Charging Appropriately for Emergency Department Visits

An ongoing debate in health care concerns the charges (and underlying costs) for visits to a hospital's emergency department (ED). Given the current concern with growing healthcare costs, it is an opportune time to look at a more appropriate way for an ED to structure its charges. Computing a visit's cost (and thus arriving at a charge) is a complicated matter. This is because there are three kinds of costs an ED incurs: (1) the fixed costs of being “ready to serve” such as the depreciation on the ED's space and equipment, (2) some “step-function” costs that also are associated with the ED's readiness to serve, mainly a portion of the salaries for physicians and nurses and (3) the variable costs for the visit itself, which include the remaining portion of provider salaries as well as such consumables as blood products, pharmaceuticals, and medical supplies. It would not be difficult for an ED to develop an approach that is similar to one used in many corporations for inter-company sales, and in most public utilities. With this approach, there would be a two-part charge: a flat charge for the ED's stand-by capacity, which would be the same for each visit regardless of the patient's presenting condition or discharge diagnosis; and a variable charge, which would be based on the actual services provided. Overall, this approach would lead to a fairer and more precise way of charging patients and insurers for use of the ED. In particular, it recognizes (and accounts for) the fact that an ED's stand-by costs are independent of a patient's presenting condition and eventual diagnosis. Currently, because stand-by costs are embedded in a per-visit rate, patients with relatively minor conditions are subsidizing those with more complex ones. A two-part charge would change this and move an ED toward a fairer approach to charging patients.