Everything is Bigger in Texas: The Tale of $54,000 COVID Tests

https://doi.org/10.56927/912006

Waqar Ali & Anand Prabhakar

Introduction

Driving down Alton Gloor, a six-lane wide street that bisects all of rural Brownsville (a town with a population of about two hundred thousand a striking 80% obesity rate in 2014),¹ one gets a great picture of the extreme manifestations of the fee-for-service system of healthcare delivery in Texas. A brightly colored banner plastered with dark bold letters—"COVID Testing Available!”—covers the front of a freshly painted, colorful red and blue double-story building dubbed “Exceptional ER”—the newly-erected construction is ensconced beside a neighborhood and across the road from the local hospital’s 30-year-old emergency department. To the untrained eye, it appears to be a hospital emergency department (especially with its branded ambulance parked outside), but the complex exists in the gray area between an ED and an urgent care center. The new building is indeed part of an ongoing trend of freestanding ERs (FSERs)—also referred to as freestanding emergency departments—and for the past twelve years since the passing of the Texan act enabling their existence,² dozens of FSERs have popped up around Texas, now numbering over 260, the highest number for a state in the USA, where approximately 566 exist across 32 states.³ In fact, despite having only 9% of the US population, Texas has 46% of the nation’s FSERs.

On paper, the nature of the FSER, a concept dating back to the 70s,⁴ represents a solution to the problem of poor access to urgent care—the proliferation of FSERs ideally leads to a healthy competitive market that ultimately drives down urgent care costs, fosters care improvement, and incentivizes physicians and stakeholders to expand urgent care access to neighborhoods, rural towns, and retail areas. This has, however, has not been the case,⁴ and perhaps most strikingly during the COVID-19 pandemic, where FSERs, most prominently in the state of Texas, have engaged in the practice of pandemic gouging.⁵ Though not much discourse or new data exist on the financial dynamics and operations of FSERs, examining their existence, along with the context of poor health literacy, poor regulation, for-profit healthcare they exist in, sheds light on the extreme manifestations of a fee-for-service system, and it is a telling example of a policy that is promising in theory but unsuitable in practice.

