The average non-trauma emergency department (ED) in California generates 20% of a hospital's profits, according to a new study commissioned by the California HealthCare Foundation (CHCF) and conducted by the USC Center for Health Financing, Policy and Management. The issue brief California's Emergency Departments: Do They Contribute to Hospital Profitability? can be found online through the link below.

In 1998, the most current year's data available at the time of the study, total net non-trauma hospital profits were $657 million with EDs accounting for $131.4 million, or about 20%. In that year, 2.12 million inpatients were admitted to the hospitals studied, including 800,000 admitted through emergency departments.

Using a new statistical accounting model, the study demonstrates that patients admitted to the hospital from the emergency department generate an average profit of $1,220 per admission, more than covering losses for treating emergency department patients not admitted to the hospital.

"To understand the economic contributions and costs of emergency departments, they must be evaluated in the context of a hospital's overall operations, rather than as independent business units," said Glenn Melnick, Ph.D., the study's lead author. "Doing so shows that while EDs do consume a disproportionate share of hospital resources, they also provide a significant and growing percentage of new patient admissions, making them an increasingly valuable source of hospital profits."

To get a better picture of the impact of the state's 245 non-trauma emergency departments on overall hospital financial health, Melnick's team developed a new accounting model to better capture costs and revenues that are overlooked by the traditional accounting model used by hospitals to report profits and losses to the California Office of Statewide Health Planning and Development (OSHPD).

• EDs are a primary source of hospital inpatients, contributing to overall hospital profitability.
• EDs lost an average of $84 on each patient treated, but on the 1 out of 7 ED patients that need to be admitted to the hospital, the average profit is $1,220, more than covering losses by patients not admitted.
• The study was based on statewide averages and determined that the financial impact of EDs on an individual hospital is significantly affected by ED visit volume, location, and type of facility (profit, not-for-profit, safety-net or Disproportionate Share Hospitals).
• Large urban EDs' per-visit cost was $350, compared to rural EDs at $73 per visit.
• For-profit EDs' per-visit cost averaged $290, compared to not-for-profit EDs at $324, and public hospitals at $260.
• Safety-net hospital EDs' per-visit cost was $248, compared to non-safety net EDs at $309. "Until now there has been little systematic research about how emergency departments influence overall hospital financial health, and thus, ED system health. This new study has revealed that EDs contribute to hospital profitability through inpatient admissions," said Elaine Batchlor, M.D., CHCF director of inpatient and emergency services programs.

  The new model—validated by an advisory committee including hospital finance experts, ED administrators and physicians, and others—takes into account direct, indirect, and ancillary costs for emergency departments that are overlooked by traditional accounting methods. Similarly, the traditional model does not capture hospital revenues generated by emergency departments.

  A key aspect of the analysis involved tracking the interrelationship between inpatient departments and EDs. Study findings suggest that in most hospitals, inpatient operations are so dependent on EDs as to make them inextricable, according to the study.

  The full report can be through the link below, along with other reports in CHCF's California Emergency Services Project, established to provide context for the complex factors that affect emergency department capacity, access use, and financial performance.