Economics of an Urgent Care Center in a Market of Emergency Departments

One of the contributors to the rising cost of Healthcare can be attributed to the over use of emergency departments (EDs) for non-emergency needs. In the greater Capitol/First/Beacon Hill area there are three major hospitals (Virginia Mason, Harborview, and Swedish) with emergency rooms and no urgent care centers with the exception of Group Health which is restricted to Group Health insurance members. The question I asked myself is, Why does Group Health have urgent care for their insurance plan members and the major hospitals in Seattle do not.

Urgent vs. Emergency Care A study by the CDC showed that approximately 70 % of emergency department visits can be treated in a typical primary care or urgent care setting1 and another study by National Center for Policy Analysis demonstrated that only 13% of patients that sought treatment in the emergency department were clinically appropriate.2 Reasons for non-emergency visits to the ED range from access issues to primary care providers (wait times, no primary care provider assigned, or no insurance) to a lack of knowledge that they could have been treated at an urgent care or primary care setting.

There are good reasons to visit the emergency department: Trauma due to an accident or assault Shortness of breath Chest pain A wound that will not stop bleeding Vomiting blood Sudden loss of consciousness

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2

National Health Statistics Report, CDC, August 6, 2010

National Center for Policy Analysis Emergency Room Visits Likely to Increase Under Obama-Care Brief Analysis No. 709 by John C. Goodman June 18, 2010

For true emergencies the market is very inelastic, patients will spend whatever it takes to receive treatment. They do not shop around to find the best price but typically visit the closest emergency department.

Urgent care centers provide a wide range of services from simple sports physicals and flu shots to fractures and minor lacerations that need sutures. Patients who typically visit the urgent care center have immediate needs and are not able to see their primary care provider or do not have one.

Most urgent care settings are staffed with family medicine physicians or emergency room physicians. They are typically supported by physician assistants and/or ARNPs with emergency room experience and can provide a high level of care for urgent cases.

The emergency department provides emergency services to the community which includes indigent care. There is a significant cost to payers when a patient visits the emergency department. While there are justification for these higher fees, may people will visit the emergency department for ailments that can be treated in the doctors office. Patients do not see the full impact of the higher cost since their insurance company only charges a slight increased co-pay when seen in the emergency department compared to a physicians office visit ($20-25 physician office co-pay to $50100 emergency room co-pay). The typical reimbursement for a physician office or urgent care visit is $156 for a first time visit and $112 if the patient has been seen before compared to $1,539 for an emergency room visit.3 As you can imagine, healthcare insurance companies would prefer patients to be seen in an urgent care center over an emergency department if appropriate.

Emergency Department Economics A large portion of the difference cost between the urgent care center and the ED is associated to the Facility Fee. This is a fee that hospitals charge for the use of the facility (exam, emergency, and
3

Center for Financing, Access and Cost Trends, Agency for Healthcare Research and Quality: Medical Expenditure Panel Survey, 2007

procedure rooms, etc.) of any hospital space, not just a hospital room. Medicare slightly reduces the reimbursement for sites that use facilities fees but these fees are not regulated and are not transparent to most patients.

Hospitals use the Facility fee to offset their cost to provide care for those who are not able to afford it or do not have healthcare insurance. A great deal of this care is written off as uncompensated care and to help offset this loss, patients and insurance companies pay more for services provided at notfor-profit hospitals.

With the addition of an urgent care center in this market there will be a reduction in the nonemergency care in the emergency department. This will reduce the demand for ED visits and the ratio of patients with insurance to offset the cost of uncompensated care. With a decrease in demand we should see a decrease in the cost of emergency room visits as more patients get their non-emergency care at urgent care centers. The new healthcare reform will eventually reduce the burden on hospitals and insurance companies by providing the means for everyone to have healthcare and increase the ratio of insured patients seeking treatment.

Urgent Care Economics Unlike an emergency department, urgent care centers do not charge facility fees. Insurance companies and patients are only charged for services rendered. Urgent care centers provide a high level of non-emergency care at a similar cost as it would to visit a doctors office which is about 1/10th of the cost of an emergency room visit. This includes minor procedures such as lacerations that need sutures, minor burns, casting of fractures, reduction of dislocated joints, and on the job injuries. Urgent care centers are for-profit and are not required to provide indigent care, but do not have the tax benefits of a not-for-profit hospital. The quality of care in an urgent care center is just a good in an emergency department for nonemergency care. The differentiating factor is follow-up care. Most emergency department physicians

do not see their patients for follow-up care and only 2/3 of the patients will follow up with their primary care provider, if they have one. In many cases the remaining third will have further complications that will require more expensive treatment.4 Urgent care patients return for follow-up visits at the center and/or provided an appointment for follow up care with a primary care provider.

It is more cost effective to have patients seen in an urgent care setting for non-emergency treatment. Patients that visit the emergency department typically have more ancillary testing compared to urgent care. 5 One complication of urgent care centers is the limited access geographically and the hours of operation. In the greater Downtown Seattle area there is only one urgent care clinic and it is associated to Group Health and only Group Health plan members can use the center.

Insurance Company Economics Payers understand the benefits and are promoting quality urgent care centers to reduce overall healthcare cost. Insurance companies are providing a slightly higher reimbursement for urgent care settings to increase in the supply of urgent care centers which is increasing the quantity of centers. Insurance companies would rather pay a little more than an office visit at an urgent care center than to have their patients go to an emergency room and pay significantly more for the same service.

Payers also know that if their consumers (patients) visit an urgent care center, there is a greater chance that the patient will see a primary care provider for follow-up care. This type of quality of

Characteristics and health services utilization of Medicaid ER and urgent care patients who keep primary care follow-up appointments. Abstract Book Assoc Health Service Res Meet. 1998; 15: 298-9. 5 Warren GH, Isikoff SJ. Comparative costs of urgent care services in university-based clinical sites. Arch Fam Med. 1993 May;2(5):523-8

care will reduce the risk further complications and the need to revisit the urgent care center or an emergency department.6

Provider Economics Primary care providers also benefit from urgent care centers. When managed care patients visits an urgent care center there is a significant saving of the capitated fees compared to an emergency department visit. This leaves significantly more money in the managed care pool providing a higher financial reward for the primary care provider. Insurance companies also provide financial incentives to physicians to reduce their emergency department visit ratio.

On the down side, insurance companies also incentivize providers in maintain high patient quality scores. A typically example is based on diabetic lab levels (A1C or blood glucose levels). If a clinic adds urgent care and starts to add patients into the clinic system, there is a good chance that the A1C averages will increase causing a reduction in patient quality scores leading to lower financial rewards.

Summary Urgent care centers provide a cost effective way to provide urgent but non-emergency care. It reduces the cost of care to payers and there is a reduced out-of-pocket expense to the patient. This should cause patients to seek treatment at an urgent care clinic when appropriate.

So to answer my question; Group Health is a capitated insurance plan and it is in their best interest to provide urgent care for their patients and incentivize them to visit an urgent care clinic when appropriate.
6 Kyriacou DN, Handel D, Stein AC, et al. Factors affecting outpatient follow-up compliance of emergency department patients. J Gen Intern Med. 2005;20:938-942

The not-for-profit hospitals in Seattle are not interested in providing urgent care as it will reduce their income and are gambling that no one will build a successful urgent care in their market area. If this happen, they will lose a great deal of insured consumers requiring them to make significant changes in how they provide care.

With the new healthcare reform, eventually all citizens will have healthcare coverage even if government supplemented. This leads me to question how hospitals will qualify as not-for-profit status if they are no longer providing uncompensated care.

By: Daron Vchulek, Seattle, WA