Explosion and Financial Impact of FSERs

FSERs, both those owned independently and by hospitals, have consistently displayed behaviors of overcharging for nonurgent services relative to those provided by physicians’ offices and hospitals.³ Diagnostic services are a notable area of profitability—as per United Health Group, the cost of a strep throat test at a FSER amounted to approximately $2700, roughly 21 times the price of a strep throat test at a doctor’s office and 17 times the price at an urgent care center. Diagnostic services were coupled with the use of physician consults; physicians in FSERs were often out to perform procedures typically undertaken by RNs; this simple protocol change allowed for diagnostic procedures to be coded as physician consults, increasing the billing charge.⁵ Coupled with the sly yet legal profit strategy is the fact that many FSERs exist as out-of-network providers for major insurance plans, including Medicare/Medicaid, UnitedHealth, Anthem, etc. The out-of-network status of these ERs is unbeknownst to the consumer who is allured by the prospect of convenient, quality medical care, only to be faced with a surprise bill.⁶ Texas legislature has notably put in measures that call for FSERs to disclose their out-of-network status openly to consumers,⁷ but the enforcement of such laws has been murky, and poor consumer literacy meant that such efforts were often futile (oftentimes FSERs would sidetrack these laws by disclosing the insurance plans they accepted on their website in a confusing manner).⁸ The proliferation of ERs, their price gouging practices, and their out-of-network status was a powder keg waiting to be triggered by the next great surge in diagnostic testing, and it came with the COVID-19 pandemic. Financial Impact to Consumers during COVID-19 Pandemic: It is not a new development that many state legislatures have pushed and passed legislation that called for insurance companies to shoulder the expenses from COVID-19 tests provided by out-of-network providers. In addition, many private insurers had proactively eliminated patient cost-sharing for COVID-19 tests before this as well. With the enaction of the CARES act in March 2020, COVD-19 testing was a fully incentivized practice both for the provider and the consumer on the federal level.⁹ The advent of PCR rapid tests meant the demand for tests sky-rocketed, and this prime market was capitalized on by FSERs.⁵ The exact price coding for rapid tests was noticeably undeveloped, allowing FSERs to charge anywhere from 200 to 1200 dollars, and some notable Texan cases involved bills in the tens of thousands (Travis Warner, a Texan computer programmer, was notably billed 54 thousand dollars for a PCR test from a Dallas FSER).¹⁰ Such stir surrounding pandemic gouging has catalyzed responses from the state legislature—notably the HHS interim final rule regarding surprise billing has taken a stride to protect the insured from improper balance bills—but the existence of such a practice nonetheless speaks to the backwardness often seen in for-profit healthcare establishments. To add insult to injury, FSERs preferentially locate near higher-income areas, thwarting the impact they can have towards improving access for underserved areas.¹¹ Potential Remedies No-nonsense regulation targeted at FSERs is needed, and such an impact must be made beyond the realms of COVID-19. While initiatives by the Biden administration and CMS are steps in the right direction, more stringent policy must be put in place; indeed, there is a multitude of measures that can address this very large room for improvement. A much-needed initiative, and one that is well-timed with current policy trends, would be to mandate FSERs to maintain a form of price transparency, either on the organization’s website or during an advertisement. This is in line with the CMS’s current initiative to institute price transparency with hospital systems nationwide];¹² however, although the CMS’s Hospital Transparency Rule has been in effect since January 2021, compliance has been lacking, so a policy targeted towards FSERs must maintain firmer guidelines/penalties.¹³ In addition to price transparency, the implementation of the newly coined “backstop price caps” is a potentially effective measure against the extreme price outliers; such price caps would keep a stopper on exorbitant commercial healthcare prices, helping minimize overall healthcare cost.¹⁴ The drive should be made to have private insurance reimburse commercial healthcare systems at the Medicaid rate—although Medicaid is typically not accepted by FSERs, such a measure would cut costs and, in combination with price transparency legislation, help encourage a competitive price market. In a similar theme, regulations should also be put in place over the advertising methods employed by FSERs. Much like the FDA currently regulates advertising by the pharmaceutical industry, advertising by FSERs should be mandated to disclose the types of insurance accepted and the services they can provide, making it clear that the facility is distinct from an urgent care clinic and a hospital ER. Regarding FDA authority, a key potential remedy to the COVID-19 price gouging at play would be to fast-track the development of cheap, at-home tests—this, if mobilized correctly, would effectively slice the patient flow to FSERs. Price abuse is also a notably unaddressed part of the FSER phenomenon; at present, healthcare price abuse is reported through a state attorney general and occasionally through the federal attorney general. The creation of a healthcare price abuse agency—preferably one that is part of the CMS—could help centralize the role of price reporting and lead to less consumer confusion and better data collection on price gouging behavior. On the broader topic of consumer literacy, sign labeling initiatives that push for FSER’s to clearly distinguish themselves from urgent care clinics have been put in place in various states (California, Texas, and Florida), but greater efforts still need to be put in place to help drive the shift of ER visits to clinic visits an overall minimize costs. Examining where idealistic policy plans go awry can help us understand the nature of healthcare incentives, aiding in the design of more effective, value-based medicine. Through a multi-pronged policy approach that combats both exorbitant prices and consumer disinformation, healthcare systems like FSERs can be more tightly regulated and prices can be curbed down.

about the authors

Anand Prabhakar, MD, MBA is a radiologist at Massachusetts General Hospital in Boston, MA, having received his MD at the University of Pennsylvania. His research interests include healthcare economics and health services.

Waqar Ali, ‘25 is an undergraduate at Harvard University studying Human Developmental and Renerative Biology. In addition to biology, he is also interested in education.

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