Abstract
Introduction
Tele-emergency is an electronic, two-way, audio/visual communication service between a central emergency healthcare center (tele-emergency hub) and a distant hospital emergency department (ED) (remote ED) designed to provide real-time emergency care consultation. In most instances, the remote ED is located within a small rural hospital, and the tele-emergency hub is located within, or associated with, a tertiary-care hospital or health system.
The literature describing clinician and patient satisfaction with telehealth is established. 1,2 Although current literature evaluates the economic case for telehealth, there is little consensus on whether telehealth is cost-effective. Mistry 3 reviewed 80 studies and found no evidence that telehealth is cost-effective compared with conventional healthcare. In contrast, Wade et al. 4 reviewed the literature on synchronous telehealth and concluded that such services were cost-effective in some cases (e.g., homecare). De la Torre-Díez et al. 5 recently reviewed 35 relevant studies and found “a lack of concrete evidence with which to fully assess the economic impact of tele-medicine….” Published financial analyses of tele-emergency are particularly limited.
Yet, tele-emergency programs are expanding, and healthcare leaders need information to make wise decisions about tele-emergency investments. This article expands the tele-emergency literature to describe the business case for tele-emergency. “Business case” is defined as a reasoned argument, supported by objective data and/or qualitative judgment, to implement or continue a service or product. Especially in mission-focused organizations, the business case argument may include factors that do not directly lead to financial return on investment; for example, a strong business case may exist for a service that improves community health or develops a regional health system yet does not return a financial profit.
This article addresses potential costs and benefits of a tele-emergency program from the perspective of a critical access hospital (CAH) receiving tele-emergency services from a health system hub operating a tele-emergency program. Because classic cost-effectiveness analyses require clinical effectiveness and healthcare cost data that are rarely available at the encounter level, this article describes financially quantifiable costs and revenues associated with CAHs' use of tele-emergency services.
Materials and Methods
Data were analyzed from the eEmergency program, a large, regional tele-emergency program with a tele-emergency hub, of Avera Health in Sioux Falls, SD, which serves remote EDs in South Dakota, North Dakota, Minnesota, Iowa, Nebraska, Kansas, Wyoming, and Montana. The eEmergency hub is staffed 24/7 by emergency medicine specialty physicians and registered nurses from Avera McKennan Hospital—a tertiary-care hospital in Sioux Falls. As of September 2014, Avera Health's eEmergency served 89 remote EDs. Another 10 EDs were in the process of eEmergency implementation. Since eEmergency inception (October 2009), only three remote EDs have discontinued the service.
Utilization data were studied in 49 rural hospitals where tele-emergency services had been established as of 2012. All were designated as CAHs. The study hospitals averaged fewer than 3,000 ED encounters per year and activated the eEmergency service an average of 44 times per year. The CAHs in the study were similar in bed size to other CAHs in the region and the nation but cared for only about half the patients per year as the national CAH ED average (Table 1).
Critical Access Hospital Bed and Emergency Department Characteristics and Annual Values, 2012
All critical access hospitals (CAHs) in the six states (Iowa, Minnesota, Nebraska, North Dakota, South Dakota, and Wyoming) where eEmergency was present in 2012.
CAHs that had implemented eEmergency prior to January 1, 2012.
Data from the Flex Monitoring Team (
Data from the American Hospital Association Annual Survey, 2012.
Data from Avera Health eEmergency records.
ED, emergency department.
In fall 2011 and fall 2013, telephone interviews and site visits were conducted with a sample of 85 clinicians and administrators at 26 rural hospitals that used the Avera Health eEmergency service. In fall 2012, a group telephone interview was conducted with several Avera Health regional financial officers to gather additional information about the business case for tele-emergency. All interviews were recorded and subsequently transcribed. De-identified transcripts were reviewed for content relevant to the business case for tele-emergency. Specific revenue and expense monetary values were not consistently provided, but the revenue and expense categories described here were mentioned repeatedly across numerous interviews.
