Rural EDs may benefit from a separate MedPAC recommendation.

April 9—Medicare should cut payment rates for many emergency departments (EDs) by 30 percent, Congress’s leading Medicare advisory panel recommended this week.

The Medicare Payment Advisory Commission (MedPAC) voted unanimously April 5 to urge Congress to cut Type A ED rates by 30 percent for off-campus stand-alone EDs that are within six miles of an on-campus hospital ED. The cut would affect about 75 percent of urban EDs, according to a five-market analysis by MedPAC staff, and would save Medicare between $50 million and $250 million.

Type A rates are paid to facilities that are open 24/7, while 30 percent lower Type B payments go to facilities with shorter hours of operation.

The size of the recommended rate reduction was based roughly on the mid-point between rates that Medicare pays to on-campus EDs and to urgent care centers, MedPAC staff said.

The recommendation followed a three-year period during which MedPAC weighed various approaches to discourage the proliferation of non-rural stand-alone EDs, which number between 550 and 600, according to the commission’s staff. Most of the facilities have opened since 2010, and two-thirds are hospital-owned EDs that can bill Medicare.

In 2016, 363 off-campus EDs operated in 35 states and were affiliated with about 300 hospitals, according to a MedPAC report. Those facilities represented 64 percent of all stand-alone EDs.

The panel was concerned that the facilities are overpaid for the care they provide, which was viewed as generally far less capable than that provided by on-campus EDs. MedPAC staff cited research findings that ambulances generally bypass such facilities for on-campus EDs when transporting trauma patients due to concerns about treatment capabilities.

MedPAC staff said off-campus EDs had overall lower patient severity and lower stand-by costs than on-campus EDs.

“It seems to me that what we’re paying for the additional increment of a free-standing emergency room’s capacity is just some sort of 24/7 coverage, and otherwise it looks just like a physician’s office in many respects,” said Kathy Buto, a MedPAC commissioner and former vice president of health policy for Johnson & Johnson. “That bothers me, especially because we are trying to encourage people to move away from emergency room care to primary care.”

Cuts Draw Concerns

The American Hospital Association (AHA) said the cut was not based on any analysis of Medicare beneficiaries, costs, or payments and would make Medicare's record underpayment of care provided by outpatient departments and hospitals even worse.

In 2016, Medicare margins were at record lows of negative 14.8 percent for hospital outpatient departments and negative 9.6 percent for hospitals overall, according to MedPAC.

The MedPAC analysis of data from Colorado, Maryland, and Texas is not representative of the nation and contains no Medicare data, Ashley Thompson, senior vice president for AHA, wrote to MedPAC. Specifically, Colorado and Texas uniquely allow licensure of independent freestanding emergency centers (which are not recognized by Medicare as hospitals), and Maryland’s EDs are entirely exempt from the outpatient prospective payment system (OPPS).

“Therefore, the data that MedPAC alleges demonstrate that patients in hospital-based OCEDs were of lower acuity and, therefore, should be paid at a Medicare reduced rate actually contain no data on either OCEDs or Medicare patients,” Thompson wrote in a letter.

The latest MedPAC recommendation followed cuts to new off-campus provider-based departments as legislated in the Bipartisan Budget Act of 2015 and implemented by the Centers for Medicare & Medicaid Services in the CY17 OPPS final rule.

Among the caveats MedPAC members raised regarding the latest cut was a warning from Francis Crosson, MD, chairman of MedPAC and a former physician executive at Kaiser Permanente. He said legislation changing the rate would need to include provisions shielding from the cut any stand-alone EDs that were built to replace closed urban hospitals.

The recommended cuts are likely just the latest in a continuing effort by MedPAC to clamp down on EDs.

Buto urged considering ways to further incentivize the use of urgent care facilities and said a program audit of the highest-paying level of ED visits could be in order.

Bruce Pyenson, a MedPAC member and principal at Milliman, urged a moratorium on payments for new EDs.

Dana Gelb Safran, a commissioner and a senior vice president at Blue Cross Blue Shield of Massachusetts, said she hoped hospitals are encouraged to move to a model that voluntarily splits patients between on-site EDs and urgent care facilities based on the severity of their condition. 

“I hope this is a jumping-off point to a much larger body of work around appropriate ED use to build on our site-neutral payment policies, and to looking at how emergency care and primary care mesh together,” said Brian DeBusk, PhD, a commissioner and CEO of DeRoyal Industries.

Rural ED Proposal

MedPAC also unanimously recommended paying standard OPPS facility fees to isolated rural stand-alone EDs, as well as an annual payment to assist with their fixed costs. Hospitals that chose the option, which was estimated to cost $50 million annually, would have their patients’ coinsurance costs cut by 50 percent compared to critical access hospital coinsurance rates. Facilities would need to be at least 35 miles from another ED to qualify for the option.

AHA supported the proposal and urged the commission to consider expanding the recommendation to include EDs in vulnerable urban communities.

The proposed rate hike comes amid increasing financial challenges for rural hospitals. The share of rural hospitals with negative operating margins increased from 35 percent five years ago to 41 percent in 2016, according to an analysis by iVantage Health Analytics. On a related note, 83 rural hospitals have closed since the ACA was enacted in 2010, according to an analysis by the Sheps Center at the University of North Carolina.

Specifically, AHA has urged federal programs to recognize the transition of hospitals to emergency medical centers (EMCs), which would provide emergency and outpatient services and not need to provide inpatient acute care services.

“Allowing this model to serve as a solution for both rural and urban communities will allow these communities to provide care in a manner that best fits their needs and circumstances,” Thompson wrote.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare 

Publication Date: Monday, April 09, 2018