Hospital emergency departments are often seen as big money losers due to their high fixed costs and generally unfavorable payer mix, but a new study published in Health Affairs says EDs actually have rather high profit margins.
Here are seven key observations from the Health Affairs study, which was conducted by Michael Wilson, MD, an associate physician in emergency medicine at Brigham and Women's Hospital in Boston, and David Cutler, PhD, an economics professor at Harvard University in Boston.
1. Hospital EDs have an average profit margin of 7.8 percent. Using public and private ED data, the study's authors found that in 2009, ED admissions resulted in $78.7 billion in revenue. Subtracting the $72.5 billion in costs, the operating income totaled $6.1 billion, which equated to a 7.8 percent profit margin.
2. Privately insured patients completely subsidize all other ED patients. That 7.8 percent figure shows that many hospitals can still earn a profit in their ED — but only if enough privately insured patients show up in the ED. Of the $78.6 billion in ED revenue in 2009, about $42.4 billion came from private payers. Hospitals, on average, earned a 39.6 profit margin for privately insured ED patients. What were the margins on the other insurers? For Medicare, the margin totaled -15.6 percent, while Medicaid was -35.9 percent. Uninsured ED patients led to a -54.4 percent operating margin for hospitals.
3. Privately insured patients visit the ED the most. It's often said the uninsured use the ED as their primary care, giving the notion those without insurance are the most frequent users of the ED. However, the authors found private payers covered 35 percent of ED visits. Medicaid, Medicare and uninsured represented 26 percent, 21 percent and 18 percent of ED visits, respectively.
4. ED profitability also varies by the acuity of the visit. For ED visits labeled as "emergent," profit margins totaled 9.7 percent, almost the same as nonemergent ED visits (9.8 percent). "Unclassified" ED visits were the most profitable at 18.5 percent. "Indeterminate" ED visits were the most common, but also the least profitable at 3.5 percent.
5. Admitted patients drive the bottom line. "Patients who were admitted to the hospital from the ED represented 24.4 percent of ED revenue and 20.7 percent of ED costs, and they were profitable overall, with a profit margin of 21.8 percent," the authors wrote. Patients who were discharged and consequently labeled as outpatient were still profitable for hospitals, garnering a margin of 3.2 percent.
6. Certain ED conditions drive higher margins than others. The most profitable conditions treated in the ED were infectious diseases, traumatic conditions and other surgical conditions, such as those within urology or ophthalmology. The least profitable ED conditions were psychiatric conditions and those in which the patient could only describe "signs or symptoms," like weakness and undetermined abdominal pain.
7. The future of ED profitability. Drs. Wilson and Cutler estimated the future profitability of emergency care in relation to the Patient Protection and Affordable Care Act. They factored in population growth, ED visit growth rates and other areas within their simulations. They found that by 2023, if the PPACA kept in line with current projections, ED visits are actually likely to become more profitable for hospitals (11.7 percent). As more patients gain coverage through the health insurance exchanges and Medicaid expansion, hospitals will see fewer uninsured patients — or those associated with the worst profit margins — walking through their ED.
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