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HEALTH POLICY AND CLINICAL PRACTICE/EDITORIAL
Emergency Department Boarding and Profit Maximization forHigh-Capacity Hospitals: Challenging Conventional Wisdom
Jesse M. Pines, MD, MBA,MSCE
John D. Heckman, MBA, MS
From the Department of Emergency Medicine and Center for Clinical Epidemiology andBiostatistics, University of Pennsylvania School of Medicine, Philadelphia, PA (Pines);the Leonard Davis Institute of Health Economics, University of Pennsylvania, Philadelphia, PA(Pines); andthe Office of Financial Planning, University of Pennsylvania Health System, Philadelphia, PA(Heckman).
0196-0644/$-see front matterCopyright © 2008 by the American College of Emergency Physicians.doi:10.1016/j.annemergmed.2008.08.012
SEE RELATED ARTICLE, P. 249.
[Ann Emerg Med. 2009;53:256-258.]
In this issue of Annals, Henneman et al1 report thatadmissions originating in the emergency department (ED) resultin higher daily contribution margins than direct and transferadmissions ($769 versus $595).1 Their findings are importantand provide useful information to hospital managers who usefinancial planning to make operational decisions. Theychallenge conventional wisdom that bed placement policies thatprioritize elective admissions over ED admissions may notactually be the profit-maximizing strategy. Their analysis isrelevant to hospitals that operate at high capacity and arecapacity constrained (more demand than supply) for both EDand elective admissions; that is, if you modestly increase the EDor hospital size, the system will soon be at full capacity again.2
This “capacity-constrained” situation has become commonplacein recent years, with the simultaneous shrinkage of hospitalcapacity and increase in demand for ED services that has led tothe current situation of nationwide ED and hospital crowding.3
In the authors’ institution, the policy is to assign hospitalbeds when an admission decision is made. This first come/firstserved prioritization policy is likely similar in many hospitals.Because daily admission decisions for ED patients occurthroughout the day and decisions for elective admissions occurearlier for the most part, first come/first served results in EDpatients being placed lower in the queue for inpatient beds. Ifhospitals are not at or above capacity, first come/first servedworks well: patients move to empty, waiting beds when they aremedically ready. In high-capacity hospitals, a first come/firstserved policy results in ED boarding when there is asimultaneous high demand for elective and ED admissions (ie,every nonholiday Monday when there is not a major surgicalconference). This leads to the opposite situation, in whichpatients move when the bed is ready, which may be long afterthe patient is medically ready. An additional effect of ED
boarding is more ED crowding. EDs with high levels of256 Annals of Emergency Medicine
boarding have lower capacity to manage new, undifferentiatedpatients, which further impedes ED flow.
A situation in which customers are plentiful should seem likethe best of circumstances from a managerial perspective.However, success breeds inefficiency and long lines when thereis limited capacity, and necessarily someone will experience await. When ill people are waiting for medical care, the stakes arehigher. The central question for hospital managers is whoshould wait? Is it more profitable to have ED patients give upand go home or to cancel elective admissions? This decisionshould certainly consider other variables, such as medical need,safety, and outcomes. But for the moment, let’s just considerthe bottom line.
The authors contend that because ED patients are moreprofitable, instead of a first come/first served policy, the bettereconomic answer is to allocate inpatient beds to ED patientswhose daily demand for inpatient beds is relatively predictable.In doing so, they recommend that hospitals reconsider theirreluctance to cancel elective admissions because ED patientsyield a higher daily contribution margin. Although the authorsmay be correct for their hospital, many other issues should beconsidered before this recommendation can be generalized toother institutions.
