SAC Review #55 – Spring 2026 Edition

SPRING 2026 – #55

QUARTERLY NEWSLETTER

Emergency Department Boarding:

The Hospital Reimbursement Story Behind a Public Health Crisis When the Stretcher Becomes the Bed — What ED Boarding Tells Us About a Reimbursement System Gone Wrong

By Joy Stephenson-Laws, Managing Partner

A SAC perspective on the financial mechanics behind a public health crisis In The Atlantic this month, Elisabeth Rosenthal described the final weeks of her husband’s life through a medical purgatory she called “barbaric”:

emergency department boarding. After being formally admitted to the hospital, her husband Andrej spent days on a stretcher in a hallway, waiting for an inpatient bed that was occupied, understaffed, or simply didn’t exist. He died not long after.

Anyone who has worked in or around hospitals knows this is not an outlier. Emergency department board-

ing is common, it is worsening, and it is dangerous.

A Health Affairs analysis of 46 million hospitalizations from 2017 to 2024 found that at the January 2022 peak, 40% of admitted patients boarded for more than four hours and 6.3% boarded for more than 24 hours. The Joint Commission has called it a public health crisis. The American College of Emergency Physicians has been raising the alarm for a decade.

QUARTERLY NEWSLETTER The natural question is why.

It is not because hospitals are indifferent. It is not because capacity is being deliberately withheld.

Emergency department boarding is the visible symptom of a deeper structural problem: the United States has built a hospital reimbursement system that does not pay for the care it requires hospitals to deliver. Over time, that mismatch has quietly reduced the number of staffed beds available — until the system began to fail in plain sight.

This is the story behind the stretcher.

The numbers most patients never see

To understand how a capacity problem becomes a structural one, start with how hospitals are paid — specifically, what Medicare actually reimburses relative to the cost of care. The Medicare Payment Advisory Commission — MedPAC, an independent body that advises Congress and has no incentive to overstate hospital distress — found in its March 2026 Report to Congress that hospitals operated on a negative 12.1% margin on Medicare fee-for-service inpatient and outpatient services in fiscal year 2024. MedPAC projects the margin will remain deeply negative in 2026, at approximately negative 10%. Even the commission’s subset of “relatively efficient” hospitals — those that perform well on quality while keeping unit costs low — posted a negative Medicare margin in 2024. That means in fiscal year 2024, for every $100 it cost hospitals to provide Medicare fee-for-service inpatient and outpatient care, Medicare reimbursed roughly $88. For two decades running, Medicare has paid hospitals less than what their care costs.

Medicare and Medicaid together pay for at least half of inpatient days at 96% of US hospitals, and at least two-thirds at 80%. So the population that fills hospital beds — older, sicker, often with multiple chronic conditions — is precisely the population whose care is reimbursed below cost. Behavioral health is even worse: AHA reported in its 2024 Costs of Caring analysis that inpatient psychiatric services were paid 34% below cost across all payers in 2023. That figure helps explain why psychiatric patients board in EDs for days at a time. The beds upstream have been closing for thirty years because no payer covers what they cost to operate.

How the cross-subsidy actually works

That gap does not remain contained on a balance sheet. Hospitals have to absorb it somewhere — and in practice, they do so by shifting costs onto the one set of payers that will negotiate: commercial insurers. The RAND Corporation’s most recent price transparency study found that commercial insurers paid an average of 254% of Medicare rates for the same hospital services at the same facilities in 2022. KFF found that hospitals in the top quartile of commercial payer mix had operating margins of 7.5%, compared to 3.3% for hospitals in the bottom quartile.

A hostile reader will see those numbers and conclude that hospitals are gouging private insurers.

The more accurate framing is this: the public payment system has externalized its underpayment onto employer-sponsored health plans. Every dollar Medicare and Medicaid fail to pay is a dollar that has to come from somewhere if a hospital is to keep its lights on, its nurses staffed, and its doors open at 2 a.m. when the ambulance arrives. The cross-subsidy is not a bug in the system — it is the system.

What this means for hospital leadership

And it is unraveling in two directions at once.

Employer health premiums have risen roughly 50% in a decade, fueling political pressure to cut commercial rates. Meanwhile, hospitals serving populations with little commercial insurance — rural, urban safety-net, county systems — never had a meaningful cross-subsidy to begin with. Industry analyses have flagged hundreds of rural hospitals at risk of closure, and the credit rating agencies tell the same story: S&P Global Ratings reported a 3.0-to-1 downgrade-to-upgrade ratio for nonprofit hospitals in the first half of 2024, widening to 4.5-to-1 for the full year — the worst spread in years.

