Why a Trip to the Emergency Room Costs a Fortune

Why do trips to the emergency room cost thousands of dollars even for the most trivial and routine of emergencies?

Elisabeth Rosenthal of the New York Times has been writing a fascinating series on why health care costs so much in the U.S. In a recent article, she asks: Why do trips to the emergency room cost thousands of dollars even for the most trivial and routine of emergencies?

"One of the simplest and oldest medical procedures — closing a wound with a needle and thread — typically leads to bills of at least $1,500 and often much more," Rosenthal writes. Her explanation: "Hospitals are the most powerful players in a health care system that has little or no price regulation in the private market."

Rosenthal's earlier stories looked at how surgeries and other treatments can cost several times more in the U.S. than they do in other advanced economies. In accounting for this, her reasoning makes sense on the whole: She showed in August how limited and expensive your options are if you need, say, a new hip. But the argument is less compelling for emergency rooms than for the other things hospitals do.

Emergency rooms face real competition from urgent-care centers -- walk-in clinics that can treat simple things like cuts, simple fractures, minor burns and so on. There are thousands of these facilities nationwide. Despite this competition, treatment in an emergency room still costs on average three-and-a-half times more than in a clinic, according to a study in the journal Annals of Internal Medicine. If competition hasn't forced ER costs down, the problem must lie elsewhere.

One candidate is that emergency rooms have high fixed costs. It makes no difference whether the patients who turn up in the ER have life-threatening conditions that require medically complex care, or whether they're there for a few stitches. The staff is on hand 24/7, along with suites full of expensive equipment, sufficient to handle the most serious cases. You pay for all that whether you need it or not. The itemized bills that Rosenthal mentions are misleading.

And here's another way of looking at it. It's not as though the actual value of a single stitch is $500. Rather, that price reflects the opportunity cost to the hospital of treating you rather than someone with graver (and more expensive) medical needs. And that opportunity cost could very well be thousands of dollars, even for just an hour of medical attention. A recent study in Health Affairs found that between 13.7 percent and 27.1 percent of emergency room visits could have been safely managed at retail clinics and urgent-care centers, saving $4.4 billion a year.

Harold Pollack, an economist at the University of Chicago, alerted me to another factor: cross-subsidization. Hospitals overcharge in some areas to balance losses in others, such as psychiatric care.

It's true, as Rosenthal says, that hospital management has little incentive to care about cost control in the first place. But routine emergencies cost so much in the ER mostly because it really is expensive to treat people there. Transparency and antitrust action can't fix that. Educating patients to know when a clinic will do seems a better answer.

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