Data were also obtained from a 2012 Avera Health survey of approximately 40 rural hospital eEmergency participants regarding ED staffing patterns and staffing costs. In spring 2014, estimated cost-saving data associated with eEmergency were obtained from five rural hospitals that had used the Avera Health eEmergency service for several years. In addition, in spring 2014, Avera Health leadership provided information relevant to the revenue and expense categories included in these analyses. Once the business case was populated with data from Avera Health, other sources were searched to identify nationally representative estimates where possible.
Results
Financial Assumptions
To build a business case pro forma for tele-emergency, financial assumptions associated with tele-emergency are described below for six categories of revenue and savings (tele-emergency encounter revenue, local hospital admission revenue, nursing education savings, professional recruitment savings, nonphysician substitutions for physician savings, and ED physician backup call savings) and for three categories of expenses (tele-emergency start-up expenses, connectivity/maintenance expenses, and tele-emergency service fee expenses). A Medicare cost-based adjustment is also included.
Tele-emergency encounter revenue
When eEmergency is activated during an ED encounter, Avera Health leadership indicated that the eEmergency-supported ED encounter results in approximately $60 in additional CAH revenue due to additional ED services provided and billed. To develop additional revenue scenarios, a range of eEmergency encounters per hospital was used (4–226 eEmergency encounters per year). Utilization scenarios were defined with the third quartile of 66 encounters as high utilization, the mean of 44 encounters as midrange utilization, and the first quartile of 17 encounters as low utilization.
Local hospital admission revenue
In a national survey of rural hospitals (those not located in a metropolitan statistical area), slightly fewer than 10% of ED patients were admitted to the local hospital. 6 An avoided transfer due to tele-emergency utilization may result in patient admission to the local hospital. Between October 1, 2009, and June 30, 2012, eEmergency log data showed a total of 1,530 encounters. Avera Health eEmergency hub staff indicated that the eEmergency service possibly prevented 179 transfers out of remote EDs and definitely prevented 129 transfers. Fifty percent of eEmergency encounters labeled “possibly prevented transfer” were assumed to prevent transfer, and all eEmergency encounters labeled “definitely prevented transfer” prevented transfer. Thus, 219 patients were not transferred out of remote EDs due to eEmergency utilization (179/2+129=219). Of the 219 patients, 20 were admitted to the local hospital. Therefore, in this sample of 1,530 eEmergency encounters, 1.3% of the patients avoided transfer and were admitted to the local hospital (20÷1,530=0.013). Given an average of 44 eEmergency encounters per year, tele-emergency would result in 0.57 admissions per year per CAH (44×0.013=0.57).
A non–cost-based payment admission (often commercial insurance) increases profit at the profitability rate for that particular insurer. A cost-based payment admission (e.g., Medicare) to a CAH directly results in neither profit nor loss but distributes fixed costs over greater volume and thereby lowers overall cost per admission, effectively enhancing non–cost-based insurance (generally commercial) contract profitability. However, for ease of calculation, only non–cost-based insurance admissions were assumed to result in incremental profit. To determine incremental profit per admission, an aggregate payer mix of 50% non–cost-based payers and 50% cost-based payers (a typical CAH payer mix) was assumed. Furthermore, it was assumed that all cost-based payers paid 100% of cost. Using the latest published data (2011 financials), the average operating margin for South Dakota CAHs is 2.76%. 7 To achieve this operating margin and using the payer mix and profit assumptions above, South Dakota CAHs must average 5.52% profit on non–cost-based insurance admissions.
