Hospitals closing their EDs? Are managed care, MCOs, and technology to blame?

MCOs and technology may be the reason some hospital EDs are closing their doors, but physicians, seeing EDs filled to capacity, still wonder why hospitals would consider such a move beneficial

At emergency departments (ED) throughout Baltimore, MD, a "yellow alert" usually signifies trouble. "It means the ED is at capacity. All the suites are filled. We can't admit any but the sickest patients," says Susan W. Owens, MD, chief of the department of emergency medicine at Northwest Hospital Center in suburban Baltimore. In a yellow alert, the hospital's policy is to send patients with non-life-threatening conditions to other facilities with more space in their EDs, Owens says.

In December, Northwest had 12 yellow alerts. In the same month, medical giant The Johns Hopkins Hospital, in the heart of the city, had 15 in its adult ED. Harbor Hospital Center, another Baltimore-area facility, had 24.

Conditions like yellow alerts make Owens wonder why hospitals would ever consider curtailing emergency medical services, much less close down an ED. "I don't know of a single hospital around here that's closed one down. Not with these conditions," says Owens.

Hospitals nationwide are closing EDs

But hospitals around the country are closing EDs, or shutting down the hospital and leaving the ED without inpatient beds. Others are cutting deeply into emergency services, referring emergency cases to other facilities and transforming their departments into lower-level urgent care or primary care centers.

In the case of Divine Providence Hospital in Williamsport, PA, the ED was closed to make way for a primary care medical and dental clinic. "It was just too expensive to keep the department running 24 hours a day," says Kathryn Penfield, director of corporate communication at Susquehanna Health System in Williamsport, which owns the 212-bed Divine Providence and two other local facilities.

"There wasn't enough money coming in to justify keeping it open," Penfield concludes. In October, the system closed the ED at Divine Providence and boosted services at nearby Williamsport Hospital and Medical Center, its sister facility, to accommodate the expected volume. Patient visits at both institutions had been declining prior to the consolidation.

While large, urban hospitals are fighting to keep their EDs open, rural facilities are also feeling the strain, perhaps more acutely, experts say. Between 1994 and 1995, 141 medical-surgical hospitals with licensed emergency services shut their doors, according to American Hospital Association (AHA) figures. The Chicago-based AHA did not distinguish whether the closures were caused by failures, mergers, or consolidations.

Closures of just the EDs are likely to be less numerous, but the AHA could not break out those figures. And the American College of Emergency Physicians (ACEP) in Irving, TX did not return calls requesting data on recent closures of EDs. Nevertheless, rural providers say small, under-financed hospitals are under enormous pressure to curtail what emergency services they have left.

Managed care has made survival uncertain

The culprit in all this seems to be managed care, according to administrators who spoke to The Managed Care Emergency Department. Directly or indirectly, cutbacks in reimbursements and restrictions on hospital admissions and lengths of stay have strained the financial viability of acute-care hospitals.

Managed care organizations (MCOs) have also effectively halted the ability of administrators to offset the cost of treating the uninsured in the ED by shifting the cost of their care to private paying patients covered by health plans. And that segment of the population accounting for ED visits has mushroomed in recent years. (For a breakdown of patient visits by payment sources and other trends, see the charts on page 25 and page 26.)

A third factor has been the cost of technology and related advancements made by providers using the technology to improve clinical modalities. These advancements have permitted invasive surgeries and other therapies to be performed in less expensive ambulatory settings. But they've exacted a huge cost in capital for state-of-the-art imaging and expensive endoscopies that have left small, under-capitalized institutions unable to compete.

"For hospitals in general, these combined trends have had a terrible effect on inpatient revenues," says Gregory L. Henry, MD, clinical professor of emergency medicine at the University of Michigan in Ann Arbor.

But should hospitals close their EDs for financial reasons? And if so, what are the consequences of these actions?

"Yes, hospitals should close their doors when they aren't needed," says Henry. "It's a matter of productive capacity. At the moment, the health care system is loaded with excess capacity. Any other industry would reduce the excess. We have got to face the truth and close hospitals [and EDs] when they aren't necessary," says Henry, a former ACEP president.

Closures can strengthen the herd

The closures can only benefit remaining institutions, Henry adds. "The thinning of the herd will strengthen everyone else," he observes. Facilities that remain will inevitably do better financially. For one, their variable costs would drop in proportion to their revenue from the increased patient volume. The facilities would also have to operate more efficiently to meet the increased demands of higher volume and managed care contracting, Henry adds.

But the entire health care system would also benefit too. "Doctors have got to face the truth that too many hospitals aren't doing well. But they won't look at the fact that if you continue to throw money away on things you don't need, you won't have it to spend on the real necessities," Henry concludes.

