MedPAC Recommendations Could Impact North Texas’ Dozens of Stand-alone ERs

In June, when the Medicare Payment Advisory Commission issued a two-pronged recommendation regarding stand-alone emergency departments, it pointed to one metropolitan area to illustrate growth in independent freestanding ERs: Dallas. From 2013 to 2017, the Dallas metro went from having 25 such facilities to 73. The entire U.S. has just 200.

The recommendation issued by MedPAC calls for changes in the way Medicare bills stand-alone ERs and, to be clear, has nothing to do with independent freestanding ERs, which are not associated with a hospital and which the federal government doesn’t recognize. It has everything to do with stand-alone ERs affiliated with hospitals. Dallas has plenty of those, as well; a 2016 deal between ER chain Adeptus Health and Texas Health Resources, for instance, gave 31 previously independent shops the ability to bill Medicare. Hospital systems have followed independent freestanding ERs into the space, finding value in higher reimbursement rates for what tend to be patients with less severe ailments. MedPAC says there are 377 hospital-affiliated stand-alone ERs in the U.S.

But the landscape stands to shift considerably if Congress heeds MedPAC’s advice. The agency recommends decreasing payments to stand-alone ERs in urban areas. The change would take those facilities from a generous OPPS (outpatient prospective payment system) fee schedule to the PFS (physician fee schedule), equaling a cut of about 30 percent.

“If Medicare comes in and says that we think we’re overpaying for freestanding ER care because we’re paying you at an outpatient fee schedule rate when in reality you’re operating as something else, then what is the value? What is the benefit to the hospital to have these freestanding ERs?” says Christian Puff, an attorney with Hall, Render, Killian, Heath & Lyman. “The benefit today is that they get to enjoy the higher rates associated with the OPPS fee schedule.”

She expects many facilities to have to close their doors if MedPAC’s recommendations are instituted. “You’ll probably have some of them hang around, but only if they can make up the difference on the commercial side,” Puff says.

MedPAC’s report is an enlightening, if dry, read, revealing the agency’s priorities and objectives to get there. Current incentives have led to the abundance of stand-alone EDs in urban areas and a dearth of them in rural areas, which is where, the agency says, they stand to make a difference. Conversely, it says stand-alones in urban areas represent a threat to the overall landscape:

New urban stand-alone EDs (medical facilities providing ED services that are located apart from a hospital campus and can be either affiliated or unaffiliated with a hospital) could result in cases shifting from lower cost settings such as urgent care centers and physician offices, which do not provide ED services and are generally not open 24 hours per day, to the higher cost ED setting, which is generally open 24 hours per day. New stand-alone EDs could also siphon off lower acuity (less severely ill) patients from on-campus hospital-based EDs.

A few other items to consider from MedPAC’s report:

Six Miles or Less:
The recommendation includes a provision that would exclude stand-alone ERs from cuts if they’re more than six miles from the hospital with which they’re affiliated. But most are within the six-mile range, according to a MedPAC analysis that looked at Dallas and four other markets. The analysis found that 75 percent of stand-alone ERs are within six miles of their hospital affiliations, while just 4 percent were 12 miles or more from the hospitals.

Rural Impact:
MedPAC proposes a new model for rural, stand-alone ERs—with the threshold for “rural” being that the center sits more than 35 miles from another ER. It would give stand-alone ERs the ability to set up in rural areas with outpatient care under the same roof. The facilities would be termed “outpatient-only hospitals.”

Rural hospitals that convert to the model would get paid the same rates as full-service hospitals, plus an annual payment to “help cover the facility’s fixed costs.” MedPAC did not specify a yearly payment amount. It said that, overall, the plan would cost Medicare an extra $50 million a year. (The cuts to urban ER center payments could save the agency between $50 million and $250 million).

Independent Freestanding ERs:
It’s unclear how any of this would impact the independents. The Dallas Morning News pointed out earlier this year that dozens of the required two-year licenses for those facilities have recently been allowed to expire, but there’s a caveat—most of those are expiring simply because the freestanding ERs are affiliating themselves with a hospital (which don’t need a separate license). That was the case for 51 of the 58 licenses that expired in 2016, the DMN reports.