An average South Dakota Medicare per diem reimbursement (or cost) of $1,8316 and an average length of stay of 3.09 days 8 were used for calculations. Thus, average cost per admission is $5,658 ($1,831×3.09=$5,658). A 5.52% non–cost-based profit rate suggests average revenue per admission of $5,970 ($5,658×1.0552=$5,970). Inpatient variable costs of 20%, or $1,132 per admission ($5,658×0.2=$1,132), were assumed. To calculate commercial contribution margin per admission, variable costs were subtracted ($5,970 – $1,132=$4,839) and multiplied the product by an assumed inpatient non–cost-based payer mix of 30% to obtain a weighted average contribution margin per admission of $1,452 ($4,839×0.3=$1,452). As noted above, the percentage of eEmergency encounters resulting in an avoided transfer and local hospital admission is 1.3%. Therefore, additional inpatient operating margin per eEmergency encounter is $18.87 ($1,452×0.013=$18.87) (Table 2). To determine revenue attributable to avoided transfers and local admissions, $18.87 was multiplied by the number of tele-emergency encounters per year. To develop the analysis scenarios, once again 66 encounters as high utilization, 44 encounters as midrange utilization, and 17 encounters as low utilization were used.
Weighted Contribution Margin from an Admission Associated with Tele-emergency Encounter
CAH, critical access hospital.
Nursing education savings
Avera Health provides continuing education via eEmergency technology free of charge to participating rural hospitals. Reducing educational fees, travel costs, and professional time away can reduce hospital expenses. The costs associated with, and hospital reimbursement for, continuing clinical education vary widely. Five Avera Health eEmergency facilities were polled and reported that an average of 40% of nursing continuing education was provided by eEmergency. Assuming that 10 nurses received continuing education via eEmergency, these hospitals saved an average of $593 per year (Table 3). For the analysis scenarios, $1,000 as high savings, $593 as mid-range savings, and $0 as low savings were assumed.
Nursing Continuing Education Units Through eEmergency
CEU, continuing education unit.
Professional recruitment savings
Physician recruitment costs per vacancy can be as high as $88,000 and average approximately $30,000. 9,10 Physician turnover rate is estimated at 6.1% per year. 11 Assuming a five-physician practice affiliated with each CAH, this turnover rate would result in 0.3 physician vacancies per year. Thus, physician recruitment costs are approximately $9,000 per year ($30,000×0.3=$9,000). Interview data indicated that tele-emergency can reduce physician vacancy by one-third, thus saving $3,000 per year per hospital. For the financial analysis scenarios, $6,000 per year as high savings, $3,000 as midrange savings, and $0 per year as low savings were assumed.
Physician assistant/nurse practitioner substitution for physician savings
Any costs saved by substituting nonphysician providers for physicians in the ED will result in direct savings for the local hospital. In a 2012 survey of approximately 40 Avera Health eEmergency users, locum tenens physician ED coverage costs averaged approximately $120/h. Locum tenens physicians were being used at a rate of approximately 100 h/month, or 1,200 h/year. In a study of five Avera Health eEmergency CAHs, the difference between physician costs and physician assistant/nurse practitioner costs was approximately $50/h. Substitution scenarios of 1,200 h/year as high savings, 600 h/year as midrange savings, and 0/year as low savings were assumed.
ED physician backup call savings
The greatest potential cost savings due to tele-emergency may result from substituting tele-emergency for local physician backup call of physician assistants/nurse practitioners staffing the ED. A 2013 memorandum from the Centers for Medicare and Medicaid Services allows tele-emergency physicians to serve as backup physicians to nonphysician providers staffing the rural ED. 12 This is a relatively new rule interpretation; thus there is little experience to guide potential cost savings calculations. In two Avera Health surveys of locum tenens and local physician costs, hourly rates averaged approximately $110/h. (The previous $120/h average included only locum tenens physician costs.) If a range of tele-emergency backup rather than local (or locum tenens) physician backup of 0–2,000 h (about 25% of a year) is considered, savings range from $0 to $220,000/year. Thus, tele-emergency backup call scenarios of 2,000 h/year as high savings, 1,000 h/year as midrange savings, and 0 h/year as low savings were assumed.
