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USC-Brookings Schaeffer on Health Policy

Successful acute care payment reform requires working with the emergency department

Editor’s note: This blog originally appeared on the Health Affairs Blog on May 5, 2015. To view the original post, click here.

More than a third of all patient encounters in the United States—354 million per year—are for acute, unscheduled care. Acute, unscheduled care or “acute care” refers to care for the critically sick and injured and encompasses a broad array of services, settings, and providers. Services range from life-saving stabilization and surgery performed in an emergency department (ED) and hospital after a traumatic motor vehicle crash to treating an uncomfortable urinary tract infection with antibiotics at an urgent care clinic or doctors’ office.

The financial support today for acute care is largely built on fee-for-service (FFS) payments, where each encounter is paid individually; thus more volume means more revenue. Increasingly, however, new alternative payment models (APMs) are being considered and implemented. APMs aim to shift away from FFS and reimburse quality and population health over volume of services. The theory is that paying providers differently will enable them to spend more time and resources on beneficial process changes that were not well-supported under FFS — such as preventive services, care management for chronically ill and complex patients, and care coordination. These steps are intended to improve patient outcomes, leading to lower costs.

Opportunities to Improve Efficiency, Quality, and Value

But where and how acute care—particularly episodic care that occurs in EDs and hospitals—fits into these new payment models is not clear. Broadly speaking, there are three ways to reduce acute care costs while improving outcomes. The first is to prevent acute health problems and the associated care from happening in the first place, employing measures such as chronic care management and efforts to reduce illness and injury through vaccinations and other public health measures. The second is to create and expand less costly (and hopefully more convenient) alternatives to ED care so people with acute problems use less expensive hospital-based care. The third way to reduce acute care costs while improving outcomes is to improve the function of the acute care system itself through steps such as better data systems or work assignments to improve efficiency, and the implementation of evidence-based pathways of care for common urgent-care problems.

All of these reforms can potentially benefit from the engagement and leadership of acute care clinicians and systems. However, most initiatives undertaken to improve acute care outcomes and costs have been implemented outside of the hospital acute care setting. Such initiatives like primary care medical homes and Accountable Care Organizations (ACOs) usually focus on primary care providers and other non-ED clinicians who manage chronic diseases and population health. Even payment reforms involving specialty care, such as oncology medical homes or bundled payments for congestive heart failure, do not typically engage ED care providers directly. At the same time, even though many APMs affect acute care indirectly, they may have important financial implications for EDs and hospitals that remain dependent on FFS payments.

To support needed improvements in acute care while simultaneously assuring adequate support for needed urgent care, as well as for emergency preparedness and disaster response, payment and delivery reform efforts will need to shift to a greater emphasis on engaging acute care systems and providers. Here, we describe three examples of how acute care-focused payment reform led to higher quality care and improved value.

Example 1: University of Maryland Upper Chesapeake Health

In 2010, Maryland implemented the Total Patient Revenue (TPR) payment reform. Under this payment reform, the 10 participating hospitals receive global payments for inpatient and outpatient hospital-based care — fixed-dollar payments independent of the current year’s volume. In 2014, the Maryland Global Budget Revenue (GBR) model extended TPR, imposing a 40 percent penalty when overages exceed 0.5 percent of the fixed budget.


Jesse M. Pines

Former Brookings Expert

Director, Center for Healthcare Innovation and Policy Research - George Washington University School of Medicine & Health Sciences

The hospital focus of Maryland’s global budget payment reform has created strong pressure to reduce costs by engaging EDs in ways that have been less prominent so far in medical homes, ACOs, and other reforms centering on primary care. For example, the University of Maryland Upper Chesapeake Health ED has implemented several successful interventions to reduce costs:

  • High-Risk Care Plan Program: Frequent users of the ED who generate high costs are identified by case managers. A multi-disciplinary team develops a care plan that is incorporated in the electronic health record with the goal of streamlining an individual’s care.
  • Clinical Care Pathways: A pathway was created to standardize care for patients with low-risk chest pain with the goal of safely reducing hospital admissions and moving some risk stratification for acute coronary syndrome out of the hospital.
  • Patient Callback Program: ED physicians receive payments to call at least two discharged patients per shift to ensure that patients’ aftercare goes smoothly and to help obtain necessary follow-up care.
  • Comprehensive Care Clinic: A hospital-funded clinic is targeted to patients without a primary care provider for follow-up after ED or hospital care to ensure a smooth transition from the post-acute care period back to the outpatient care environment.

In addition, along with other Maryland and DC hospitals, Upper Chesapeake Health participates in Chesapeake Regional Information System for our Patients (CRISP), a health information exchange where ED physicians can query to obtain old records, such as ED visits, hospitalizations, and imaging test results. Early results at Upper Chesapeake show a reduction in opioid prescriptions of 50 percent, and hospital-based encounters in high-cost patients decreased by 40-50 percent.