First, the regulatory environment is shifting in ways that will measure boarding without addressing its causes. In its CY 2026 Hospital Outpatient Prospective Payment System final rule issued November 21, 2025, CMS adopted a new Emergency Care Access & Timeliness electronic clinical quality measure (ECAT eCQM). Optional reporting begins with the CY 2027 reporting period, replacing the older Median Time from ED Arrival to Departure measure beginning with the CY 2028 reporting period and the CY 2030 payment determination — at which point poor performance begins affecting Medicare reimbursement. The measure flags admitted patients who remain in the ED more than four hours after the decision to admit, total ED stays exceeding eight hours, and excessive arrival-to-treatment times. As ACEP’s president observed, “you cannot fix what you refuse to measure.” That is true. It is also true that penalizing hospitals for a problem driven by chronic underpayment will accelerate, not solve, the capacity contraction. Hospital legal teams should be preparing comments and documenting the staffing and reimbursement constraints driving boarding times at their facilities now — that record will matter when the penalty phase arrives in 2030.

Boarding is not a billing strategy

This financial backdrop leads to a persistent misconception: that hospitals tolerate emergency department boarding because they get paid the same regardless of where a patient is treated. It is true that under Medicare’s diagnosis-related group payment system, the hospital receives a fixed payment per admission based on diagnosis, regardless of where the patient physically lies. So technically, yes, a boarded patient generates the same DRG payment as a patient in a proper bed.

But that framing collapses on the cost side. A 2024 study published in Annals of Emergency Medicine, using time-driven activity-based costing on acute stroke patients at an academic medical center, found that the daily cost of caring for a boarded medical/surgical patient was approximately $1,856, compared to $993 for the same patient in a proper inpatient bed. The study has real limits — single site, single diagnosis, an academic stroke center with traveler-nurse premiums that vary by market — and the absolute dollar figures should be read with that in mind. But the mechanism generalizes. Boarding forces inpatient care into an emergency department workflow designed for rapid turnover, not sustained treatment, while simultaneously blocking access for new patients arriving by ambulance. Boarding does not zero out a Medicare DRG payment, but it erodes whatever margin existed and adds an opportunity cost the DRG never priced. The idea that boarding is a profit center is the inverse of the truth — hospitals that could discharge boarders into staffed inpatient beds tomorrow would do so tomorrow.

The reason boarding happens anyway is more sobering. It happens because the hospital has run out of staffed beds and has nowhere else to put a patient who cannot be discharged. Beds without nurses are furniture. Nurses without reimbursement that covers their wages are a permanent subsidy that hospitals running on thin margins simply cannot sustain.

If boarding is not a choice and not a revenue strategy, then it is a constraint — and that constraint is now tightening in ways hospital leaders cannot ignore. For hospital executives, general counsel, and CFOs reading this, three points matter for the road ahead.

Second, throughput is being constrained from outside the hospital walls — and much of that pressure is litigable. Three patterns recur in our practice. Retrospective inpatient-to-observation downgrades under the two-midnight rule, where Medicare Advantage plans and commercial payers reclassify properly admitted patients weeks after discharge to convert a DRG payment into a far lower observation rate. Prior authorization delays for post-acute placement — skilled nursing, inpatient rehab, long-term acute care — that hold medically-ready patients in inpatient beds for days, which in turn keeps the ED full of admitted patients with nowhere to go. The HHS Office of Inspector General has documented widespread inappropriate denials

by Medicare Advantage plans, with post-acute facility stays specifically named as a category in which 13% of prior authorization denials reviewed

by OIG met original Medicare coverage rules. OIG has now opened a follow-on investigation focused specifically on MA prior authorization for post-acute placement. And 30-day readmission denials that recharacterize a clinically distinct second admission as a continuation of the first, eliminating payment entirely.

Each of these compresses inpatient throughput. Each shows up downstream as a patient on a stretcher in a hallway. Hospital revenue cycle, utilization manContinued on back page

SPRING 2026 – #55

REMEMBERING GEORGE COLMAN A founding partner whose leadership, warmth, and vision helped shape SAC’s legacy This quarter’s SAC Spotlight is dedicated to the memory of George Colman, a founding partner of the Law Offices of Stephenson, Acquisto & Colman and one of the early forces behind the firm’s growth, reputation, and enduring presence in healthcare law.

