EMTALA and Other Unfunded or Underfunded Mandates and Programs Result in Hidden Taxes on Hospital Services and Health Insurance

There have been numerous media reports of hospital prices and the effect that they have on health care costs, including the cost of health insurance. These accounts typically accuse hospitals of maintaining irrational pricing structures. These sources also complain that charges for similar procedures vary widely among hospitals and that the negotiated discount prices paid by various payors vary considerably even at the same hospital. But what these articles typically don’t explain is one of the primary causes of the pricing and payment issues: unfunded and underfunded government mandates and programs — chief among them being the requirements of the federal Emergency Medical Treatment and Active Labor Act, known as EMTALA. This effectively results in a hidden “tax” where some payors pay more than others to make up for the shortfall in government funding.

EMTALA requires that hospitals with emergency rooms provide screening and treatment to anyone showing up in their emergency room until the patient’s condition has been stabilized without regard to the patient’s ability to pay for the services. While this may be good (and necessary) social policy, it places massive burdens on hospitals. And unfortunately, EMTALA contains no provisions for funding the treatment of patients who do not pay for emergency care. This forces hospitals to use revenue from other payors to cover the costs associated with treating uninsured EMTALA patients.

The EMTALA burden is significant, although its financial impact varies among hospitals. Although the act only covers emergency services, it is not limited to services provided in emergency rooms. Rather, it includes all services needed to stabilize the patient, including inpatient services. Given that approximately 70% of hospital admissions occur through the emergency room, a significant number of expensive inpatient services are provided under EMTALA. Hospitals in affluent neighborhoods do not feel EMTALA’s financial impact as much as those in poorer neighborhoods because they are likely to have a larger percentage of their patients covered by commercial insurance. Hospitals in less affluent neighborhoods are likely to treat more patients who are uninsured or covered by governmental programs, such as the federal Medicaid program, which pays ultra-low rates that fail to cover the full cost of treatment. A high percentage of the uninsured patients will either be unable to pay for the services or will pay heavily discounted rates under the hospitals’ charity care policies.

A significant percentage of hospital services are provided to patients covered by Medicare, which primarily covers persons older than 65, who are hospitalized at rates significantly greater than the general population. Unfortunately, Medicare payments are also inadequate and are typically only a fraction of the amounts paid by commercial health insurance.

EMTALA puts hospitals at a disadvantage in both negotiating contracts with health plans and getting paid by them. Health plans have less incentive to negotiate agreements with hospitals because they know the Act requires hospitals to treat their members, who are suffering from an emergency medical condition. And after the member receives treatment, the plan knows the hospital will have the burden to seek greater reimbursement than the plan chose to pay.

California’s Knox-Keene Act and its regulations require health plans to reimburse hospitals for out-of-network emergency services, but do not specify the amounts that must be paid, only the methodology that the health plan must use in setting payment rates. It also prohibits hospitals from billing health plan members the amount not paid by the plan (a practice known as balance billing), although hospitals are free to sue the health plan if they are not satisfied with the amount paid. Many hospitals are reluctant to sue because of the expense and disruption of litigation. Some health plans have taken advantage of this imbalance of power by canceling hospital contracts and paying unilaterally set rates that underpay providers.

EMTALA’s unfunded emergency care mandate and the Medicaid and Medicare underpayments create economic problems that ripple through the health care system. It forces hospitals to make up for the lack of adequate funding by raising revenue from other sources. This increase in health care costs is, in effect, a hidden tax to raise funds to cover the costs of these government programs and mandates. The hospitals are then vilified for having what may be perceived as unreasonable charges and for accepting differing payment amounts from different payors.

Recent federal legislation, the No Surprises Act (effective Jan. 1, 2022), protects patients who have health care coverage from balance bills for hospital emergency services, but fails to adequately protect hospitals from unfairly low payments for out-of-network services. The act’s requirements are only applicable in cases where there is no state law (like the Knox-Kene Act) that prohibits balance billing for emergency services and sets forth a methodology for calculating payments.

The No Surprises Act and its regulations (some of which are not yet final) provide that health plans must make an initial payment for emergency hospital services equal to the average of the contract rates that the health plan has negotiated with similar hospitals in the geographic area for the services in question. It is obviously unfair that the health plan is required to make an initial payment that is less than the payment it negotiated with half of the hospitals that it contracts with and that ignores the value of the contract benefits that hospitals typically receive when they contract with health plans.

Hospitals are allowed to challenge the adequacy of this payment but are required to go through a cumbersome appeals process that will only add to the costs of obtaining adequate payment. Rather than solving the economic problems of the health care system, the No Surprises Act will only serve to exacerbate the problems caused by EMTALA and the other unfunded and underfunded programs and mandates imposed on hospitals. 