Outsourcing of emergency departments getting more complicated

North Texas Medical Center decided to switch the contracted physician group that staffed its emergency department in 2015, seeking better service and quality.

The rural hospital had long been outsourcing its ED operations primarily because it has struggled to recruit and retain doctors. It is one of an estimated 4,000 U.S. hospitals that outsource their EDs, many of which routinely shop around for better options 

“It’s hard to recruit folks to rural areas. Having a provider group with a large panel gives us peace of mind that we will always have a provider available,” said Tom Sledge, CEO of North Texas Medical Center, adding that the Gainesville hospital’s volumes and finances have rebounded over the past couple of years. “We might need to add an extra provider, but rather than bring in a locum tenens firm, we have the ability to ring (Concord Medical Group) up and say we need an extra provider without that additional locums cost.”

In addition to the recruitment boost, contracting out ED operations has remained a popular practice given the financial risk of providing emergency care for the uninsured and underinsured, the costly overhead and the liability. That can amount to significant losses. Oftentimes, the contracted group will take on a portion of patients’ bad debt, limiting the hospital’s risk.

Many hospitals would rather spend money and resources on primary-care doctors who could refer patients to the hospital and grow market share, said Brian Tanquilut, a healthcare equity analyst with Jefferies.

But with the emergence of surprise billing as a national problem, arranging ED outsourcing relationships is trickier. One of the biggest reasons hospitals have shuffled contracted physician groups is because of surprise billing, which happens when patients unexpectedly receive a large bill for an out-of-network provider, Tanquilut said. The practice exposes patients to balance billing, or the difference between the provider’s undiscounted charge and what the health plan agrees to pay. The issue—centered around some emergency physician staffing firms—has sparked related legislation that aims to cap out-of-network payments and patients’ out-of-pocket costs.

“You don’t have full control of what they do in terms of contracting,” Tanquilut said. “On one hand you can argue that a lot of contracts already have a provision that the provider has to be in-network, but the reality is that some of these doctors don’t necessarily abide by it—they go out of network for leverage and to get better rates. Then they can balance-bill, and the hospital has a PR problem.”

In any outsourcing arrangement, potential culture clashes typically concern administrators. Hospital executives often worry that they will lose control of their operations as the workforce adapts to new styles and processes. Many staffing firms are backed by private equity, which has also drawn criticism that Wall Street benefits from egregious billing practices.

“Emergency medicine is fraught with peril,” said Dr. Denise Brown, chief growth officer at Vituity, a staffing firm led by affiliated physicians. “Changing out the ED takes a lot of political capital on the part of any hospital leadership team.”

Individuals from contracting firms have to participate in hospital committees, review performance benchmarks and jointly tackle governance with hospital leadership rather than go it alone, said Lisa Fry, chief growth officer at SCP Health, a firm that specializes in ED staffing and management.

“The ED is the front door to the hospital, and there is an opportunity to lead cultural change in conjunction with the hospital,” she said.

Doctors are individually minded, and emergency medicine doctors are often even more so, Brown said. There has been a major shift toward hospitals employing doctors, with the hope that greater control will yield better results, she said.

“But that doesn’t necessarily hold true,” Brown said. “Whether it’s changing triaging patterns, addressing behavioral health or adapting a concierge-type approach to patient satisfaction, it’s hard to get physicians to row a boat in the direction the hospital wants to go, whether they are outsourced or employed.”

Hospitals have opted to outsource different aspects of operations, whether it’s the ED, information technology, revenue cycle or other departments. They’d rather rely on the expertise of specialists than try to do something internally. They also set specific performance and efficiency goals as they look to save money and improve quality.

Concord Medical Group took over ED billing for North Texas Medical Center when it inherited the unit’s operations, which is typical in most outsourced ED arrangements.

After Community Hospital Corp. leased North Texas Medical Center from the Gainesville Hospital District in 2018, Concord met with local employers to learn about the payers they used and their billing processes, said Ashlie Boazman, executive vice president of operations at Concord.

“We were hearing concerns from the local community,” she said. “So we partnered with the local community to mitigate complaints about surprise bills.”

But some hospitals, particularly those that are financially unstable, outsource primarily for financial reasons. That is where they get into trouble, said Mark Armstrong, a shareholder at the consultancy LBMC.

“Sometimes outsourcing is a necessity,” Armstrong said, like when a hospital has trouble recruiting physicians, he added. “But it often doesn’t work if the main imperative is to save money—that is where you start to see quality problems.”

If that’s the case, staffing agencies can cut doctors’ pay, increasing turnover as well as credentialing problems when doctors aren’t in-network, Armstrong explained.

“But if you do it to maintain consistency and coordination, relying on firms’ more efficient scheduling processes and other expertise, it makes sense,” he said. “That can attract doctors.”

It’s common for some health systems to shop their ED outsourcing every three years, Fry said. Sometimes it’s related to contract changes; service or quality levels; recruitment; or revenue cycle, she said.

SCP and other staffing firms also take on consulting roles, overseeing hospitals’ employed doctors. SCP, for instance, takes on recruiting, training, setting clinical standards, managing performance, coding and billing, Fry said, noting that coding accuracy often improves.

“If a hospital employs doctors, those relationships to the hospital are the family jewels,” she said. “What it takes to get world-class performance out of one specialty takes a lot of expertise. A health system may not be able to cost-effectively do so in-house.”

While cultural issues may burden hospital administrators, financial losses stemming from the ED often force their hand.

More insurers are retroactively denying claims for emergency care if they deem them “non-emergent.” Hospitals are also adapting to a shifting payer mix as more of the commercially insured are converting to Medicare as they age, yielding lower reimbursement.

“We have had to ramp up our process on the denials and appeals process,” Fry said, adding that a couple of payers routinely deny every claim as standard practice.

Looming surprise billing legislation has also created some uncertainty, said Fry, who noted that SCP does not balance-bill.

While several private health insurers have expanded coverage for COVID-19 and waived out-of-pocket costs, they generally have not addressed surprise bills for related care.

“Now we see a lot of contracts where the hospital inserts language about balance billing—that gives some other people in the market some concern because it’s different from the customary way of doing business,” Brown said. “It is fairly well known we have never done that and have no intention of doing it.”

In the meantime, many staffing companies have been scaling up to treat large swaths of Americans as the number of COVID-19 cases rise. The rapid spread of the highly contagious virus has prompted a new level of collaboration between staffing firms, Brown said.

“We may be competitors, but we have worked closely together during this pandemic,” she said. “This is not a time for competition; we need 100% cooperation to take care of patients.”