Medical Economics

The Medical Economics Of Firearm Injuries

Several years ago, our medical center’s chief of trauma surgery asked me “Why don’t we make your hospital a level III trauma center?” At the time, I was the medical director of a 175 bed urban/community hospital component of our larger university medical center. In order to keep the hospital open, I was always looking for ways to improve our finances and that meant looking for new income sources.

I researched the economics of trauma and called the medical directors of all of the other level III trauma hospitals in Ohio to get a feel for the most common trauma injuries that we would see and the hospital resources that would be required. I ran the numbers and it turned out that becoming a level III trauma center made financial sense.  I projected that we would primarily see an increase in geriatric fall-related fractures. The demographics indicated that most of these patients would be over age 65 and thus have insurance through Medicare. Inpatient hip, and leg fracture admissions are quite lucrative for hospitals and since we would not need to have 24-hour in-hospital surgeons and anesthesiologists (unlike the requirements of a level II trauma center), the costs would not be very high. From an academic standpoint, it would improve the exposure of our emergency medicine and orthopedic surgery residents to fractures and fracture management.

I presented our plan to the medical center’s leadership and got the green light to proceed. But during the various meetings prior to approval, one of the department chairs said “Yeah, and we can make a lot of money off of gunshot injuries”. But do hospitals really make money from firearm injuries? To answer that question, we must first look at the statistics on firearm injuries.

Firearm injury statistics

It turns out that we know a lot less about firearm injuries than other causes of injury and death. A major reason is the Dickey Amendment, named after U.S. Representative James Dickey of Arkansas. In the 1996 Omnibus bill, he added an amendment stating “…none of the funds made available for injury prevention and control at the Centers for Disease Control may be used to advocate or promote gun control.” The amendment was strongly lobbied for by the National Rifle Association and effectively stopped all research by the CDC into gun-related deaths and injuries. It was not until 2018 that Congress passed a law allowing the CDC to report data on firearm injuries and not until 2020 that Congress allowed funding for firearm injury research by the CDC.

The most widely available firearm statistics from the CDC and the FBI are the number of deaths by firearms. For example, in 2020, there were 45,222 firearm-related deaths in the United States. Of these, 54% were death by suicide, 43% were homicide, and 3% were accidental. Guns are America’s weapon of choice for homicide and account for 79% of homicides. When a gun is used for homicide, 64% of the time it is a handgun. Although semiautomatic rifles get a lot of public attention, rifles (including assault weapons) only accounted for 364 gun-related homicides in 2019 (in 32% of gun-related homicides, the type of gun was not reported). Guns are also America’s method of choice for suicide and account for 53% of all suicides. These numbers are important for public policy but really have minimal impact on hospital finances because most firearm-related homicides and nearly all firearm-related suicides are pronounced dead at the scene and never get transported to the hospital. Therefore, the cold reality is that firearm-related deaths are relatively inexpensive from a healthcare cost standpoint. Instead, the costs are incurred by the survivors of firearm injuries.

There is no single national data system that provides complete and reliable data on non-fatal firearm injuries. The U.S. Department of Justice reported that in 2018, there were 34 times as many non-fatal crimes in which a firearm was used as there were firearm-related homicides. A 2015 study reported that there were just over 2 non-fatal firearm-related injuries for every 1 firearm-related death in the U.S. Most firearm-related injuries are from assault: 85% of the time a firearm is used in suicide it results in fatality whereas only 19% of the time a firearm is used in assault does it result in homicide. For this reason, far more assault-related firearm injury victims survive long enough to make it to the hospital than persons attempting suicide by firearm. Firearm-related accidents are even less fatal with death occurring in only 5% of incidents.

One of the most complete datasets available is a report on firearm injury healthcare service needs and costs compiled by the United States Government Accountability Office (GAO) at the request of Congress in June 2021. The GAO found that the hospitalization costs of firearm injuries are just over $1 billion per year with an additional $75 million for patients seen in the emergency department but not admitted to the hospital. These hospitalizations and ED visits are expensive and cost more than twice the amount of other hospitalizations and ED visits.

