-saving care trauma surgeons provide is “unbelievable,” he said. Hospital administrators seeking greater profit- ability will inevitably shun trauma care until Current Procedural Terminol- ogy (CPT) codes are adjusted to recognize the difficulty of these cases and the cost of their management. Reimbursing EMS The next panelist, Kurt Krumperman, chair of the finance committee of the National Emergency Medical Services Advisory Committee (NEMSAC), discussed a vision for the future of emergency medical services (EMS) financ- ing. His comments did not represent final policy recommendations from NEMSAC, but reflected some of the themes from their discussions. A study released by the Government Accountability Office in 2007 found that Medicare payments for EMS services were 6 percent below the costs associated with providing those services, “and Medicaid typically pays even less than Medicare does,” Krumperman said. Many EMS patients have no insurance at all. Much of the revenue for ambulance service comes from shifting costs to commercial insurance companies. Other components of EMS, such as 9-1-1 service, are not funded through fee-for-service financing. Contributions generally come from other parts of the health infrastructure or from tax-based financing. In addition to 9-1-1, funds may be used to finance medical direction for the EMS system, quality improvement activities, and other functions. The committee believes that incorporating EMS as an integral com- ponent of an organized system of care can contribute to better patient outcomes and lower downstream costs. For example, the role that EMS plays in quickly transporting ST-Segment Elevation Myocardial Infarction (STEMI) patients to the cath lab for acute percutaneous coronary inter- vention (angioplasty) has been fairly well researched and has produced significant improvements in patient outcomes. One proposal the NEMSAC finance committee is discussing is to recommend that EMS receive higher payments (categorized as ALS2 rather than ALS1) to treat certain types of patients, such cardiac arrest, STEMI, stroke, pediatric, and serious trauma patients. These added payments would support EMS operations in integrated systems of care, including the cost of adopting the technology required to provide their portion of service. In addition, EMS personnel now serve a number of patients who prob- 

EMERGENCY CARE ECONOMICS 67 ably do not need transport to an emergency department and could instead be evaluated and referred to their regular provider (e.g., a physician’s office or a clinic) or be transported to an alternative and more appropriate desti- nation (e.g., a dialysis center). This could lower total health care costs by avoiding the need for an emergency department encounter and help relieve emergency department crowding. Unfortunately, EMS payment policy is currently contingent on transporting patients to the emergency departments so existing financial incentives are misaligned. EMS is paid for the ride, not for their care. Another overarching concern with EMS financing is ensuring that it reflects the full cost of readiness—the capability to properly respond to time-sensitive requests for service 24 hours a day, 7 days a week, 365 days a year. Such a system should include metrics of response time reliability set at some national standard (or community standard) that includes a certain percentage of surge capacity, Krumperman said. This might require uncoupling EMS system financing from transport payments and building an alternative financing model. A Vignette The final panelist, Michael Granovsky, president of Medical Reimburse- ment Systems Inc., an emergency physician, and a certified coder, provided a vignette to illustrate the payment issues involved in emergency cases. He selected a patient with blunt trauma, a typical serious trauma case in the United States. His slide depicted a 48-year-old female who had struck a guardrail at a high rate of speed and was brought in by ambulance. He said the patient was complaining of severe abdominal pain and some lower extremity pain. The patient received life-stabilizing, life-saving care and was admitted to the intensive care unit. Granovsky examined the cost involved in providing care and compared it against the reimbursement (Figure 6-1). He said that an emergency physi- cian might be paid $140 (he noted that trauma surgeons might receive more, including an on-call fee). Conservatively, liability premium costs allocated on a per patient basis might equal $13, he said. Overhead costs were esti- mated at $24. In addition, he said there are readiness costs. Granovsky noted between the hours of 11 pm and 7 am, all but the busiest EDs do not have enough patient traffic to cover cost. He explained it this way: “You can’t have less than one doctor standing in the room, and yet often you only need about 0.6 physicians to be there at that point.” So there is an enormous cost to have trained, qualified, board-certified providers ready to receive anyone who comes through the door. It does not just happen magi- cally, he said. Expected Medicare reimbursement for the woman’s injury from the 

