Emergency department profits are likely to continue as the Affordable Care Act expands coverage

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.

Keywords: Cost of Health Care; Emergency Department Care.

EXHIBIT 1. Emergency Department (ED) Revenue And Cost, By Visit Category, 2009

SOURCE Authors’ analysis conducted in January 2013 using the 2009 5 percent sample Medicare Provider and Analysis Review File; a 5 percent sample of the 2009 Truven Health MarketScan Commercial Claims and Encounters Database; 2009 Nationwide Emergency Department Sample (NEDS) database; 2009 Medicare Cost Reports; 2009 Medicaid enrollment by state from the Kaiser Family Foundation; and 2008 state-based Medicaid-to-Medicare fee ratios for outpatient care from Zuckerman et al., 2009 (Note in text). NOTE Profit margin is defined as net revenue (revenue minus costs) divided by total revenue.

EXHIBIT 2. Hospitals’ Profit Margins For Emergency Department Care, By Insurance Type, 2009

SOURCE Authors’ analysis conducted in January 2013 using the 2009 5 percent sample Medicare Provider and Analysis Review File; a 5 percent sample of the 2009 Truven Health MarketScan Commercial Claims and Encounters Database; 2009 Nationwide Emergency Department Sample (NEDS) database; 2009 Medicare Cost Reports; 2009 Medicaid enrollment by state from the Kaiser Family Foundation; and 2008 state-based Medicaid-to-Medicare fee ratios for outpatient care from Zuckerman et al., 2009 (Note in text).

EXHIBIT 3. Hospitals’ Net Revenue (In Millions Of Dollars) For Emergency Department Care, By Condition, 2009

SOURCE Authors’ analysis conducted in January 2013 using the 2009 5 percent sample Medicare Provider and Analysis Review File; a 5 percent sample of the 2009 Truven Health MarketScan Commercial Claims and Encounters Database; 2009 Nationwide Emergency Department Sample (NEDS) database; 2009 Medicare Cost Reports; 2009 Medicaid enrollment by state from the Kaiser Family Foundation; and 2008 state-based Medicaid-to-Medicare fee ratios for outpatient care from Zuckerman et al., 2009 (Note in text).

EXHIBIT 4. Simulations Of Future Emergency Department (ED) Revenue And Cost

SOURCE Authors’ analysis conducted in January 2013 using the 2009 5 percent sample Medicare Provider and Analysis Review File; a 5 percent sample of the 2009 Truven Health MarketScan Commercial Claims and Encounters Database; 2009 Nationwide Emergency Department Sample (NEDS) database; 2009 Medicare Cost Reports; 2009 Medicaid enrollment by state from the Kaiser Family Foundation; and 2008 state-based Medicaid-to-Medicare fee ratios for outpatient care from Zuckerman et al., 2009 (Note in text). Both 2023 projections were based upon the following sources: 2013 Congressional Budget Office projections of the effect of the Affordable Care Act (ACA); 2013 Kaiser Family Foundation estimates of the projected growth of the Medicare population; and the authors’ projections of growth in emergency department volume using National Hospital Ambulatory Medicare Care Survey data from 2000–10. NOTE Profit margin is defined as net revenue (revenue minus costs) divided by total revenue.