Tele-emergency start-up expense
Recommended remote tele-emergency equipment might include camera (pan/zoom/tilt), liquid crystal display monitor(s), cart, wall mount brackets, personal computer, and wireless bridge. Further equipment may include electronic stethoscope, dermascope, otoscope, or ophthalmoscope (all optional). 13 –15 The literature suggests that telehealth equipment costs for the remote site range from $20,000 to $95,000. 12,13,16 However, Avera Health eCARE leadership reports that the tele-emergency audio/visual equipment required for the eEmergency remote hospitals costs a minimum of $12,000. The literature reports that initial set-up connectivity costs from the hub to remote EDs are $4,000–$6,000. 12,17 Because the Avera Health reported expense was lower than literature reports, financial scenarios of $50,000 as high expense, $30,000 as midrange expense, and the Avera Health minimum cost ($12,000+$5,000=$17,000) as low expense were assumed. Computer equipment is generally depreciated over 5 years. Although the Modified Accelerated Cost Recovery System allows variable depreciation, a first-year expense equal to 20% of the total equipment expense plus initial connection expense was assigned.
Connectivity/maintenance expense
Ongoing connectivity costs approximately $300–$700 per month for the Avera Health eEmergency service. Additional ongoing rural hospital participant costs, such as equipment maintenance, are minimal, although the cost of equipment upgrades could equal or exceed the initial purchase cost. Based on Avera Health data, financial scenarios of $8,400 per year as high expense, $6,000 per year as midrange expense, and $3,000 per year as low expense were assumed.
Tele-emergency service fee expense
Avera Health charges remote hospitals an average of $60,000 per year to provide eEmergency service. However, not all tele-emergency hub providers may charge remote hospitals a service fee. Financial scenarios of $90,000 as high expense, $60,000 as midrange expense, and $0 as low expense were assumed. The lower the tele-emergency service fee, the more profitable a tele-emergency service will be for a remote hospital user.
Medicare cost-based reimbursement
CAH costs are offset in part by Medicare cost-based reimbursement. But, cost offsets are limited to allowable costs (as defined by Medicare) and are proportional to the percentage of ED Medicare patients or Medicare revenue. (Medicare cost-based reimbursement to CAHs is set at 101% of cost by statute. However, current sequestration cuts have reduced this rate to 99%. The analysis in this study used 100%.) Nationally among rural hospitals (not located in a metropolitan statistical area), slightly fewer than 22% of ED visits are paid by Medicare. 6 The cohort of remote CAHs serving an elderly rural population likely includes a greater percentage of Medicare patients. As expected and among the studied eEmergency hospital participants, 35% of the CAH ED patients are insured by Medicare, in which case Medicare will reimburse 35% of all allowable ED costs. For example, a $60,000 tele-emergency service fee is offset by Medicare reimbursement of $21,000, effectively making the cost $39,000. On the other hand, hospital revenue and savings (from tele-emergency) are reduced by 35% as well. For example, additional tele-emergency encounter revenue of $2,640 offsets other costs of care. Accordingly, cost-based reimbursement reduces this new revenue by $924 ($2,640×0.35=$924). To determine Medicare cost-based reimbursement attributable to tele-emergency, all revenue and allowable costs must be included, except for physician recruitment costs (and consequently savings), which are not allowable Medicare costs.
Financial Analysis
Pro forma
A tele-emergency financial pro forma based on potential revenue/savings and expenses associated with a tele-emergency service in multiple financial categories (Table 4) was developed. A high revenue/low expense scenario, a midrange scenario, and a low revenue/high expense scenario for each financial category were assigned. From the range of eEmergency encounters per hospital per year (4–226), the third quartile (66 encounters), mean (44 encounters), and first quartile (17 encounters) were used to develop two of the financial scenarios. In the study of Avera Health eEmergency CAHs, the ED Medicare payer mix is approximately 35%, which is applied to both profit and loss. The resulting financial analysis demonstrates $187,614 profit in the high revenue/low expense scenario, $49,841 profit in the midrange scenario, and $69,588 loss in the low revenue/high expense scenario.
