Emergency Medicine and Payment Reform

Health care reform measures have fueled significant consideration of systems and processes that are intended to optimize resource use, improve quality, eliminate waste, reduce overall cost, and align provider incentives with the objectives of a health care system. Accordingly, numerous efforts have focused on payment reform.

Both health care systems and payers must create delivery systems that provide timely access to appropriate care for their patients. In these systems, the role of the ED must be carefully considered. In addition to providing for primary and specialty care, payment methodologies must also account for acute, unscheduled care.

Numerous models of payment reform have been proposed, and some alternatives to the traditional fee-for-service model are currently in use. However, these are highly variable and inconsistently applied. There are many variations by payer, health system, specialty, diagnostic grouping, and patient population. Physicians and medical practices are highly interested in how payment reform models will impact their practice, with a focal priority of receiving fair payment that supports high quality care.

As payment reform progresses, it is important to understand the various options being discussed and piloted, the potential impact on emergency medicine, and how emergency medicine can meaningfully contribute to sustainable solutions. This paper briefly summarizes certain payment methodologies under consideration, and notes key issues, challenges, and recommendations for reimbursement of emergency services under these models. 

                         Payment Models

Fee for Service

Fee for Service (FFS) is a traditional payment model that has existed for many years. Simply put, a physician is paid a fee for each service rendered to a patient. As a result, FFS reimbursement is inherently responsive to patient volume and acuity. Providers experience higher reimbursement when more services (or more intensive services) are provided. In the purest sense, there is no direct mechanism for rewarding quality of care, appropriateness of service, cost-efficiency, or patient satisfaction. Some believe that under this system, providers may be incentivized to perform additional services, more expensive services, or even unnecessary services. There is also concern that care coordination and communication between providers is not a significant focus in this payment system.

Bundled Payment Model

Bundling can be an alternative to the FFS method. Essentially, bundling consists of a “lump sum” that covers all healthcare services related to a specific procedure or episode of care. Bundling centers around procedures or diagnostic categories, and its principle objective is to promote more efficient use of resources. Bundling divides the care into specific pieces and in turn, reimburses individual providers for each piece of the bundle they provide. There are many bundled payment pilots currently in process.

Problematic issues surrounding bundled payments methodologies include: (1) accurately predicting costs or (2) inaccurately predicting individual patient risks or severity of illness (3) misallocating the relative contribution of each service that participates in the bundle (attribution).

Thus this type of “bundling” is different from the bundling of several procedures in to one code and paying only for that code. Emergency Medicine is quite familiar with (and opposes) that type of bundling. The theory is the similar, but used on a much broader plain. Some pilots are looking at bundling the care around an episode of a new oncology or cardiovascular diagnosis. It is too soon to tell how this new type of bundling payment systems might affect emergency medicine. Emergency visits are generally not foreseen and thus are usually not accounted for in bundled payments. Therefore, the ED visits may be paid at a reduced FFS rate. These rates may or may not be negotiated in advance.


Capitation can be viewed as a “global” bundled payment. A group such as an IPA or ACO accepts a global payment amount for the health care of a defined population. All healthcare payments are made from this capitated sum, and remaining funds are then divided based on a prior agreement. Emergency care may be paid at a reduced FFS rate (although now rare, some ED groups in the past have sub contract on a capitated per member per month fee), and the health system usually implements significant efforts to direct patients to the most cost-effective centers of care.

Gain Sharing

Gain sharing can be defined as the shared savings produced as a result of changes in care processes. Shared savings can be derived from more efficient, cost effective use of hospital or outpatient services that improve quality, reduce cost over time and improve outcomes. It can be applied to hospital episodes of care, including physician services, or to physician office care.

Gain sharing programs often seek to reduce unnecessary ED visits. The emergency physicians are often omitted from the gain sharing itself, and are paid on a reduced FFS or a pre-negotiated FFS rate. When included in gain sharing EM physicians are often seen as specialists. Specialists usually trade a smaller share of the shared savings for increased market share. Thus, gain-sharing plans may or may not be advantageous for emergency physicians. It is important that Emergency Physicians are involved in the planning of these products.

Value Based Reimbursement:

The transition from a FFS system of reimbursement to one based on Value has already begun and will continue to expand. The Physician Quality Reporting System (PQRS) is one well known to emergency physicians. Initially a bonus for reporting (only), it is now a penalty for non-performance.

Section 1848(p) of the Social Security Act requires that Medicare establish a value-based payment system modifier that provides for differential payment under the Medicare Physician Fee Schedule based upon the quality of care furnished compared to cost during a performance period. Starting in 2015 groups of 100 or more will be affected, with all physicians affected by 2017. The 2016 payments will be based on 2014 data. The payment will be budget neutral so there will be “winners and losers”. The overall percentage of provider income from Medicare based on these value payments will still be relatively low, yet is expected to grow over time. 

Accountable Care Organizations (ACOs)

Due the Accountable Care Act, ACOs (or Accountable Care Organizations) are one of the major reform models being discussed by Medicare and private sector health plans. ACOs are provider collaborations that support the integration of groups of physicians, hospitals, and other providers around the opportunity to receive additional payments by achieving continually advancing patent-focused quality targets and demonstrating real reductions in overall spending growth for their defined patient populations. ACOs may use any and all of the above payment reforms. Again, it is extremely important that emergency medicine be involved from the start in these programs.

There are many variations of the above payment models; each has its own set of positives and negatives. It is important that we are aware of and participate in the planning for payment programs that may affect our practices. 

                      Emergency Medicine and Payment Reform

Because of its unscheduled encounters nature, emergency medicine has largely been bypassed in structuring most of these alternative payment systems and continues to operate under modified fee for service arrangements a majority of the time. There are many issues that contribute to this reality including:

  1. Unlike primary and specialty care which often rely on specific diagnoses or episodes of care for reimbursement under bundled payments, emergency departments often see and treat patients according to presenting symptoms. In addition, there is frequently not a definitive diagnosis made in the emergency department. This makes it difficult to allocate payments, other than on a cost basis. 
  2. Risk-adjustment and multiple morbidities complicate attribution and cost allocation, especially in the acute care setting. 
  3. It’s difficult to quantify the “preventative aspects” of emergency treatment (in other words, how much was saved by a thorough workup, stabilizing treatment, coordination of care and discharge, rather than a hospital admission?).

While these and other challenges exist, emergency medicine is well advised to pursue efforts to align reimbursement for emergency services with these novel payment mechanisms. However, our efforts to improve care, reduce costs, improve transitions of care, and deliver both clinical value and economic sustainability must be reasonably supported by data, information, and research that quantify the value of emergency care to the health care system.

Until mechanisms can be developed using additional data, information, and research, the current method of participating in a modified fee for service mechanism is an advisable posture, along with supporting efforts for the most cost efficient provision of services within the system.

Last Updated 08/2014  

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