Stand-Alone ED Models
The Centers for Medicare & Medicaid Services (CMS) refers to freestanding EDs as “stand-alone EDs” and places them into two categories: “off-campus emergency departments” (OCEDs), which are affiliated with a hospital and therefore reimbursed by Medicare, and “independent freestanding emergency centers” (IFECs), which are not affiliated with a hospital and therefore not reimbursed by Medicare. As of 2016 (the most recent data available), there were over 550 stand-alone EDs in the United States.3 Approximately 64 percent were OCEDs while the remaining 36 percent were IFECs.4 Although there is no standard definition of a micro-hospital, MedPAC describes them as, “smaller than full service hospitals and offer[ing] a limited range of services. Micro-hospitals focus on the delivery of emergency services and typically have 10 or fewer inpatient beds.”5 In some cases, a micro-hospital and an OCED model of a stand-alone ED are one and the same.
Some stand-alone EDs do not have operating rooms or inpatient beds, so patients needing inpatient care must be transported to a hospital. Others offer a wider range of services, including minor surgery and a small number of inpatient beds. Evidence suggests that the vast majority of patients who utilize stand-alone EDs (both OCEDs and IFECs) are walk-ins and a very small percentage of patients are admitted for inpatient care. In addition, the patient mix at these facilities appears to be more similar to patients treated at urgent care centers than traditional hospital EDs. Although federal regulations require that a hospital “be primarily engaged in providing inpatient services”6 many of these facilities are licensed as hospitals in the states where they are located despite providing very few inpatient services.
Two key selling points among these types of facilities are their convenient locations and short wait times. Some studies have shown that the quality of care at stand-alone EDs is equal to that provided by hospitals, including patient satisfaction, which has been shown to be relatively high compared to traditional EDs.7
Although access to emergency services in rural and underserved areas continues to be a challenge for both Medicare beneficiaries and commercial health plan members, all of these types of facilities tend to be strategically located in more population-dense, higher-income areas near traditional hospital campuses. One study found that in Texas, stand-alone EDs are highly concentrated around metropolitan areas; specifically, they are located in zip codes with higher median incomes, higher rates of private health insurance coverage, more physician offices, more hospital-based EDs, more physician visits and higher healthcare spending.8
Moreover, all of these models of care have lower overhead costs than hospital EDs, which provides substantial opportunity for profit. Independent for-profit organizations such as Nutex Health and Emeris9 have been leading the way in the development of these entities. The arrangements may rely on physician-investors and/or joint-ventures with hospitals.
While OCEDs and micro-hospitals are eligible to receive Medicare reimbursement, IFECs are not. CMS certification for participation in the Medicare program is solely based on hospital affiliation and not on license status. OCEDs and micro-hospitals are licensed as hospitals but their hospital affiliation is what makes them eligible for Medicare certification and reimbursement. On the other hand, there are numerous IFECs that are also licensed as hospitals (for example, in Texas and Oklahoma), but because they are physician-owned and not affiliated with a hospital, they are not certified by Medicare and do not receive Medicare reimbursement.
MedPAC has been concerned about whether Medicare pays OCEDs and micro-hospitals appropriately because they are paid the same rates as their main hospital counterparts. In fact, MedPAC has recommended that rates paid to OECDs be reduced by 30 percent in order to better reflect their lower costs, patient acuity and service mix.10 Advocates for OCEDs argue that payment rates should remain equivalent to hospital reimbursement levels because these facilities have the potential to improve access to services and reduce overcrowding at on-campus hospital EDs. It is important to note that OCEDs and micro-hospitals are typically certified under the same Medicare provider ID as the main hospital with which they are affiliated. In addition, claims data submissions do not require differentiation between claims submitted by the main hospital and other off-campus or micro-hospital facilities affiliated with the main hospital, making it difficult for payors (both public and private) to assess the patient acuity and service mix differences between the two. MedPAC has recommended that the Secretary of the Department of Health and Human Services require hospitals to include a modifier on Medicare claims in order to distinguish between these types of claims, but this has not been implemented.11
Commercial Health Plan Contracting and Reimbursement
Because Medicare does not reimburse IFECs, MedPAC has focused more of its attention on OCEDs and micro-hospitals.12 As described previously, MedPAC has provided recommendations regarding OCEDs but Congress has not acted on its recommendations. While MedPAC has expressed concern about Medicare payment levels for micro-hospitals, it has not formally made recommendations regarding reimbursement policy for the Medicare program. Thus, commercial payors have been left to determine whether these facilities should receive the same level of reimbursement as traditional hospitals.
Moreover, since Medicare does not reimburse IFECs, commercial plans have been forced to establish network and pricing policies for these facilities, including developing reasonable and defensible payment rates, without Medicare as a data source.
