Medicare panel votes to cut payments to freestanding emergency departments

A lighted emergency room sign outside of a hospital
MedPAC voted on Thursday to cut payments to some freestanding emergency departments. (Getty/MJFelt)

The Medicare Payment Advisory Commission will recommend Congress cut payment rates for standalone emergency departments located within six miles of an on-campus hospital emergency room by 30%.

According to a report from Modern Healthcare, the proposal could save Medicare up to $250 million a year if it is ultimately adopted. 

MedPAC is a nonpartisan agency in the legislative branch which provides the U.S. Congress with policy advice on the Medicare program. MedPAC officials said they want to want to end incentives for off-campus emergency departments in urban areas that are close to already existing hospital emergency departments. 

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The creation of standalone emergency departments have exploded the last several years, increasing access but also driving up health costs in some states that have embraced them.

RELATED: American Hospital Association balks at proposal to slash Medicare payments to standalone emergency departments

According to a MedPAC report, the vast majority of the 566 standalone emergency departments in 2016 were located in metropolitan areas with existing capacity in more affluent areas with higher rates of privately insured patients. The growth of standalone emergency departments, they said, has been driven by "payment systems that reward treating lower severity cases in the higher paying ED setting" as well as competition for patient market share.

During their meeting Thursday, MedPAC also voted to approve a recommendation to allow rural hospitals located more than 35 miles from another emergency department to convert to a standalone ED that would be able to bill under the outpatient prospective payment system. It would also allow for annual payments to assist with their fixed costs.

RELATED: Emergency care: Urgent care, freestanding ERs on the rise

Groups including the American Hospital Association had urged MedPAC to reconsider their plan to recommend the cuts, saying it was not based on analysis of Medicare beneficiaries and costs and would worsen Medicare's underpayment to outpatient departments and hospitals. 

Medicare margins, they said, were nearly -15% for hospital outpatient departments and -10% for hospitals in 2016. 

They also warned it could threaten access to critical health services in some areas and urged the commission to expand their recommend emergency departments in vulnerable urban communities.

The commission estimates the recommended change would impact approximately 75% of urban standalone emergency departments. Standalone emergency departments that are more than six miles from a hospital-based ED would not be impacted by the recommended payment change.