OP-ED: Hospitals Don’t Have a Monopoly on ED Patients

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Surprise Insurance Denials are Real Culprit in Broken Health Care.

The latest uninformed opinions about the costs and value of emergency medicine have come from Glenn Melnick, Ph.D. who, according to his bio at the University of Southern California, is a “world-renowned expert in health economics and finance.”


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Dr. Melnick created an opinion piece in the NY Times earlier this month titled “Blame Emergency Rooms for the Out-of-Control Cost of Health Care.”  His theory is that hospitals have emergency departments that state laws require health care plans to tell patients to go to the nearest emergency department for emergencies, and that insurers have to reimburse medical providers for covered charges. Yup. That’s how the insurance industry generally works.

However, Dr. Melnick uncovered a hidden conspiracy by noting additional issues specific to emergency department care. According to him, hospitals have a “monopoly” on emergency department patients. If insurers and hospitals can’t contractually agree on charges for emergency medical care, then hospitals can theoretically charge insurance companies inflated prices for emergency department care.

He notes that half of all hospital admissions come through the emergency department, so obviously this travesty must really add up to some big bucks. His solution to prevent hospitals from “exploiting their ER advantage” is to create laws capping charges for emergency medical care at 125% of contracted prices. This would assuredly amount to “billions” in savings. After all, he argues, “public policy and hospitals are supposed to help us in emergencies, not create them [sic].”


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Dr. Melnick attempts to justify his opinions with some statistics, but it doesn’t take a world-renowned expert in health economics and finance to see that the statistics he does cite have, at best, a tangential relationship to the emergency departments he so fecklessly disparages. Dr. Melnick shows how the price paid by California health care plans for all hospital care (of which emergency department charges are but a small subset) grew by almost 200 percent — from $2,500 to $7,200.

He is either trying to argue that costs of California emergency department care and overall hospital care parallel each other and can be extrapolated to the nation as a whole (misleading) or he thinks all hospital care is billed through the emergency department (naïve and untrue). Dr. Melnick repeatedly and incorrectly attempts to use the concepts of “billed charges” and “paid charges” interchangeably, even though paid charges are almost always a fraction of billed charges. He also fails to cite any research justifying his argument that capping charges would amount to billions in savings – an oversight that even a first-year economics student shouldn’t make.

Some of Dr. Melnick’s assertions are just silly. He alleges that hospitals have a “monopoly over emergency room patients.” A monopoly occurs when a specific entity is the only supplier of a given commodity. Patients can seek medical care at physician’s offices, acute care clinics or at any other medical provider they choose.

If patients believe they are having an emergency, they may choose which emergency department to go to – including acute care clinics or freestanding emergency departments not affiliated with a hospital. I see patients every shift that choose to avoid another emergency department because of a bad reputation. Asserting that hospitals have a monopoly over emergency department patients is as ridiculous as asserting that hair salons have a monopoly over people needing haircuts and therefore “can charge customers” basically whatever they want.


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He also notes that the average price paid by health plans for all hospital care was $7,200 per day. Yet he concocts some extortion plot where hospitals threaten insurers with paying $19,500 for emergency medical care if the insurers don’t agree to the hospital’s prices for emergency department care (which, again, are a small percentage of the cost of all hospital care).

Even more troubling are Dr. Melnick’s aspersions that emergency department charges are largely to blame for “out of control” health care costs. In advancing his argument that emergency department charges are a large proportion of healthcare costs, Dr. Melnick cites findings from a 2013 RAND study stating that half of all hospital admissions originate from the emergency department.

Either because he didn’t read the study or he just chose to omit the data, Dr. Melnick failed to cite the study’s findings that inpatient hospital care amounts to only 31% of the nation’s healthcare spending. The deception doesn’t stop there. Dr. Melnick repeatedly cites the total costs of caring for admitted patients in arguing that solely emergency medical charges should be capped. That’s like arguing that only university textbook prices should be capped because overall university tuition is rising out of control. At no time does Dr. Melnick attempt to explore healthcare costs attributable solely to emergency medical care.

A 2011 campaign by the American College of Emergency Physicians based on Department of Health and Human Services data showed that emergency medical care accounts for approximately 1.9% of all healthcare spending. On average, the number of privately insured patients is about 40% of the total emergency department patient population.