Most commercial plans do not contract with IFECs but reimburse them according to the payors’ out-of-network policies. Anecdotal evidence suggests that the contracting process has been contentious between these facilities and commercial plans. Payors are looking to provide access to services to their members, but most stand-alone EDs and micro-hospitals are located in densely populated urban areas, where there is already more than adequate access to emergency services. And since evidence suggests that many patients who use these facilities could be treated more cost effectively at physician offices or urgent care centers,13 plans are caught in a quandary. If plans are willing to contract with these entities, which are typically physician and/or investor-owned, the providers may in turn be unwilling to accept contract rates offered by commercial plans because the plans seek to align the rates more closely with urgent care center rates rather than traditional hospital emergency rates. The result is that these providers end up as out-of-network providers, which often means higher cost-sharing for members and potential balancing billing risk if there are no state protections in place. Although there are currently multiple bills in Congress to address balance billing (otherwise known as “surprise billing”) at the federal level, at the time of this writing none had reached the final stages.14
Impact on Healthcare Costs
The business strategies adopted by stand-alone EDs and micro-hospitals are not aligned with the need to provide access to healthcare services, including emergency services, to rural Americans. Over 100 rural hospitals, along with their emergency departments, have closed since 2010,15 a problem exacerbated by the COVID-19 pandemic as many people have stayed home and avoided in-person visits to medical facilities.16 Texas, Tennessee, Georgia and Oklahoma lead the United States in rural hospital closures.17 At the same time, MedPAC reported that the vast majority of the stand-alone EDs operating as of 2016 had opened since 2010.18 Having most locations in urban, more affluent areas where there are high numbers of privately insured residents suggests that the primary objective of the owners and operators of these facilities is not to address an access problem. Indeed, researchers at Brigham and Women’s Hospital and Harvard Medical School, in a study of stand-alone EDs in Texas, Ohio and Colorado, found that while these facilities have the potential to increase access by either locating in rural areas or in urban areas with long ED wait-times, most do not. This aligns with UnitedHealth Group’s study, which concluded that IFECs “disproportionately serve relatively affluent communities that have access to other providers and higher utilization and spending.”19 In addition to leaving the access problem unsolved, these facilities have the potential to increase healthcare costs simply by providing an increased number of low acuity services but in higher cost settings. UnitedHealth Group’s study found that only 2.3 percent of IFEC visits are “emergent or immediate and require services unique to an ED.”20
Proponents of these facilities argue that they have an important role to play within the healthcare system as payment innovators, potential bridges to primary care medical homes and/or specialized services, and an alternative to hospitalization.21 While commercially insured members value access to urgent and emergency services, as well as short wait times, health plans are rightfully concerned about balancing member access and convenience with higher costs. Indeed, while these types of facilities would be well-suited to new payment models as some advocates suggest, a recent study found that emergency care spending increased in three out of four states studied where stand-alone EDs had entered the market.22 This is not surprising given that the 2020 Medicare rate for a moderate complexity urgent care visit is $109.35, while the Medicare rate for a moderate complexity (level 3) emergency visit is nearly three times as high at $289.74 (including physician and hospital components).23 Stand-alone EDs, many of which have in-house laboratory and imaging equipment, may also perform additional diagnostic tests, adding to the cost. Many commercial fee schedules are based on a percentage of Medicare rates; therefore, plans can be faced with substantially higher costs for services provided to their members at stand-alone EDs and micro-hospitals compared to urgent care centers for common conditions such as upper respiratory infections, headaches and urinary tract infections.
While some plans have substantially higher cost sharing for ED visits than for urgent care visits, which may help to mitigate some over-utilization, members who are not as price-sensitive, or who may not even be aware of the difference in cost sharing requirements, may choose a stand-alone ED regardless of the higher copayment, resulting in costs that are several times higher for the same service at an urgent care center.
Two large insurers (UnitedHealthcare and Anthem) have taken steps to reduce ED costs. UnitedHealthcare reviews all emergency visit claims submitted with 99284 (high severity ED visit) and 99285 (life threatening ED visit) evaluation and management codes for medical necessity regardless of whether submitted by a main hospital or stand-alone ED, and adjusts payments when the medical record does not support these high-level codes.24 Anthem conducts retrospective review of ED claims and denies those that are determined not to be emergencies.25 These policies apply to IFECs, OECDs and on-campus EDs. Neither of these policies, however, fully address the issue of services being provided in EDs versus lower-cost urgent care centers or doctors’ offices.
Surprise Billing Risk
Another important consideration for commercial health plans is the potential balance billing risk that stand-alone EDs and micro-hospitals present when they are out of network. Although some stand-alone EDs state that they accept insurance, the information may be confusing or misleading, and may not necessarily mean that patients won’t receive a bill for the charges that exceed their insurer’s payment amount. Thirty states have balance billing regulations in place, nearly all of which prohibit balance billing patients for amounts above in-network cost-sharing levels.26 But this does not prevent the facilities from insisting that the health plans pay their billed charges, which may be very high. To address this problem, some states have updated their balance billing laws. For example, the Texas Legislature passed an additional bill in 2019 specifically directed at stand-alone EDs limiting their charges to 200 percent of the average hospital charge for the same service. The law also requires facilities to clearly disclose the health plans they contract with as well as their charges.27
States also vary in the approaches used to settle out-of-network disputes. While 16 states have established a dispute resolution process of some type, 11 states, including Colorado, have established a payment standard either in addition to or instead of a dispute resolution process.28 In Ohio, another state with a large number of stand-alone EDs, there are no balance billing regulations at all, putting patients at risk for surprise bills. In the absence of state or federal protections, commercial plans struggle with contracting with stand-alone EDs and being forced to pay potentially higher costs for members in order to prevent balance billing of their members. In states with protections, plans are still at risk when their reimbursement levels are below the charges submitted by an out-of-network provider, including stand-alone EDs. Although MedPAC has said Medicare should pay 30 percent less for services in stand-alone EDs, commercial plans may be reluctant to reduce payments to these facilities until the Medicare program takes the lead.
Growth of stand-alone EDs and micro-hospitals is likely to continue to expand, particularly in states with limited regulatory restrictions. This expansion has the potential to drive up utilization and costs as individuals seek non-emergent care at higher emergency prices. Commercial health plans need to develop reimbursement policies and member education programs to address the increase in the number of these providers in order to contain costs, mitigate dispute risk and prevent balance billing.