Example 2: Washington State’s ER is for Emergencies Program

In 2012, Washington State Medicaid, a part of the Washington Health Care Authority, proposed a health care financing reform that would only pay for three ED visits per year. Although implementation was suspended, it sparked a group that included the Washington State American College of Emergency Physicians (WA-ACEP), the Washington State Medical Association, and the Washington State Hospital Association to collaborate on the “ER is for Emergencies” program. The program aimed to reduce overutilization of EDs and address narcotic drug-seeking behaviors, one of the major causes of frequent ED use, through the following interventions:

  • Narcotic guidelines and prescription drug monitoring: This program aimed to reduce narcotic-seeking behaviors through 17 recommendations ranging from not providing replacement prescriptions for controlled substances that were lost or destroyed to limiting ED prescriptions to less than 30 pills. In addition, EDs started participating in prescription drug monitoring programs, so prior prescriptions for controlled substances are visible to the treating provider.
  • Educating patients about appropriate use of EDs: Brochures were distributed and educational posters displayed that help patients choose the best place to go for health care and give providers a starting point for conversations.
  • Identifying frequent users of ED and prehospital care and creating care plans: Similar to Upper Chesapeake Health’s program, Washington State EDs worked to develop care plans for people who frequent the ED to standardize care and address underlying problems, such as psychosocial needs and substance use.
  • Feedback of information to hospitals: Hospitals shared information on quality and utilization with the goal of identifying and improving care at low-performing hospitals.
  • These interventions had up-front costs, much of which were funded by the hospitals. But the change in ED capabilities led to considerable reductions in preventable acute care visits and costs. In its first year, it was estimated that these interventions and others saved the Washington State Medicaid Program more than $34 million. ED visits by Medicaid patients declined by nearly 10 percent; rates for less serious conditions decreased by more than 14 percent over the year. Scaling this example might include new support for ED providers tied to achieving measurable improvements in population-focused outcomes like those observed here.

Example 3: Kaiser Permanente California

Kaiser Permanente–California (KP California) is an integrated delivery system that includes an insurance arm, a physician arm, and a facility arm. The backbone of integration in KP California is the way that contractual agreements are structured between the three entities: each entity cross-subsidizes the other through a shared responsibility for the financial upside (and downside) of the other arms. The financial alignment provides additional resources for clinical coordination with EDs to better support efficient acute care, such as the following interventions:

  • KP OnCall: A call line is staffed by emergency nurses to reduce out-of-plan and ED utilization through advice for home management and same-day or next-day appointments.
  • Emergency Prospective Review Program: This involves call centers which operate 24/7 in major markets, staffed by Permanente emergency physicians and nurses, attempting to coordinate care with outside hospitals.
  • Transitions of care: Teams of care managers work closely with ED physicians to identify frequent users with chronic conditions and develop transition and follow-up processes to reduce future utilization.
  • Higher intensity ED care to avoid hospital admissions: In KP California hospitals, ED flow is not prioritized over ensuring that patients receive comprehensive work-ups, so that patients who do not require hospitalization are not admitted, even in favor of a longer ED stay.

KP California—along with the other regional KP entities—is supported by a single EHR, HealthConnect®, where member records are accessible by all health providers, including outside providers (through call center). While KP has long integrated financing for its California providers, the model serves as an example of how separate entities including insurers, providers, and facilities can create a mechanism for sharing in the benefits of more efficient care involving EDs. At KP California, ED utilization (244 per 1,000 people) and admission rates (13.2 percent) are substantially lower than the rest of the country (ED utilization 410 per 1,000; admission rate 15.3 percent).

Moving Towards Value in Acute Care Delivery

Common themes of successful interventions include new, non-FFS models of financial support for ED providers to improve care, linked to specific care redesign goals that are feasible to implement with the additional support, as well as improvements in information transfer across settings. While the interventions above have been effective at least in early results in reducing acute care, primarily through lower ED visits and hospitalizations, it is vital that such disruptive interventions to reduce costs are not destructive, particularly to facilities like safety net hospitals and rural EDs which are already strained. The acute care system, particularly EDs, forms the backbone of the safety net and the nation’s ability to treat the critically ill and injured — a 24/7 resource, the frontline for disasters and public health emergencies. The best way to avoid such adverse consequences is to implement APMs that encompass acute care and acute care providers directly.

These examples show that payment reform has the ability to support positive changes in acute care delivery. However, these examples have not been widely adopted, and the ideal model for payment reform in diverse ED care settings across all communities is not clear. With new opportunities for Medicare to implement major physician payment reforms affecting ED care, further development and evaluation of alternate payment models to improve acute care should promote the inclusion of acute care providers at every phase of design and implementation.

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