Dr. Melnick’s claims don’t apply to government-sponsored insurance since the government has a monopsony and dictates prices to healthcare providers. If we multiply 1.9% of health care dollars spent on emergency medicine by the 40% of patients with commercial insurance, we end up with 0.76% of commercial insurance-related healthcare costs attributable to emergency medicine. Of course, not every hospital goes “non-par” with every insurance company, making that portion of the 0.76% of healthcare dollars saved by Dr. Melnick’s investigative journalism significantly less.

The world-renowned economist Dr. Melnick and the New York Times believe that by capping the 50% of charges that emergency medical providers are actually able to collect, the subsequent reduction in bills for a fraction of the 0.76% of commercial insurance-based healthcare costs attributable to emergency medicine will miraculously bring our country’s $3.8 trillion annual health care bill back down to some more palatable level. With the billions saved under Dr. Melnick’s plan, that bill would decrease to at least $3.798 trillion. Great idea. The bad news is that making such cuts would further reduce access to health care for many Americans.

Since 2005, more than 120 rural hospitals have gone out of business due to “financial woes” and that trend is expected to accelerate. Many rural communities have no readily-available emergency medical care. Meanwhile, four major health insurance companies that Dr. Melnick so vehemently wants to protect are consistently at or near the top 50 of the Forbes 500.

What better way to improve access to health care in this country than to further cut reimbursement to financially struggling hospitals so that the safety net for 140 million patients treated in emergency departments each year shrinks even further?

While I’m at it, Dr. Melnick, you need to stop demagoguing “inflated out of network charges,” the evils of “balance billing” and the associated concept of “surprise medical bills.” Stop blaming medical providers for the actions of insurers. The medical bills and balance billing aren’t the “surprise.” Instead, the “surprise” is the insurer’s refusal to cover the costs of necessary medical care.

Change the narrative to “surprise insurance denials” instead — that’s a much more accurate description and insurance denials are happening with increasing frequency throughout the country. Look at all of the surprise insurance denials that patients receive from Anthem when, with the hindsight benefit of examination and testing, Anthem retrospectively determines that an emergency department visit really wasn’t an “emergency” after all. The “Affordable” Care Act forces us to purchase expensive insurance that covers us for very little medical care due to denials from the insurers. This is an unethical practice that makes patients afraid to seek emergency medical care. But I suppose that these insurance companies have to take drastic measures to stay in the top 50 of the Forbes 500.

As we ponder how to minimize healthcare spending, perhaps we could work on other areas of out of control costs as well. I wonder if we could control out of control increases in college tuition costs by passing a law capping professor reimbursement to 125% of the lowest contracted paid college professor in the United States. To paraphrase a world-renowned expert in finance … if nothing changes, tuition prices and loan premiums will continue to grow. This will mean lower take-home pay for millions of working Americans and increases in the ranks of the uneducated. After all, public policy and health economics experts are supposed to help us in emergencies, not create them.

ABOUT THE AUTHOR

SENIOR EDITOR
Dr. Sullivan, an emergency physician and clinical assistant professor at two residency programs in Illinois, is EPM's resident legal expert. As an attorney specializing in healthcare issues, Dr. Sullivan represents physicians and has published many articles on legal aspects of medicine. He is a past president of the Illinois College of Emergency Physicians and a past chair and current member of the American College of Emergency Physicians' Medical Legal Committee.

3 Comments

  1. MICHAEL D GROSS on

    The system has enriched the EMR vendors by about 80 billion dollars in comparison. Perhaps one needs to look at this expense first.

  2. This op ed writer is so wrong. What a piece of garbage. Patients have almost no choices. You are so far removed from the realities of the health system. The original piece is dead on the nose.. why the author even took this pathetic stance is not only unethical, but horrible for his fellow man.. he obviously has some sort of financial gain in the current system.

  3. Nice article. I especially like the descriptive “surprise insurance denial” characterization of unanticipated bills. I look forward to Melnick’s rebuttal and am glad you’ve exposed some serious flaws in his reasoning.

    I’d like to see us migrate society’s thought process from Emergency Care to a more hybrid model of “unscheduled care.” This would be a time dependent blend of everything from doctor’s office sick call through urgent care up through traditional emergency care.

    It is very expensive to maintain EM level care at any facility 24/7, and no one else offer what we have for that vague (partially identifiable) subset of ED-presenting patients. My experience is that it has been very difficult for my ED patients to gain anything near realtime access to their PCPs, but that actual or feared economic factors have had increasing effect on patient behavior in recent years. I am for greater transparency and strongly maintain that we need to respect the “prudent layperson” definition of what constitutes a possible medical emergency.

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