Where Did All of These Free-standing ER’s Come from? (Business Model and Controversy)

Where did all of these independent free-standing ER's come from

Have you noticed 24 hour independent freestanding ER’s popping up on seemingly every major intersection, especially in well-to-do areas, within the past few years? I have. I also worked in a level 1 trauma emergency department as a scribe this summer, so I witnessed movement of some older emergency medicine doctors to these freestanding ER’s, so I have a particular interest in this.

According to AP, freestanding ER’s have had rapid growth since 2009, with much of the growth coming from Texas, where most of the free-standings are. In 2009, Texas passed a law that allowed private, for-profit facilities to deliver emergency services spurring the growth.

The focus is going to be on independent free-standings (owned by a physician or a company) rather than non-profit hospital-owned. Independent free-standings operate uniquely while hospital-owned free-standings are more of an extension of the hospital.

Where Did All of These 24 Hour Free-standing ER's Come From

*Most states allow hospital-run free-standing ER’s


Independent Free-standing Business Model 

Independent free-standing ER clinics seek to treat privately insured patients with serious conditions as quickly as possible.


Competition wait times 

They take advantage of 2 long wait times:

Primary Care Doctor

The average wait time to see a primary care provider is 29.3 days in 2017, which is up 50% from 19.5 days in 2014. This is because there is a huge and growing shortage of primary care doctors.

Freestanding ER clinics operate on a walk-in basis.

Hosptital-based ER 

In the hospital ER, the average wait time is 4 hours to see a provider, according to an industry report. Another report puts the number at over 2 hours. Many national median wait times online I have found are deceiving. The median wait time in a U.S. ER was just 24 minutes for all patients in 2016. Even for lower acuity patients (who could also go to a free-standing), the median wait time isn’t usually high at just under 30 minutes, according to the CDC’s most recently updated report on wait times by acuity level.

A median is different than an average though. A median is the number with an equal amount above and below. Assume 500 people had a wait time of 20 minutes, 1 person had a wait time of 24 minutes, and 500 more people had a wait time of 4 hours in a given ER. The “median wait time” would be 24 minutes! The average wait time, on the other time, is 130 minutes = ([20min x 500] + [24min x 1] + [240min x 500]) / 1,001.

The reason wait times for some are so long is triage (front-desk sign in.) An acuity (i.e. severity) of condition is assigned in triage when you enter the ER. Higher acuity patients jump in front of lower ones on the list. If a hospital is really  busy then the higher acuity patient’s will keep jumping the lower acuity ones until their wait time might be 5 or 6 hours like many of them complained to me when I worked in the ER.

Basically, half of hospital ER patients including most low acuity patients are treated in under 24 minutes but the other half might be out of luck. They can wait extraordinarily long wait times.

Free-standing ER’s on the other hand operate completely differently. According to WP, free-standing ER’s can break even seeing 8 or 9 patients per day with usually 1 emergency medicine doctor on staff (more on this below.) According to a C-level officer at an ER I talked to, the number is closer to 4. When I worked in the ER, the doctor and I never saw fewer than 12 patients in an 8 hour shift, which would be 36 patients for a 24 hour shift.

Competitive Advantage

Free-standing ER’s operate on a walk-in basis as opposed to primary care providers.

They also see only a fraction of the number of patients that hospital ER’s see, so wait times are significantly less. Hospital ER’s do see 50% of patients in less than 24 minutes, but the other 50% often wait 5 or 6 hours, which rarely happens at free-standings.


Cost 

At this point, it is important to distinguish independent free-standing ER’s from urgent care clinics. Most people aren’t aware that there is a difference. They look very similar but charge very different amounts.

Independent free-standing ER’s charge very similarly to hospital ER’s. WP reports they charge the same “facility fee” that hospital ER’s charge for X-rays, CT machines, Ultrasounds, laboratories, and 24 hour nurse and tech staffing on site in addition to the usual physician fee.

Urgent care clinics are cheaper for a few reasons. They are usually not 24-hour, but rather have extended weekday and weekend hours. Urgent cares also have X-ray machines but none of the more sophisticated technology that free-standings have.

According to Cigna, visits to urgent care clinics cost on average $176, and ER visits cost $2,259; however, people who visit the hospital have much more serious ailments, so it is more useful to compare similar procedures.

According to Medica Choice Network via debt.org

Cost of treatment at ER and urgent care

NBC also reported the cost of hospital and free-standing ER’s was much more than urgent care clinics in Colorado:

Where did all of these free-standing ER's come from

Because of the major price discrepancy, free-standing ER’s are required by law to have “Emergency Room” or “ER” on the building to distinguish them from urgent care clinics.

Competitively Equal

Independent free-standing ER’s charge similar amounts to hospital ER’s.

Free-standings are much better equipped than urgent care care clinics to treat with more serious patients that might be treated at hospital ER’s, so I am comparing free-standings to hospitals rather than to urgent cares.


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Tax Status

According to the American Hospital Association, 59% of hospitals are private, non-profit, 23% are state or local government owned, and 18% are private, for profit. So the majority of private hospitals in America are in fact non-profits.

