Why are EDs closing despite ED visits increasing? We dive into 5 reasons hospital closures by year keep rising so you can work towards greater profitability.
Why are hospitals closing?
And more importantly, why are EDs closing?
Rural hospital closures by year are even worse:
- Between 2013 and 2017, rural hospitals closed 2x more than the previous five years[*].
- Since 2010, 113 rural hospitals have closed, mostly (77%) in southern states[*].
Emergency department closures don’t just affect emergency medicine groups and their staff. They also have a profound ripple-effect on their communities[*].
Closing an ED, especially in a rural area, increases the distance patients must travel for time-sensitive care. It also leads to overcrowding at neighboring EDs, which decreases the quality of care, adds to waiting times, and increases the rate of patients leaving without being seen.
All those factors lead to a statistically significant increase (30%) in morbidity and 90-day mortality[*].
So why are rural hospitals closing, and what’s causing these trends?
Why Are EDs Closing? 5 Reasons
Smaller facilities are more likely to close due to low patient volume and a lack of steady revenue[*].
But the top five reasons many EDs are closing include:
#1. Poor Payer Mix
An emergency department’s mix of payers is the most significant factor in whether it will keep its doors open.
Federal law requires hospitals and EDs to evaluate and treat all patients needing emergency care, regardless of their ability to pay.
However, research shows EDs with a poor payer mix are notoriously unprofitable[*].
Part of this may be due to Medicaid expansion (or the vote against it).
A majority of hospitals vulnerable to closing are located in states that did not expand Medicaid under the 2010 Patient Protection and Affordable Care Act. But studies also show that expansion states experienced increased, rather than reduced, ED closure rates from 2010 through 2013[*].
So a better indication of payer mix may come down to area demographics.
After all, experts say the wealth of a community is one of the best predictors of how profitable a hospital or ED will be[*]. If the ED is located in an area with a higher cost of living and higher-than-average salaries, they’re more likely to treat insured patients or those who can self-pay.
Conversely, hospitals and EDs serving a higher share of minority, poor, elderly, and uninsured were 37% more likely to close (despite increased ED utilization)[*].
Even underinsured patients pose a risk. They often have high-deductible health plans and cannot afford to pay out-of-pocket either[*].
#2. Safety-Net Status
EDs categorized by safety-net status — patient populations with a substantial amount of uninsured, Medicaid, and self-pay patients — provide a high volume of healthcare (more than 30 to 40% of visits) to vulnerable populations[*].
The estimated number of rural safety-net EDs was around 38% in 2005. By 2016, that number jumped to 65%.
With higher utilization rates and lower rates of reimbursement, these EDs face enormous pressure to remain profitable.
And that’s why research shows safety-net hospitals were 10% more likely to close than those not classified as such[*].
Even the cumulative probability of an ED remaining open among safety-net hospitals was about 50%, compared with 74% among non-safety-net hospitals[*].
#3. Market Competition
A hospital or ED market is delineated by a 15-mile radius. And ED markets have an enormous impact on profitability.
Research shows 34% of hospitals that closed their EDs were in highly competitive markets[*].
This includes EDs sharing their market with other EDs, for-profit or government-owned hospitals, and private practices offering outpatient care.
Large healthcare organizations are gobbling up smaller operations via mergers and acquisitions to gain market dominance. By joining the competition rather than fighting it, they can offer more advanced services and charge higher prices[*].
#4. Physician Shortages, Especially in Rural Areas
This is particularly true in rural areas.
Even though 20% of the U.S. population lives in rural areas, only 9% of primary care physicians practice there[*]. This forces many patients to use the ED for routine or non-emergent visits.
But that’s not what your highly-skilled EM physicians want to take care of.
Added stress due to overcrowding, high caseloads, lower salaries, and unpredictable schedules mean that many emergency medicine groups struggle with recruiting and retaining their staff.
A shortage of physicians means longer wait times and fewer patients being seen. It also means you may be spending more on payroll than you’re bringing in via reimbursements.
So attracting and keeping physicians will allow EDs to treat more patients and generate more revenue.
- Top 5 Reasons Physicians Change Work Situations
- Why ED Physicians Still Love What They Do After Years On The Job
- How Can EDs Reduce Visits for Non-Urgent Conditions?
#5. Slim Profit Margins
Did you know that unnecessary care in healthcare costs $210B a year?
Your team may be unknowingly burning money when ordering unnecessary testing and diagnostics you won’t be reimbursed for. And you may be spending more in supplies than you realize.
Studies show the decision to close an ED is generally based on the total profit margins for the three previous years.
In this case, the total profit margin is defined as the ratio between the net revenue (total revenue, including disproportionate share (DSH) payments, minus total costs) divided by the total costs[*].
So according to stats[*]:
- Twice as many hospitals that closed their EDs were in the lowest quartile of the profit margin distribution.
- EDs at hospitals with negative profit margins had a 50% cumulative probability of remaining open.
Hospitals and EDs often operate on very tight margins. But if your margins are so slim they can’t account for an unforeseen expense, you may be in serious trouble and have no option but to close.
What happens if you encounter plumbing problems or structural damage from a natural disaster?
Your ED may need to close for a few weeks or a few months. Would you have enough to cover this loss of revenue?
Many hospitals simply don’t.
The Biggest Reason EDs are Closing? Not Enough Money
While each independent emergency medicine group deals with problems unique to its location, payer mix, and business model, in the end, staying open all comes down to having enough money.
DuvaSawko’s proprietary billing software and Practice Monitor analytics are designed to measure and ensure that every possible dollar is collected, preventing any collectible revenue from slipping through the cracks.
Reimbursements are received faster and more accurately than ever. DuvaSawko collects 30% more for clients, on average, to make sure you’re not leaving money on the table.
Analyzing these trends in ED closures may help your emergency department stay profitable. And our revenue cycle management services include tailored technology to grow your business the smart way.