In addition to hospital charges, physician professional charges add an additional 20% to these numbers. When combined, the total annual initial healthcare cost of firearm-related injuries is $1.3 billion. There are major differences in the anatomic location of injuries among those patients admitted to the hospital and those patients seen and released from the emergency department. 48% of inpatient stay costs are incurred by persons injured in multiple regions of the body where as 60% of ED-only costs are incurred by external-only (skin-only) injuries.

Most victims who arrive at the hospital survive with only 8% of inpatients and 10% of ED patients dying. Inpatient deaths account for 8% of hospital firearm injury costs and ED deaths account for 19% of ED-related firearm injury costs. There are additional post-hospital healthcare costs for survivors with 20% of inpatients requiring discharge to skilled nursing facilities or home healthcare.

There is a significant difference in payer mix among inpatients with firearm injuries versus those seen and released from the emergency department. In the ED, 37% of patients are self-pay. Most of these patients have low incomes and little financial resources. Although they are frequently sent to collection agencies, little money is ever collected on them. Consequently, the majority of self-pay charges in the ED are written off. When ED patients are insured, the most common coverage is by Medicaid (30%) followed by private commercial health insurance (20%). Only 5% of ED-only patients are covered by Medicare and this reflects the typical younger age of firearm injury victims. The average cost to the hospital for an ED-only firearm injury was $1,478 with the most costly being no-charge patients ($1,697) and the least costly being Medicare patients ($1,256). The graph below shows actual cost of care to the hospitals and not what the payers ultimately paid for ED visits.

Patients requiring inpatient hospitalization have a strikingly different payer mix with 52% of patients covered by Medicaid. This is largely because hospital billing departments work these patients rigorously to get as many self-pay inpatients to apply for Medicaid while they are in the hospital. These “Medicaid pending” cases are usually paid retroactively to the date of application once the patient’s Medicaid coverage is approved. The hospital costs per admission are highest for those patients with Medicaid ($35,862) and lowest for self-pay patients ($22,735). The graph below shows actual cost of care to the hospitals and not what the payers ultimately paid for hospitalizations.

Inpatients with firearm injuries have a different demographic than the the U.S. population as a whole. They are more likely to be male (88%), between age 15 – 44 (80%), and Black (52%). There is not data on the annual income of patients with firearm-related injuries however more than half of patients reside in zip codes where the median household income is less than $44,000 per year.

There are also differences in inpatient firearm injury rates between different geographical locations in the country. The Southern United States accounts for the largest percentage of firearm injuries (48%) but only has 38% of the total U.S. population. The average cost per firearm-related hospitalization was considerably higher in the West ($40,465) than in Northeast ($29,624), South ($28,176), or Midwest ($27,817).

There are enormous differences in firearm injuries between different states. The Rand corporation reports that annual firearm-related hospitalizations ranged from a low of 0.19 per 100,000 population in Hawaii to a high of 2.42 per 100,000 population in Louisiana, a 13-fold difference. The rate for the District of Columbia was not included in this report.

Patients admitted to the hospital with firearm-related injuries are likely to require readmission to the hospital after discharge. A 2019 study found that 12.5% of patients discharged after a firearm injury hospitalization required readmission within 6 months of discharge. Many of these patients required more than one readmission – patients who required readmission had an average of 1.7 readmissions each. About 1/2 of the readmissions occurred within the first 30 days of the initial admission. The average cost per readmission is $10,108 or about one-third the average cost of the initial hospitalization.