68 NATIONAL EMERGENCY CARE ENTERPRISE Provider Code/Bill Liability Overhead Provide Code/Bil Liability Overhea Standby Stand Total Total r $140 $140 l $11 $11 $13 $13 d $24 $24 By$32 $32 $220 $220 Cost Medicare Medicaid Self-Pay $220 e $212 $148 $63 Net –$8 –$72 –$157 FIGURE 6-1  Payment distribution for routine medical emergency. SOURCE: Granovsky (2009). guard rail under CPT code 99291 is $212. Granovsky noted that Medicare is one of the better payors in many situations, but the payment results in a R01559 net loss of $8 for providing the life-saving care. “You can see why hospitals Figure 6-1.eps covered under Medicaid, back away from this,” he said. “If the patient was the reimbursement would vary vector, editable by state, but in general, a fair and probably conservative estimate is that Medicaid reimburses about 70 percent of what Medicare pays. Self-pay patients, on the other hand, pay about 27 percent of the Medicare fee schedule, or about 9 cents on the dollar.” At the end of the exercise, Granovsky estimated that a typical ED group would lose $8 providing this care to a Medicare patient, $72 for treating a Medicaid patient, and $157 for treating an uninsured (self-pay) patient. He concluded by saying that the safety net is threatened by the economic reality of having to provide care to so many patients at a loss. Distortions in the Medicare Payment Schedule Session chair Clifton said primary care faces a similar situation. Medi- care pays about $50–65 for a low-acuity visit. As a result, many physicians feel they must order many X-rays or blood tests, or treat 45 patients a day to make a decent living. Distortions in the payment system from the Resource-Based Relative Value Scale (RBRVS) Medicare payment system are extraordinary. They are producing huge distortions in the practice of medicine and safety of patients. Audience Discussion Sandra Schneider, emergency physician from the University of ­Rochester, said the Medicare payment system favors elective surgeries and other elec- tive admissions, so hospitals preferentially admit these patients whenever they can. An unintended consequence has been that some hospitals have actually taken steps to block emergency departments and keep ED patients 

EMERGENCY CARE ECONOMICS 69 out of beds to ensure there are beds for people who need elective surgeries. A further consequence of that, she said, is that many surgeons have chosen not to enter trauma-related specialties, or limit their practice to elective cases. Marc Hartstein of CMS said that if CMS has placed a priority on e ­ lective admissions, it is by result, not intent. “If you feel that Medicare’s priority is to encourage elective admissions, that is certainly not a current stated policy goal anywhere,” Hartstein asserted. Schneider acknowledged that the American people want elective surgeries on the day that they want them. Hartstein said he has been involved in Medicare payment policy for a long time and, for CMS, “Our role is setting the appropriate relative payment relationships among services so that physicians, hospitals, and other clinicians treat their patients according to their clinical needs and not according to financial incentives.” He said that is obviously an ideal, acknowledging, “We are always striving to get there and we may never actually reach it.” CMS’s objective is to establish the relative payments among different services, not to determine the absolute amount. The absolute amounts are really dictated by statute of Congress, Hartstein said. CMS wants to “get the appropriate relative balance among services so that there are no incentives to either encourage or discourage particular types of services.” Most of these judgments about physician payments are not made by a single individual; rather, they are made by a collection of individuals, including advice CMS receives from organized medicine and through public comment periods, he explained. Through payment reform and health care reform, Hartstein said, there is going to be an effort to encourage the types of services that we believe are the right types, such as primary care, for example. “This will certainly start a spirited debate, because I don’t think there is a single uniform opinion as to what the results should be,” he predicted. Clifton observed, “I think the whole payment system is so distorted that I think we have to start over.” He said, “Although I have seen many trauma patients who were denied beds in hospitals, I have never met a hospital administrator that wasn’t able to find a bed for an elective spinal fusion.” He added, “These payment distortions are absolutely driving function and they are driving us out of business, I think.” Nick Jouriles, president of the American College of Emergency Physi- cians (ACEP) also added: “We have to do something about EMTALA. We know from AMA [American Medical Association] data that the average emergency physician in 2001 gave away $120,000 worth of free care. That is just ludicrous.” Although some people say there is not enough money in the system, “We have plenty of money in the system. We just need to make emergency care a national priority.” 

70 NATIONAL EMERGENCY CARE ENTERPRISE Finding New Revenue Jerry Jurkovich, Seattle trauma surgeon and president of the American Association for the Surgery of Trauma, said staffing shortages are a key component of the emergency care problem, whether it is on the nursing side, the prehospital provider side, or the physicians’ side. The problem we need to solve is attracting people to the specialty and retaining them, rather than driving them to leave because of economic disincentives. He posed this question: “If you assume that there is no new money and that to incentivize these providers you have to take money away from somebody else, where would the panel get the money?” Granovsky said millions and millions of dollars per year are paid out to insurance companies for malpractice costs. In Schwab’s example, $100,000 per person in annual premiums is being charged for a group of trauma doctors with an excellent track record. Reducing unreasonable malpractice costs would be one way to reinforce the safety net for physicians providing emergency care under EMTALA mandates. Angela Gardener, then president-elect of ACEP, said she had previously run a medical malpractice insurance company, and later became a national spokesperson for doctors for medical liability reform. She said the money to fix the emergency care system is currently in the legal system. She also argued that quality care should be decided by people who do not have con- flicts of interest. “Everyone who is a payor or a payee should be removed from the room,” she said, and the people remaining should base their deci- sions on quality in the absence of financial conflicts. Also, she said providers who follow the practice guidelines derived from comparative effectiveness research should not be subject to suits. Schwab said he would keep the money within the system by establish- ing universal Good Samaritan tort reform for all emergency providers for the first 72 hours of hospital-based care, rather than underwrite the insur- ance companies. The second thing he would do is shift money among the specialties. Every year there are 115 million visits to EDs, “and it’s only going to get worse,” Schwab said. He said adjustment to CPTs or relative value units need to reflect the fact that emergency care is a priority in this country. If the margin for a neurosurgical elective case is $25,000 and the cost of delivering trauma care is $5,155, some cost shifting may be needed to close that gap. Clifton argued that if you look at what happens in hospitals and pri- mary care clinics, probably 40 percent of health care costs never need to be spent. Dartmouth study data show that patients in Miami with congestive heart failure get 2.5 times more hospital admissions, 2.5 times more imag- ing, and 2.5 times more consultations than patients with similar health problems in Minnesota. He said Texas is tied for first place in per-capita Medicare costs and tied for the lowest ranking for quality based on 25 cri- 