George’s legal career spanned more than five decades, during which he became widely respected for his work in healthcare reimbursement, revenue recovery, insurance matters, and provider advocacy. He represented hundreds of public and private healthcare providers throughout his career and helped develop specialized recovery programs that supported hospitals and healthcare organizations across the country.

Within SAC, George’s contributions were foundational. As one of the firm’s founding partners, he helped establish the standard of excellence, persistence,

and client-centered advocacy that continues to guide the firm today. His work helped strengthen SAC’s position as a national leader in healthcare reimbursement law, but his impact extended well beyond the matters he handled or the titles he held.

Those who knew George remember him as warm, charismatic, generous, and deeply present. He had a sharp legal mind, a steady demeanor, and a sense of humor that made people feel instantly at ease. He was the kind of person who could lead with authority

while still making every conversation feel personal.

Whether speaking with a client, mentoring a colleague, or simply asking how someone was doing, George had a way of making people feel seen.

His leadership also reached far beyond the firm.

George was recognized among Southern California’s Super Lawyers and served in leadership roles with several respected healthcare and financial management organizations, including AAHAM and HFMA. He also served as Chairman of the Board of Trustees for St. Francis Medical Center and remained active

in community and environmental causes, including Save LA Cougars and the Wildlife Corridor Overpass project in Agoura Hills.

On April 13, family, friends, colleagues, and members of the SAC community gathered both at Castaway Burbank and virtually to celebrate George’s life and legacy. The afternoon included heartfelt remarks from Rich Lovich, Denise Ransdell, George’s son, David Colman, and Joy Stephenson-Laws, along with guest reflections, live harp music by Mariea Antoinette, and

a video tribute featuring moments from George’s life, career, and many years with the firm.

His signature bowties became a small but memorable reflection of the individuality, charm, and spirit he brought into every room.

George’s legacy lives on through the firm he helped build, the clients he served, the colleagues he mentored, and the many people whose lives he touched.

SAC is grateful for his leadership, his friendship, and the lasting imprint he leaves on our firm.

left an impression.

“HeGeorge was admired for his intellect, respected for his leadership, and loved for his warmth.”

QUARTERLY NEWSLETTER Continued from inside agement, and legal teams should be tracking these patterns at the claim level — they are the strongest evidentiary foundation when challenging payment denials and, increasingly, when negotiating MA contract terms at renewal.

Third, those pressures converge downstream, where the system has the least flexibility: discharge. The post-acute bottleneck is the real ceiling. Skilled nursing facility, inpatient rehab, and behavioral health bed capacity has contracted for years because reimbursement at those sites does not cover staffing.

Hospitals cannot discharge patients to facilities that don’t exist. Boarding in the ED is the symptom most visible to the public, but the constriction begins

three or four floors up — and increasingly, three or four facilities away.

tage business practices, and that have allowed inpatient psychiatric and post-acute capacity to collapse are upstream of every stretcher in every hallway.

The honest argument

Andrej Mrevlje deserved a real bed. So do the patients still boarding tonight. Giving them one will require CMS to revisit Medicare base rates that no longer cover the cost of care, state Medicaid agencies to confront rates that have not kept pace with inflation, and aggressive enforcement against MA plan practices that are converting hospital throughput into denied claims. Until those upstream actors move, hospital counsel can only do what counsel can do: defend the payments earned, document the constraints imposed, and build the record that will eventually force the conversation no one wants to have.

Taken together, these dynamics point to a conclusion that is uncomfortable but difficult to avoid. It would be easier if the hospital industry were the villain in Rosenthal’s story. It is not. Hospitals are the institutions absorbing the consequences of a hospital reimbursement system that the public, the press, and policymakers have not yet decided to reckon with.

When Rosenthal asks whether hospitals — “some of which are rich institutions” — should be required to open more beds, she is asking the right question of the wrong actor. The institutions that set Medicare and Medicaid rates, that approve Medicare Advan-

All articles are written by the SAC Litigation team. The SAC Litigation team includes attorneys, nurses and physicians with extensive experience in all areas of law related to healthcare matters. Additionally, SAC partners hold legal advisory positions with healthcare organizations and sit on the boards of numerous healthcare-related organizations, and monitor all outgoing SAC client marketing materials and related content.

DISCLAIMER: This newsletter is for general educational and informational purposes only. You should not act upon this information without seeking your own independent professional advice.

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