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Freestanding EDs Evolve to Meet Consumer Needs and Fill Access Gaps

Are we approaching the heyday of freestanding emergency departments (FSEDs)? According to an analysis by the Medicare Payment Advisory Commission, their rise has been rapid, with the number of hospital-based FSEDs having grown by 76% from 2008 to 2015. While the FSED is a convenient access channel for consumers in certain markets with high-growth and a favorable payer mix, consumer backlash may lead some organizations to reconsider their options.

In particular, this backlash has been strongest in markets where there is high out-of-pocket exposure and a lack of price and service level transparency. In a notorious Colorado news story, a large provider organization of FSED services was chastened for out-of-pocket costs of over $2,000 for the removal of a splinter. Such high FSED payment rates and the promise of a quick road to profitability were traditionally attractive factors for providers looking to develop access channels. However, as out-of-pocket costs rise and patients become more discerning health care consumers, cost imbalances may ultimately tarnish brand equity. Furthermore, although FSEDs have escaped the first round of site-neutral payment legislation, payers also are becoming mindful of these high-cost facilities.

Going forward, FSEDs must evolve to deliver value for the consumer, meet both urgent and emergent care needs, and be integrated with the organization’s emergency medicine and primary care access strategies. How the FSEDs evolve and what model they follow will depend on market-specific factors.

Innovative FSED Models Focus on the Consumer
Providers in consumer-centric markets are experimenting with innovative care models to increase cost transparency and convenience for consumers, while expanding or defending their ambulatory footprint in growing geographies. The innovative care models that follow take a new spin on the traditional FSED.

  • The hybrid model co-locates a FSED and an urgent care center (UCC) and is a convergence of the emergent and urgent level care delivery models, simplifying the decision-making process for consumers. Consumers generally enter a common triage area with nurse-led triage matching patient acuity to the appropriate level of services. More importantly, the hybrid model reduces inappropriate utilization of resources and high charges for ED facility use for minor ailments. In price-sensitive markets, some organizations have even removed the hospital outpatient department (HOPD) facility fee for the UCC and decreased pricing for ED imaging services to remain competitive
  • The hub-and-spoke model has a central “hub” ED or FSED with a network of “spoke” UCCs. In this model, the UCCs’ EHRs are integrated into the central ED and care is coordinated across the UCCs and ED. Consumers are encouraged to seek care at the lower-cost UCCs, with higher-acuity patients seamlessly transferred to the central ED.
  • The micro-hospital model is a licensed 6- to 10-bed inpatient hospital with an ED. These are cookie cutter facilities generally strategically located to target the same population as FSEDs. Some organizations have sought to differentiate their ambulatory offerings through this pseudo FSED. It also may reduce consumer confusion as it is positioned as a hospital-based ED. While the micro-hospital has expanded capabilities, it is not a critical access hospital. This model has thus far been limited to states without Certificate of Need (CON) regulations and may include additional licensing requirements, such as for operating rooms.

Employ a Market-Specific Strategy
FSEDs can be a first-line delivery site in areas where ED capacity and access are constrained. In particular, growing suburban communities near urban centers may not have timely access to emergent or urgent levels of care, or increased demand from a growing population may overwhelm existing facilities. Whether your organization’s FSED strategy is driven by a defensive play to counter new market entrants, the need for increased access based on an overwhelmed ED, or the desire to create an emergency medicine outpost in a growing market, market-specific factors will ultimately determine a FSED model’s success.

  • Consult legal counsel for regulatory considerations.
    • State CON restrictions and licensing requirements will impact the location, scope of services and facility requirements for FSEDs.
  • Understand local market needs.
    • Define the target patient population(s) that represents a sufficient growth opportunity for justifying investment, based on constrained ED access and acuity levels that go beyond what can be treated at available urgent care facilities.
    • Assess the existing urgent and emergent care assets in the community (eg, retail clinics, UCCs, other FSEDs, EDs). Market leaders must have a strong brand, convenient offerings and competitive pricing. Map demand and services by CARE Family and demographics to reveal need for targeted services (eg, pediatric EDs, geriatric EDs, orthopedic services for an aging population).
  • Assess payer mix.
    • FSEDs are a volume-driven business. Volumes required to achieve initial breakeven and long-term financial viability vary according to payer mix. If projected volumes are not sustainable, consider lower-cost options such as UCCs.
    • Be wary of network exclusions. A favorable payer mix may not necessarily indicate an optimal market. Payers may choose to cut FSEDs out of their networks to passively steer their beneficiaries away from these high-cost settings.

Proceed With Caution
Any organization considering a FSED must first ensure the forecasted need in its community supports the higher acuity level and cost of care provided. Even though FSED payment continues to be generally favorable, organizations should be wary of shifts in payment and policy and consumer price sensitivities. Furthermore, the continued move toward value-based contracting (with accompanying efforts to rein in costs) may dampen utilization of high-cost settings such as FSEDs. Through a thorough understanding of consumers’ needs, provider constraints, competition and market growth, leaders can select the ambulatory access channel that is consumer focused, financially sustainable and right for their market.

Sg2 Research Associate Ryota Terada contributed to this post.

Sources: Firth S. Standalone EDs: The Starbucks of Healthcare? MedPage Today. September 14, 2015; Johnson J and Nasr T. The Rise of Freestanding Emergency Departments. Healthcare Financial Management Association. December 1, 2015; National Conference of State Legislatures. Transparency and Disclosure of Health Costs and Provider Payments: State Actions. Updated August 2015; Vanderveen C. Buyer beware: Freestanding emergency rooms. USA Today. November 16, 2015; Sg2 Interviews, December 2015 and May 2016; Sg2 Analysis, 2016.

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As of February 11, 2016, Vizient, Inc. has completed its purchase of MedAssets Sg2 and spend and clinical resource management segments from Pamplona Capital Management, LLC. MedAssets revenue cycle business will continue to operate as a wholly-owned subsidiary of Pamplona Capital Management LLP.

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