Non-profit doesn’t mean that a hospital doesn’t make a profit even though it sounds exactly like that. It is simply a favorable tax status that lowers or eliminates federal, state, and local taxes. In fact, the NFL was a non-profit up until 2 years ago believe it or not…

How do you qualify as a non-profit? Private hospitals are required to provide a “community health benefit” to gain this favorable tax status, according to Health Affairs. This community health benefit is another name for uncompensated care to the uninsured.  Also, there is no minimum cost of the community health benefit you provide. The ACA added stricter reporting requirements for non-profits, but still didn’t add a minimum benefit requirement.

 

Competitive Disadvantage

Free-standing ER’s are for profit organizations. They don’t have to provide any charitable care, so they don’t qualify for tax favorable status like most hospital ER’s.


Payer Mix

According to research and the higher ups where I worked, privately insured patients completely subsidize all other patients at hospital ER’s.

The average profit margin at hospital ER’s was 7.8%. The profit margin for Medicare patients was -15.6%. For Medicaid, it was -35.9% and for the uninsured, it was -54.9%. According to Medicaid.gov, Disproportionate Share Hospital (DSH) payments are made to hospitals that serve large amounts of Medicaid and uninsured patients, but payments from the federal, state, and local governments aren’t nearly enough to offset costs.

The profit margin on commercially insured patients was 39.6%, which proves that they completely subsidize all other patients to give non-profit hospitals a 7.8% profit margin.

This begs the controversial question: What if you only treated the privately insured? Enter independent freestanding ER’s.

Free-standings set up business in high income zip codes to attract the highest number of commercially insured patients.

Where did all of these freestanding ERs come from

In a major battleground city for independent free-standing ER’s, there is not a single one in the lower income south Dallas zip codes. They are all in the higher income North Dallas neighborhoods including Highland Park, Preston Hollow, Lake Highlands and Lakewood.

These independent free-standings are not associated with a hospital, so they can’t bill CMS for Medicare or Medicaid patients. They can bill commercial insurers as out of network providers, according to Advisory Board.

Hospital affiliated free-standing ER’s are more of an extension of that hospital’s ER services. They bill CMS and are considered in-network providers with the same contract that the insurance company has with the hospital.

Competitive Advantage (?)

Independent free-standing ER’s carve out the only profitable part of the emergency services market by serving commercially insured patients. This method of doing business is highly controversial as it siphons a significant of money away from non-profit centers that rely on these patients to fund new equipment etc. to improve community health.


Controversy and Legislation

Hurting Non-Profits

These free-standing ER’s are highly controversial because they siphon a significant amount of money away from non-profit centers. Non-profit hospitals rely on these insured patients to offset losses from other types of payers in order to pay for new equipment and salaries. Basically, taking a large amount of the insured patients away from hospitals that serve the indigent population hurts the health of a community as a whole.

Dropping Bills First

Often free-standings aren’t able to treat a patient that comes in. The facility will run a few tests and order, say,  a CT scan before the patient is sent to a hospital-based ER.

The free-standing immediately bills for the imaging and tests before the patients arrives at the hospital. When the same tests are run at the hospital and it bills for them, insurance companies won’t reimburse the hospital because the free-standing “dropped the bill” first.

This initial screening and immediate billing by free-standings for privately insured patients eliminates much of the only profit source for hospital ER’s.

Balanced Billing

These independent free-standing ER’s prefer to stay out-of-network from insurers. Getting in-network means your facility writes a contract with an insurance company to negotiate rates for procedures. The rates are usually lower. In fact, facilities can charge up to 10 times as much as an urgent care center or doctor’s office if they remain out-of-network, at least in Texas.

A representative from Blue Cross Blue Shield posted an article a few months ago illustrating this tendency.  BCBS contacted every out-of-network independent free-standing ER in Texas, and every single one of them declined an in-network contract.

When a facility is out-of-network, they can charge whatever fee they believe is just. The patient’s insurance company then pays whatever it feels is a just reimbursement. The patient is left to pick up the difference is a process called “balanced billing.” The difference can often be amounts in the $1,000 to $5,000 range  for simple procedures.

In Texas, Senate bill 507 was recently signed into law by Gov. Abbott, which might dramatically change the landscape of independent free-standing’s  biggest market.

All balanced bills over $500 sent to patients must include all necessary information for price mediation. The bills must include this message: “You may be able to reduce some of your out-of-pocket costs for an out-of-network medical or health care claim that is eligible for mediation by contacting the Texas Department of Insurance at (website) and (phone number, including requiring that the following statement be added to balance bills.”

There are two sides to the issue, according to DMN. An industry group claims insurance companies shortchanged Texas free-standing facilities $3M since 2009.

In fact, 417 complaints in a one year span were recently submitted on behalf of the facilities to the Texas Department of Insurance. The TDI determined insurers owed over $1,000 per claim to the free-standing ER’s.  Clearly, the ER’s are not completely in the wrong.


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Takeaways

  • Independent free-standing ER’s don’t see nearly the amount of patients that hospital ER’s see, so wait times are significantly less.
  • Costs are similar to hospital ER costs, but most people think they will cost as much as an urgent care because they look very similar.
  • Payer mix is key to how independent free-standings can see so few patients. Profit margins are high and they are not bleeding money seeing uninsured or medicaid patients (or medicare to an extent.)
  • Independent free-standings remain out of network to bill higher, but they still often get shortchanged by insurance companies resulting in high out of pocket expenses for patients.

 

 

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