Government May Change Course on Reimbursements for FSEDs

Last week, the influential Medicare Payment Advisory Commission (MedPAC) voted unanimously to reduce reimbursement rates for some urban, free-standing emergency departments (FSEDs).

MedPAC is the independent congressional agency that advises Congress on issues affecting the Medicare program. While MedPAC’s recommendation is just that — a recommendation — its advice typically serves as a harbinger of Congressional action.

For example, a 2013 report from MedPAC is viewed by many as the impetus for Congress’s 2017 decision to prevent new off-campus provider-based locations from being reimbursed under the outpatient prospective payment system — a change that dramatically reduces Medicare reimbursement for many off-campus provider-based locations.

This is important because when Congress adopted this “site-neutral” approach, they carved out a specific exception for FSEDs so that they would not be subject to the rate reduction. This signaled to many observers that perhaps federal policymakers had come to the same conclusion that some hospital systems had: FSEDs can be an effective way to enhance access to care, and it would be premature to disrupt the economics still taking shape around their development.

However, under MedPAC’s recent proposal, Medicare rates would be reduced by 30 percent for off-campus FSEDs within six miles of an on-campus hospital emergency department (ED). MedPAC estimates that this would reduce Medicare costs by up to $250 million per year.

Although this recommendation exempts rural, stand-alone FSEDs, the vast majority of existing FSEDs are located in urban areas. Therefore, this proposal could have a significant impact on the FSED market.

Proponents argue that FSEDs should not receive the same reimbursement as an on-campus ED. They argue that, unlike an ED, FSEDs do not typically maintain the same number of operating rooms, have comparable trauma teams, or have the same range of specialists on-call; therefore, the operating costs of an FSED are often less than those of a hospital-based ED. In short, since the FSED’s operating costs are lower than an on-campus ED’s, the FSED’s reimbursement rates should be lower.

Many opponents of MedPAC’s recommendation argue that this proposal is based heavily on anecdotal evidence about some FSEDs being developed in affluent areas with high numbers of privately insured patients. Even one of MedPAC’s commission members noted that MedPAC’s recommendation was “preemptive” rather than “having data, really analyzing it, and then making a decision.”

FSED proponents argue that FSEDs expand access to care, reduce overcrowding in on-campus EDs, and provide more convenience to patients. According to them, a reduction in reimbursement rates at this time might force FSEDs to close or not be developed in the first place, and would further exacerbate access to care issues.

In recent years, many “hospital companies” have expanded their footprint with the goal of becoming “healthcare companies.” Whether it be through behavioral health facilities, urgent care centers, or FSEDs, hospital companies have increasingly sought to provide patients with increased access points to ensure they are treated in the right setting. If Congress were to adopt the steep cuts proposed by MedPAC, that policy would not only impact FSEDs but could also have an effect on the healthcare industry as a whole.