Tele-emergency Financial Analysis
Based on $60 additional emergency department (ED) revenue per tele-emergency encounter.
Based on $18.87 additional inpatient revenue per tele-emergency encounter due to avoided transfer and admission.
Midrange of $593 average based on convenience sample of five critical access hospitals.
Midrange of $3,000 based on 0.3 vacancies per year, $30,000 per vacancy, and tele-emergency cost reduction of one-third.
Midrange based on one-half of current 1,200 h/year locum tenens coverage at a difference of $50/h.
Midrange based on 1,000 h/year at $110/h.
Low-range based on 20% of a total cost of Avera Health $12,000 equipment and $5,000 initial connection costs.
Midrange based on Avera Health estimates of $6,000/year.
Midrange based on Avera Health fee of $60,000/year.
Based on an ED Medicare payer mix of 35%.
NP, nurse practitioner; PA, physician assistant.
Sensitivity analysis
A sensitivity analysis can be performed by assigning a percentage likelihood to each total or to each individual financial category value. For example, a 25% likelihood of high revenue/low expense total, a 50% likelihood of midrange total, and 25% likelihood of low revenue/high expense total yields a sensitivity analysis equation of ($187,614×0.25)+($49,841×0.50)+(–69,588×0.25)=$54,427 (Table 5). Thus, the analysis projects that implementation of a tele-emergency program would result in a local hospital profit of $54,427. To refine the sensitivity analysis, each financial category value and the ED Medicare payer mix could be similarly adjusted based on unique local circumstances.
Sensitivity Analysis (Totals Adjusted Only)
Discussion
This financial analysis shows that tele-emergency service costs may be offset by new savings and revenue resulting in CAH profit. The greatest potential cost savings is likely due to tele-emergency service substitution for local or locum tenens physician backup call for physician assistants/nurse practitioners staffing the ED. CAH leaders considering implementing a tele-emergency service should establish the business case for tele-emergency by developing a tele-emergency financial pro forma. A tele-emergency financial pro forma should utilize the financial categories listed in Table 4, incorporate revenues/expenses informed by local knowledge, and include a sensitivity analysis to forecast profit/loss.
Although most study data were generated from a single large health system, Avera Health's eEmergency service operates in many rural hospitals across eight states. The CAHs in this study were similar in bed size to regional and national CAHs but provided approximately one-half of the number of ED encounters per year as the average CAH nationally. The revenue/expense categories to evaluate the business case for tele-emergency will be similar in all CAHs that are financially accountable for business decisions, regardless of geographic location or system affiliation. Thus, the analyses described above will have broad applicability. Volume and monetary inputs will vary, however. For that reason, midrange values were chosen and then supported by data means in the study (where data were available). High and low value ranges were based on Avera Health and national data when available. The ranges are purposefully wide. Thus, predicting profit/loss of any one tele-emergency service or site requires local knowledge. Yet this study suggests that a prototypical rural tele-emergency service is likely to be profitable if CAH leaders take advantage of increased revenue/savings opportunities afforded by tele-emergency.
Conclusions
This study highlights the Avera Health eEmergency tele-emergency program but has broad applicability for CAH leaders evaluating the financial impacts of tele-emergency. The eEmergency program's continued expansion after 5 years in operation suggests prima facie evidence of the business case for eEmergency from the perspectives of participating rural hospitals and the health system hub. Tele-emergency has the potential to increase rural hospital revenue and savings and to reduce total emergency care costs for an insured cohort or population, a financially advantageous function in a capitated payment system.
Footnotes
Acknowledgments
The authors wish to thank Sue Nardie for her manuscript editing assistance and Eric Shell for his accounting principles review. This research was supported by grant 2010PG-RHC032 from The Leona M. and Harry B. Helmsley Charitable Trust.
Disclosure Statement
A.L.B. is an employee of Avera Health, which contracts with rural hospitals to provide telehealth services. A.C.M., M.M.W., F.U., P.A., and K.J.M. declare no competing financial interests exist.