The first issue is that the authors’ analysis really applies onlyto their hospital, a limitation that they freely admit. In theirhome state of Massachusetts, there is an Uncompensated CarePool Plan. This plan, funded annually at more than $600million, offers hospitals the ability to recover additionalrevenues for low-income uninsured and underinsured patients,which boosts revenue for ED admissions more than electiveadmissions. Overall contribution margins may changeconsiderably if this fund does not offset what may have beenlosses for 5% of self-pay ED admissions compared with the 1%of elective admissions. Another example of how statewidereimbursement practice affects the profitability of ED boardingexists in our state. In Pennsylvania, insurers are required to pay
hospitals 100% of charges for workman’s compensation traumaVolume , . : February
Pines & Heckman Boarding and Profit Maximization for High-Capacity Hospitals
alert patients. So a crowded ED on diversion might miss multi-injured workman’s compensation patients whose costs ofhospitalization may be a quarter of what is reimbursed. In somecases, overall charges can exceed $1 million. Missing several ofthese patients in a year while the ED is on diversion couldconsiderably change hospital profitability.
A second consideration is that contribution margins vary byinsurance status. In EDs with higher proportions of Medicaid orself-pay, even with some guaranteed reimbursement for the low-income patients, the calculation of daily contribution marginmay change to favor elective admissions. In addition,reimbursement from private insurers may be different accordingto local negotiated agreements.
A third issue is that the authors combined direct and transferadmissions in the same pool. At our hospital, there are widelydivergent margins for these 2 populations. Direct admissions are farmore profitable per day than transfers. Transfers in our hospitalinclude severely ill patients from community hospitals who requirespecialized intensive care, sometimes for long periods, and costsfrequently exceed revenues. ED patients aside, the profit-maximizing strategy would be to altogether refuse these patients.But fortunately, in our hospital, intensive care physicians makedecisions to accept transfers based on medical necessity.
A fourth issue is the effect of boarding policies on marketing.By restricting elective admissions, patients might choose to seekmedical care elsewhere or physicians may elect to refer patientsto other hospitals. Similarly, ED patients who are boarded forlong periods or evaluated in a hallway not only report lower EDsatisfaction but also are less likely to favorably rate their entirehospitalization and recommend the hospital to others.4 It isunknown which may have a stronger effect on future demand.
A fifth issue is how a policy of advance bed allocation for EDadmissions might affect the bottom line in practice. Consider asituation in which 20 daily beds are allocated to ED admissions.On one day, there may be 20 admissions. But on another, theremay be 18 or 23, or possibly even 15. On a day in which there areonly 15 ED admissions, 5 staffed beds go unfilled. And that doesn’taccount for hospitals with units designed for specific types ofpatients and who lack flexibility. In some hospitals, orthopedicpatients are not managed on medical floors and vice versa. Becausethere is more variability in ED bed demand, this introduces risk.With risk comes potentially lower expected profits for an “ED first”prioritization strategy. In these cases, it may be more relevant toexamine ED versus direct admission profitability only for servicelines that are most often admitted through the ED. For example,the authors included obstetrics/gynecology and neonatal cases inthe comparison even though only 1% of neonatal and 3% ofobstetrics/gynecology admissions were through the ED. These arecomparatively low margin cases, which lower the median marginfor direct admissions. However, neonatal and, in most cases,obstetrics beds would not be used for the patients being admittedthrough the ED.
The final issue is how this new strategy would affect the
behavior of those who use the system, the so-called X factor. IfVolume , . : February
there is an explicit policy that ED patients get beds first and fast,what is to stop a patient who would have been an electiveadmission from registering in the ED? Similarly, if an electiveadmission from a physician’s office is refused because beds arereserved for ED patients, what is to stop the physician fromsending the patient to the ED?
The point is that hospitals need to do their own analysis basedon their local reimbursement situation, which is exactly what theauthors suggest. In our hospital, a similar analysis of adultnonobstetric acute medical/surgical admissions actually yields aresult opposite that of the authors. Direct admissions are almost 2.5times more profitable than ED admissions. Furthermore, bothhospitals and policymakers need to understand the consequences ofthe status quo (ED boarding) or the alternative, which also mayproduce other systematic problems.