The GAO report does not reveal the entire impact on healthcare costs. It does not include the cost of outpatient treatment, skilled nursing facilities, or home healthcare. It also does not include the cost of mental healthcare after a firearm injury. Furthermore, the GAO report only examined hospital costs and not what payers actually paid.  A December 2020 study in the Annals of Internal Medicine looked at 2,019 firearm-related injuries in Blue Cross Blue Shield members from five U.S. states and measured the insurance company payment, plus any copayments, coinsurance, or deductible owed by the patient. The total payments for an ED-only firearm-related injury averaged $5,686 and for inpatient hospitalizations averaged $70,644 (hospitals are paid more by commercial insurance companies for any given service than they are paid by Medicare; these higher payments offset the amount hospitals lose on self-pay and Medicaid patients). The study found that in the 6-months after an ED-only firearm-related injury, total healthcare costs were $8,136 higher than in the 6-months before the ED visit ($12,120 versus $3,984). This indicates that most of the costs of a firearm injury are incurred after the patient leaves the emergency department. Similarly, in the 6-months after an inpatient hospitalization for a firearm-related injury, total healthcare costs were $17,389 higher than in the 6-months before the hospitalization ($21,507 versus $4,118). In addition, mental health claims increased by 106% after ED-only visits and by 319% after inpatient hospitalizations.

Are firearm injuries profitable for hospitals?

As a general rule, hospitals make money on commercial insurance patients, lose money on Medicare patients, lose more money on Medicaid patients, and lose the most on self-pay patients. The Medicare Payment Advisory Commission (MedPAC) reported to Congress that in 2022, the average hospital loses about 9% on each Medicare patient. This means that for a hospital to break even on any service it provides, there has to be a certain percentage of high-paying private commercial insurance admissions to counterbalance loses sustained from Medicare, Medicaid, and self-pay admissions. The ratio of these payment sources is called the payer mix. The average U.S. hospital revenue is composed of 21.8% Medicare, 12.8% Medicaid, and 66.5% private/self/other. The composition of the private/self/other component varies considerably from hospital to hospital and from state to state. For example, hospitals in Medicaid expansion states have a much lower self-pay percentage than hospitals in states that did not opt to expand Medicaid. The challenge for every hospital is to have enough commercially-insured patients to offset the losses sustained by all of the other patients in order to break even each year.

Given that only 19% of inpatients and 20% of ED-only patients with firearm-related injuries have commercial insurance, it is hard for any hospital to make firearm injuries profitable. Hospitals collect very little from the 15% of inpatients and 37% of ED-only patients that are self-pay and most of these charges are written off. These percentages are considerably higher than the population as a whole – the U.S. Census reported that in 2020, 8.6% of the U.S. population had no health insurance and 93.4% of the population had governmental or private health insurance. In short, the payer mix for firearm-injury patients is just plain bad.

To compound the problem, a physician cannot generate sufficient professional revenue to support a competitive income for themselves with this payer mix. Therefore, hospitals have to more heavily subsidize the emergency physicians and surgeons who care for firearm injuries if they want to keep those physicians on staff. This creates even more overhead costs for the hospitals.

How to reduce financial loss from firearm injury patients

Firearm injuries are classified as trauma cases and as such are preferentially directed to hospitals designated as trauma centers. These are in turn classified as level I, level II, and level III trauma centers. For a full explanation of the different levels of trauma centers, see my previous post. Level III centers are the most common and require the least hospital resources. Unlike level I and II centers, level III trauma centers are not required to have surgeons, anesthesiologists, and OR staff physically present in the hospital 24 hours a day. This greatly reduces the hospital overhead expenses of level III trauma centers compared to level I & II centers.

For all payers, surgical admissions are more lucrative than non-surgical admissions and so hospitals can often break-even or even make a profit on Medicare surgical admissions while losing money on Medicare non-surgical admissions. Therefore, for a hospital to make money on trauma admissions, it needs to attract as many patients who require a surgery sometime during their admission but preferably not in the middle of the night. This is why geriatric fall fractures are so desirable – most of them require an inpatient surgery but that surgery can usually be delayed until the following morning.  But as soon as a hospital holds itself out as a trauma center of any level, the EMS squads will bring firearm injury patients in addition to hip fracture patients. So, how does a hospital minimize financial losses from firearm-related injuries? Here are a few specific tactics:

  1. Convert self-pay to Medicaid. This is impractical for patients seen in the emergency department and released since the patients are in the ED for a short period of time. The hospital charges are not terribly high so the financial losses are not excessive. But for patients admitted to the hospital, there is enough time for the billing staff to get eligible patients signed up for Medicaid. Since Medicaid and Medicare will pay retroactive to the date of application, this can greatly reduce firearm injury admission write-offs.
  2. Develop transfer agreements with level I and II hospitals. For many level III trauma center hospitals, the costs to become a level II center is excessive, mainly from the need for 24-hour in-house surgeons, anesthesiologists, and OR staff. If the level III hospital can transfer many of its firearm-related trauma patients, then it can reduce losses, particularly from the self-pay and Medicaid patients that require surgery in the middle of the night.
  3. Reduce length of stay. Hospitals get paid by the diagnosis, not by the duration of hospitalization. By keeping the length of stay low, hospitals can reduce financial losses from firearm injury admissions. Significant length of stay reductions can even make these admissions profitable. The best measure is the “length of stay index” which is the actual length of stay divided by the national average length of stay for any given diagnosis. The length of stay index goal for firearm injury admissions should be less than 1.00 and ideally, less than 0.85.
  4. Utilize physicians who receive Upper Payment Limit funding. The Upper Payment Limit program allows certain physicians to be paid commercial insurance rates for Medicaid patients. These are largely state government-employed physicians at academic medical centers affiliated with public universities. This can result in the physicians having a payer mix equivalent to 71% private commercial insurance. This substantially improves the physician professional revenue payer mix resulting in less hospital subsidy and lower hospital overhead expenses.
  5. Convert ED-only self-pay firearm injury patients to Medicaid. As discussed earlier, most hospitals do not bother with self-pay firearm injury patients who are treated and released from the emergency department because the hospital charges are relatively low and the patients are there for a short time. However, since these patients have much higher healthcare costs in the 6-months after their ED visit than for the actual ED visit, it can be wise for the hospital to invest in staff to get these self-pay patients signed up for Medicaid while they are in the ED. That way, their subsequent outpatient care can be reimbursed.
  6. Ensure high quality post-hospital medical care. Given the 12.5% six month readmission rate, many self-pay and Medicaid patients will be readmitted to the hospital, thus magnifying hospital losses on these patients. Furthermore, since half of these readmissions occur in the first 30 days after discharge, they can count against the hospital’s readmission penalty from CMS. By developing strong medical care systems for firearm injury patients, these readmissions can be minimized. By utilizing physicians participating in Upper Payment Limit programs, outpatient physician care can break even or be profitable, even with a high self-pay population.
  7. Attend to mental health needs. The high number of mental health claims following ED visits and hospitalizations for firearm-related injuries is an indicator of the emotional trauma that accompanies the physical trauma in firearm injury patients. Although hospital subsidization of mental healthcare can be expensive, it can help reduce readmissions as well as improve patients’ quality of life.
  8. The best way to reduce financial losses from firearm injuries is to reduce the number of firearm injuries. This requires public policy decisions that go beyond the walls of our hospitals but physicians and hospitals can advocate for policies that reduce firearm injuries. However, current legislative measures and judicial decisions are moving toward policies that are resulting in increased firearm injuries.

Firearm injuries aren’t going away

Americans love guns. 39% of American men and 22% of American women own a gun and there is at least 1 gun in 40% of U.S. households. There is wide variation in gun ownership by state with 64% of households in Montana having a gun versus 8% of households in Hawaii and New Jersey having a gun. The U.S. is the only country in the world with more guns than people. We have 120 guns for every 100 residents – the next closest country is Yemen with 53 guns per 100 residents. Many states have recently passed legislation making guns even more accessible. Previously, 2016 held the record for gun sales in the U.S. with 16.7 million sold that year. In 2020, that record was shattered with 22.7 million guns sold. Also in 2020, firearm-related homicides increased 35% over 2019.

The commonly quoted slogan “Guns don’t kill people; people kill people” is only half right. The reality is that people with guns kill people. And people with guns cause firearm injuries. For hospitals, firearm injuries will be a growth business in the future but because of the payer mix of those injured, it is easy for hospitals to lose money caring for these patients. However, a few simple tactics can minimize these losses.

July 6, 2022

By James Allen, MD

I am a Professor Emeritus of Internal Medicine at the Ohio State University and former Medical Director of Ohio State University East Hospital