Do Freestanding Emergency Departments Make Financial Sense?

January 28, 2015  |  David White

Many would suggest that Freestanding Emergency Departments (FSEDs) are a suboptimal strategy for the following reasons:

  • Locating FSEDs where patients are insured by the best payors rather than in underserved communities with the highest utilization potential is not consistent with the premise of population health;
  • Non- urgent patients use FSEDs for care that could be provided in less costly settings. In an at-risk payment model FSEDs are the wrong move;
  • FSEDs charge insurers double or triple the amount per patient than an urgent care center or doctor’s office, and risk becoming unsustainable if insurers squeeze their reimbursements or steer their members to less expensive options;
  • FSEDs do not appear to decompress ED volumes at main hospital EDs, but rather tend to tap into pent up demand;
  • FSEDs are a last-ditch attempt to bolster inpatient volumes and the equivalent of driving while looking in the rearview mirror, even though a typical FSED will only admit less than 10% of ED patients.

Without lucrative inpatient, surgical, or procedural services, FSED profitability is largely dependent on the walking, non-urgent patient with good insurance. Once payors and employers formalize an approach to the cost premium for inappropriately utilizing FSEDs instead of 24/7 Urgent Care models, the business case for FSEDs becomes less optimal in the long-term. In the short term, as long as patients self-triage to the care setting of their choice, FSEDs remain a viable option especially when constructed with future flexibility in mind.

Primary care physician shortage
Changes from the ACA could result in an additional 15-24 million primary care visits annually. According to the American Academy of Medical Colleges, there will be a 45,000 shortfall of primary care physicians (PCPs) by 2020. It will be difficult to backfill this deficit with Physician Assistants, of whom there is a shortfall of 20% as predicted by the Journal of the American College of Surgeons.

A recent study shows that an increase of one PCP per 10,000 citizens decreases ED utilization by 10.9%. If the converse is true, we expect a PCP shortage to become a barrier to timely care and result in increased ED utilization as shown by United Health:

united health pcp shortage

Given shorter wait times and more convenient access than hospital-based EDs, it follows that FSEDs will service a portion of this volume.

Inadequate retail alternatives
While retail providers such as CVS and Walgreens stand to capture market share in cold and flu, annual physical, ear infection, and perhaps even chronic care patients, they have a long way to go before they can offer services to treat broken bones, bee stings, and other common ailments. Freestanding EDs offer timely care for such treatment. Also, FSEDs offer 24/7 care, something urgent care or retail care centers seldom provide.

Ingrained beliefs
Today, many patients will not choose lower cost sites of care such as an urgent care center or retail care, due to the difficulty in overcoming the belief that you get what you pay for. More expensive care, by definition, is better. Most demonstrate a bias for what they perceive as the best care, regardless of expense and a lack of interest in costs borne by insurers and society as a whole.

Insurers do not prohibit patients from going to the ED or FSED for care, although some require retrospective notification within 24 hours or request a co-payment after the start of the Medical Screening Exam (MSE) or an Emergency Medical Condition (EMC) has been ruled out. In many states, insurers must pay for emergency coverage based upon the “prudent layperson” standard: whether the prudent layperson feels that that without medical attention they could reasonably expect their symptoms to deteriorate to serious disability, injury, or death. Insurance covers ED treatment for many common ailments under this standard. As an example, cold or flu symptoms could indicate pneumonia or H3N2.

If the pros outweigh the cons in your community, we offer the following design considerations for developing a cost effective freestanding emergency department:

Design Considerations for Constructing Cost-Effective Freestanding EDs

Plan for multiple access points on a limited building exterior
Walk-ins, ambulance, staff, fire egress, and potentially helicopter depending upon local regulations. Reduce site development costs by choosing an amply-sized parcel that doesn’t “shoehorn” functional requirements.

Provide flexibility for future acuity increases
A low acuity patient mix dictates smaller rooms, but the facility may have different requirements today than in the future. It is risky to design for one patient type if the ED must treat any patient who presents. One option is to include provisions for future observation beds in order to treat more acute patients and generate additional revenue.

Plan according to large numbers of non-emergent patients with shorter Lengths of Stay
A higher proportion of non-emergent patients (who are treated more quickly) implies a reduced number of treatment spaces. A hospital-based ED processes ~1500 patient visits per treatment room as compared to 1800 or 2000 visits per room at a freestanding emergency department. Reduce construction costs by providing an appropriate mix of vertical treatment rooms.

Capitalize on the advantage of having better access to ancillary services
Freestanding EDs have the ability to specify the right number of modalities for the number of patients and employ dedicated tech staff, which ultimately reduce LOS. This can increases revenue by increasing capacity virtually. FSEDs can increase the utilization of expensive ancillary services (like CT scanning) by making them available to true outpatients.

Prepare for more patients leaving than arriving via ambulance
A potential staging/observation area for admitted patients increases revenue by turning the bed over to a new patient and moving the admitted patient to a less expensive space. Provisions for future observation beds will allow them to treat more acute patients and generate additional revenue.

Understand your State’s definition of a Freestanding Emergency Department
ACHA was one step away from requiring a full-service kitchen on a recent FSED project. Florida considers FSEDs as hospital occupancy which has construction and exiting ramifications.

Plan on the small side with room to immediately grow or shrink based upon local market dynamics
Know your market and the market share you will need to acquire in order to justify the expensive overhead and staffing model. A cautious approach that responds to market need may be safer in light of the unknown, long-term employer/payor/ACA impacts.

ABOUT THE AUTHOR        David White MBA, LEAN/DFSS Certifiedoutcome_David WhiteDavid White takes a scientific approach to challenging problems, creating analytical tools that provide customized solutions. He specializes in innovative intelligence that helps clients draw meaningful conclusions, with a talent for interactive tools that support decision-making.

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Image Source: CC Image Courtesy of  Stuart Richards on Flickr



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