Of course, it is important to point out that both the authors’analysis and our analysis discount the patient safety and qualityissues that arise from ED boarding and crowding. A recentstudy found that ICU patients who board in the ED for greaterthan 6 hours have a mortality of 17.4% compared with 12.9%for those with shorter boarding times.5 To be fair, we must alsoconsider the safety of elective admissions whose medical needsmay be delayed if ED patients get top priority. As more data arereleased detailing the hazards of ED boarding and crowding,hospital administrators should use these data to inform bedprioritization policies and full-capacity protocols.
From a financial perspective in which admissions are bothplentiful (capacity constrained) and bountiful (contributionmargin �$0), probably the most cost-effective answer is toimprove efficiency with the current space. The authors pointout targeted solutions such as surgical schedule smoothing(balancing demand for elective admissions) as an excellentexample. In addition, assessing process flow to determine wherebottlenecks exist and how non–value-added activities can bereduced or eliminated may be more effective than limiting theinflow of profitable customers through policies that prioritizeone admission type over another.6
But assume all the waste has been removed from thesystem. In a perfect world, hospital administrators would useethics and refer to their mission statements to guide bedprioritization decisions and give the beds to patients to needthem the most, the sickest patients, without regard tocontribution margin. As the authors point out, thiscalculation favors prioritizing ED patients over electiveadmissions, which we agree is the moral choice and the onethat most closely aligns with the mission of hospitals.
Supervising editor: J. Stephan Stapczynski, MD
Funding and support: By Annals policy, all authors are required todisclose any and all commercial, financial, and otherrelationships in any way related to the subject of this article thatmight create any potential conflict of interest. See theManuscript Submission Agreement in this issue for examples of
specific conflicts covered by this statement. Dr. Pines is fundedAnnals of Emergency Medicine 257
Boarding and Profit Maximization for High-Capacity Hospitals Pines & Heckman
by the Emergency Medicine Foundation of the American Collegeof Emergency Physicians and holds a Jahnigen CareerDevelopment Award from the American Geriatrics Society.
Publication date: Available online September 27, 2008.
Reprints not available from the authors.
Address for correspondence: Jesse M. Pines, MD, MBA,MSCE, Department of Emergency Medicine, University ofPennsylvania School of Medicine, 3400 Spruce Street, GroundRavdin, Philadelphia, PA 19104; 215-662-4050, fax 215-662-3953; E-mail [email protected].
REFERENCES1. Hennenman PL, Lemanski M, Smithline HA, et al. Emergency
department admissions are more profitable than non-ED
admissions. Ann Emerg Med. 2009;53:249-255.258 Annals of Emergency Medicine
2. Han JH, Zhou C, France DJ, et al. The effect of emergencydepartment expansion on emergency department overcrowding.Acad Emerg Med. 2007;14:338-343.
3. Institute of Medicine. Hospital-based emergency care: at thebreaking point. Available at: http://www.nap.edu/catalog.php?record_id�11621. Accessed July 27, 2008.
4. Pines JM, Iyer S, Disbot M, et al. The effect of emergencydepartment crowding on patient satisfaction for admitted patients[published online ahead of print August 10, 2008]. Acad EmergMed. doi:10.1111/j.1553-2712.2008.00200.x.
5. Chalfin DB, Trzeciak S, Likourezos A, et al. Impact of delayedtransfer of critically ill patients from the emergency department tothe intensive care unit. Crit Care Med. 2007;35:1477-1483.
6. Eitel DR, Rudkin SE, Malvehy MA, et al. Improving servicequality by understanding emergency department flow: a whitepaper and position statement prepared for the AmericanAcademy of Emergency Medicine [published online ahead ofprint May 29, 2008]. J Emerg Med. doi:10.1016/j.emermed.
2008.03.038.CORRECTION
In the November 2008 issue, in the News and Perspective article, page 522, “Captain Joseph Madill, MD, aboard-certified emergency physician” should have been identified as “Captain Justin Madill, DO, a board-preparedemergency physician.” Also on page 522, Madill is quoted as saying, “Twenty-five of our runs our first month herewere pediatric emergencies,” but it should have said, “Nearly 25% of the runs our first month here were pediatricemergencies.” The author apologizes for these errors.
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