EMERGENCY CARE ECONOMICS 71 teria. In hospitals, higher costs and complication rates track each other very closely. He argued that we shouldn’t look to the federal government to fix this for us. The problem is largely within the specialties and how medicine is practiced. Tip Gosch of the University of South Florida–Tampa, observed that in Washington there is always a need to draw money from a larger bucket. If we really embraced a national approach toward disaster preparedness and homeland security, then support for emergency care services needs to be part of that bucket. There is wide bipartisan support for homeland security. Rather than just looking to the Department of Health and Human Services or the Department of Transportation, emergency and trauma care should try to connect to funding streams in the Department of Homeland Security (DHS), Gosch said. Trauma surgeon Bill Schwab said he knows of only one state, C ­ onnecticut, that has fully integrated their Level One and Level Two trauma centers into a disaster response system. However, he said that most people can reach a trauma center within about 45 minutes in the United States. Nevertheless, he has not seen the federal government make any efforts to build linkages with the trauma systems community. “It’s got to go both ways,” he said, adding that several years ago, some trauma com- munity leaders had approached the DHS about this issue, but “it just wasn’t on their radar screen.” Nevertheless, Schwab believes the infrastructure of the safety net system can and should be integrated with the disaster response system. Gosch added that Office of Management and Budget Director Peter Orszag has indicated that substantial Medicare budget cuts could occur over the next several years. The Administration is also looking at structuring payment incentives to promote best practices and quality of care. Hospital- based emergency care could be advanced under the rubric of best practices, which could have broad implications, he noted. Covering Hospital Costs Jouriles of ACEP discussed federal action. “What we hear out of Wash- ington is that people just need to stop using the emergency department. But ‘Econ 101’ teaches that when you have high [fixed] costs, the only way you are going to amortize those costs is to increase use, not to decrease it,” he asserted. “We need to fund the [emergency care] infrastructure. It is a matter of patient safety and a matter of national security.” Ricardo Martinez noted that “EMTALA is a huge issue. While EMTALA was a good idea that started off for the right reasons, it has now become a perverse idea in many ways because of how it has been used. Patients with- out insurance are routinely sent to the emergency department, and conse- 

72 NATIONAL EMERGENCY CARE ENTERPRISE quently there is a huge cost shift that occurs every day.” Martinez noted that “right now, if I am an office-based practitioner, I can refuse to see anybody, no matter how sick they are or how long they have been a patient of mine. I can send them to the ER [emergency room]. That puts a huge burden on those hospitals.” He added, “Health care reform has been focused largely on saving money, but where is the plan to not just save money, but to save the infrastructure that we all rely on to be there?” Clifton agreed that EMTALA is an unfunded mandate. The solution is to make sure that the patients coming through the door have insurance, so that everyone has money attached to them. Covering the uninsured would turn EMTALA into a funded mandate. John Fildes, chair of the American College of Surgeons’ Committee on Trauma, concluded the session. He noted that trauma care systems vary widely across the country, as do liability provisions. There is no top- down coordination, he observed. There is so much variability in care and outcomes that without some sort of central mechanism to level the playing field with respect to liability, standardization of care, quality, metrics, and so on, it will be impossible to improve, Fildes argued. “We are working in 50 silos—it is clear from our discussions that some authority, some agency is going to have to help us to level the practice environment.” REFERENCES Granovsky, M. 2009. PowerPoint slide presented at the National Emergency Care Enterprise Workshop, Washington, DC. Holahan, J., and B. Garrett. 2009. Rising unemployment, Medicaid and the uninsured. Pre- pared for the Kaiser Commission on Medicaid and the Uninsured.