How Is an Emergency Room Like a Monkey Wrench?

If we can't really make sense of what it costs to treat a case of the sniffles in two familiar venues, it makes it difficult to achieve a rational, affordable health care system in America.

Which of the following is true: Emergency rooms are the most expensive venues for primary care — or ERs are the least expensive venues for primary care? Arguably, both answers are correct, providing a powerful example of why health care finance and resource allocation in America are so irrational.

Recall that the U.S. military allegedly paid $2,228 for a monkey wrench around 1980 (roughly $6,600 in 2017 dollars). In contrast, you can buy monkey wrenches at Wal-Mart today for between $5 and $30. So, depending on who writes the check, a monkey wrench can be either the most expensive or least expensive tool in your shed.

When the Affordable Care Act (ACA) passed Congress in 2010, one of the strongest selling points was the need to stop uninsured patients from seeking non-emergency care in ERs.

The argument went as follows: Hospitals are required by law to treat anyone showing up in their ERs, regardless of insurance status or ability to pay. So, from the uninsured patient's perspective, it made financial sense to seek routine care in ERs, even for sniffles and minor bruises.

But ERs are pricey, and so what made sense for the uninsured proved costly for those of us ultimately paying their bills — insured patients and taxpayers. By providing these nonpaying patients with insurance, the ACA's authors aimed to shift routine care away from ERs to less-pricey primary care physicians (PCPs). This shift, the argument went, would dramatically reduce health care costs in America.

Some skeptics countered that the ACA wouldn't meaningfully reduce the expense of ERs used for non-emergency treatment. The ACA still leaves tens of millions uninsured. Plus, many newly insured people with high deductibles would probably still go to ERs for free care.

But almost no one questioned the assumption that ERs are the most expensive place to receive routine primary care. They didn't see that ERs are the $2,228 monkey wrench of health — places where the prices that providers charge diverge radically from the actual operating costs.

Yes, ERs certainly charge far higher prices for routine care than PCPs. But why?

Consider a patient who arrives at the ER with a mild cold. She sits in a waiting room until a doctor or nurse is free. Then she sits on an examining table in a small room with a curtain. The caregiver takes a few metrics, looks down her throat and ears with an otoscope and tongue depressor, enters the data in a computer, and writes a prescription on a small pad of paper.

Other than the tongue depressor and otoscope tip, this encounter consumes almost no resources; the waiting room, examining room, examining table, computer, equipment, and caregiver were already in place.

Often, equipment is shared with a large general hospital, allowing the facility to spread costs over the highest possible volume of patients. Non-emergency patients often wait hours to be seen, as the ER holds down costs by queuing them until resources become idle and available.

Now, give the same patient an insurance card and imagine she goes, instead, to a PCP's office. Again, a waiting room (but almost certainly a nicer one), an examining room and table (almost certainly more comfortable), otoscope, tongue depressor, computer, doctor or nurse.

The patient will not tolerate the long wait times ER patients endure. PCPs and their nurses almost certainly spend more time with patients needing routine care than their ER counterparts. The smaller facility loses the economies of scale available to an ER.

So, logically, the real costs of routine care delivered by a PCP are higher than in an ER. The high price of the ER encounter — like so many prices in health care — is fictional.

Because so many ER patients don't pay, hospitals try to load as much of their fixed costs — overhead, real estate, and equipment — onto their ER operations. This lets them argue for even higher reimbursement from paying customers to cover the inflated unreimbursed costs of their nonpaying customers. This is the real cost-shifting story.

So what do we have? A policy that, paradoxically, aims to save money by shifting patients from low-cost ERs to high-cost PCPs.

And the moral is that if we can't really make sense of what it costs to treat a case of the sniffles in two familiar venues, it makes it difficult to achieve a rational, affordable health care system in America.