These arguments don't sit well with physicians and administrators, who generally dislike talking about closures and cutbacks. Hospital associations and physician groups rarely report on hospital or department closures unless required by state laws. And even when facilities do close, they omit these particular events from discussions, especially with industry outsiders.

It's easier for providers to point the finger of blame at someone else. "Health maintenance organizations (HMOs) have changed the face of emergency medicine. And the government has sat by without doing anything," remarks Arthur Derse, MD, JD, associate director of medical and legal affairs with the Center for the Study of Bioethics at the Medical College of Wisconsin in Milwaukee.

In some glaring cases, the government has followed suit and joined the growing wave of managed care witnessed by recent growth trends in Medicare and Medicaid risk enrollments.

Hospitals try to balance mission and money

The legal system has been an accessory to the problem by permitting HMOs to impose cutbacks on patient care for financial gain while shifting the blame onto providers in malpractice suits when something goes wrong, Derse says. "Under the old system, you couldn't get sued for doing too much. Today, you constantly risk legal exposure for doing too little," Derse says.

Ironically, hospitals have followed the cue of HMOs and have abandoned their traditional mission of medical care for the needy to a bottom-line orientation, Derse adds. "They've become bigger, more interconnected," Derse says. The byproduct of integration inevitably involves downsizing and closures.

Yet, hospitals still recognize that they have an obligation to provide emergency medical care for their communities. Managed care organizations (MCOs) have yet to share in that obligation, Derse says. Like local governments, that, according to Derse, are by degrees getting out of the business of direct health care delivery, MCOs have refused to play fair with providers.

But not all local governments or MCOs are turning their backs on providers. (For one example involving Maryland HMOs, see the article on page 33.) In Baltimore, Owens of Northwest Hospital Center has attended informal meetings with members of the Maryland Health Planning Commission trying to chart a future for the state's private-sector health care system. One of the topics of discussion, according to Owens, has focused on how things would go if there were fewer hospitals to serve residents in the state.

"I don't think the discussion raises any distinct possibilities of closures. The [commission representatives] were simply feeling things out," Owens comments. Nevertheless, the issue was timely enough for Maryland officials to contemplate the possible consequences of hospital or emergency service closures.

Patients are postponing medical care

They may not have to look far:

-In Fitchburg, MA, where managed care has a sizable presence, Burbank Hospital, a facility owned by HealthAlliance Hospitals, a two-facility system, closed it's inpatient floors in 1996. The facility continues to operate an ED under a state waiver but directs all of its life-threatening emergencies to Leominster Hospital, its sister facility, six miles away.

The closure was spurred by overcapacity and duplication, especially in surgery, according to a hospital spokesperson, who tried to put a positive spin on the event. But the cutbacks have meant that Fitchburg residents lost their community hospital and in most cases must travel several miles to a neighboring town for most inpatient services. Meanwhile, Burbank continues to struggle with low patient volume.

-In rural Spring Valley, MN, a community of 85,000, residents lost their source of emergency medicine when officials closed Community Memorial Hospital in late 1996. Former administrator Diane Shaw Cummins, blames the closure on mismanagement but acknowledges that the hospital was heavily dependent on Medicare and private payers for its survival.

Without a local hospital or an ED in particular, patients are postponing scheduled visits to outpatient departments, waiting to become acutely ill before seeking medical care at the closest ED, which is 26 miles away, and refusing to pay for basic ambulance services when necessary.

Perhaps a lone voice in the closure debate comes from Robert Williams, MD, DrPH, adjunct lecturer in health management and policy at the University of Michigan in Ann Arbor. Williams advocates keeping EDs running no matter how difficult they are to manage financially. In his now-famous study of cost in hospital-based emergency medicine, he concludes that non-urgent patient visits, which comprise more than half of all ED visits, do not pose the financial threat that was once believed.1

It makes sense to keep EDs open

According to Williams, regardless of how many non-urgent patients the ED treats, each additional patient, which translates into marginal cost, doesn't alter the fixed expense of running the ED-paying the light bill, etc. In fact, Williams observes, the more non-urgent cases the ED treats, particularly at night when business is usually slow, the more cost-effective the department will be in terms of its use of existing resources.

"Therefore, it makes more sense for the ED to stay open than to close," Williams told MCED.

But even Williams acknowledges that the problem of the uninsured and the loss of opportunities for providers to cost-shift under managed care has significantly changed the rules of the game. As Derse says: "HMOs have changed the face of emergency medicine." Under the new rules, providers have to become more business-oriented and adhere to natural, economic laws rather than fight what is inevitable, says Henry.

"This isn't a doctor thing. It's a societal thing," Henry says. "It's not up to physicians [or administrators] to decide if a department should stay open at all odds because it's the public that will have pick up the tab for it," he adds.


    1. Williams RM. The costs of visits to emergency departments. N Engl J Med 1996:334:642-646.