May 10, 2018

Freestanding EDs Provide Quicker Access—For a Price

by Chas Roades


Freestanding emergency departments give consumers more convenient access to care, but the bulk of the care they deliver is often too expensive, and doesn’t need to be delivered in an ED-level setting


  • In April, the Medicare Payment Advisory Commission (MedPAC) voted to recommend that Congress reduce payment for care delivered in freestanding emergency departments (FEDs)
  • MedPAC’s proposal would reduce payment by 30% for FEDs that operate within six miles of a traditional hospital emergency department, saving Medicare up to $250M annually
  • The recommendation follows years of study and discussion of the issue by MedPAC, and comes at a time when state lawmakers in Colorado, Texas, and elsewhere have been advancing their own proposals to rein in the cost of FEDs in their states


1. Freestanding EDs are just one of many new “access points” proliferating across the healthcare landscape

The expansion of health coverage under the Affordable Care Act did not magically create additional primary care doctors to care for newly-covered patients. Rather, Obamacare consumers looking to use their new or expanded health benefits often had to wait for weeks for a new primary care visit. And many of the newly-covered Medicaid enrollees found that many doctors would not accept Medicaid patients. As a result, many patients found themselves heading to the one site in our national healthcare landscape required by law to see them—the hospital ED. Overcrowding and longer wait times became the norm across emergency departments, exacerbating a trend that had already begun in the mid-2000s.

At the same time, with deductibles and coinsurance amounts on the rise, consumers began to recognize that going to the hospital ED doesn’t just result in a long wait in an unpleasant venue. It means a huge bill afterward, with even low-end care delivered in the ED coming with a hefty “facility fee” tacked onto the price of services. This fee (which is added to the price of any service performed in the ED) is intended to contribute to the high cost of maintaining 24/7 access to hospital-level emergency care—whether or not that level of care is needed in a particular case. But the size of the bill—even for relatively routine services—often comes as a shock to patients, and especially to those who have to spend that money out of pocket as a result of high deductibles.

Over the past decade, physician entrepreneurs and others have recognized long wait times and high prices as a market opportunity, and we’ve seen an explosion in the number of low-acuity sites of care, offering quick access to consumers for immediate care needs. On top of the 4,000+ hospital emergency departments and 200K+ primary care practices nationwide, there are now more than 7,000 urgent care centers (UCCs), and almost 3,000 retail clinics (located in pharmacies, grocery stores, and general merchandise retailers). All of these sites purport to offer quicker, more appropriate access to consumers—at a fraction of the price of traditional care in a doctor’s office or hospital ED.

Not wanting to be displaced by new entrants upstream of them in their referral channels, hospitals have also gotten into this business. They’ve opened their own UCCs, partnered with retailers on quick-care clinics, and so forth. Among these new hospital-affiliated offerings are FEDs—which are designed to provide 24/7 access to emergency care, but often operate in more convenient locations away from the hospital’s main campus. Unlike UCCs and retail clinics, the FEDs typically charge the same level of “facility fee” that the traditional hospital ED charges—again, to cover the costs of round-the-clock staffing and services. There are now somewhere between 350 and 600 of these facilities operating in the US, mostly clustered in a handful of states where the regulatory environment is favorable to them.

2. The problem with freestanding EDs is how much they’re paid, and what kind of care they deliver

What’s caused concern among policymakers, however, is that consumers are having trouble distinguishing between the higher-end, more expensive FEDs and the lower-cost, lower-acuity UCCs in their communities. Both are often conveniently located in strip-mall developments, away from the hospital campus, and both offer immediate access to care. But because of the “facility fee” add-on, the care delivered in a FED can be as much as ten times more expensive than the same care delivered in a UCC.

If hospitals use freestanding EDs as Trojan horses to trick consumers into paying higher prices, they’ll just hasten the day when true disruptors swoop in and cut them out entirely

The problem is that consumers are going to FEDs for care that could much more appropriately be delivered in a UCC or primary care visit. Indeed, the most comprehensive study of the FED phenomenon, led by researchers at Rice University last year, found a 75% overlap in the 20 most common diagnoses at FEDs versus UCCs in Texas—the state with the largest number of FEDs. Consumers are likely attracted by a combination of convenience, hours of operation, and hospital brand in choosing an FED over an UCC, even for less serious conditions. Only later does the consumer discover that they’ve received care in a facility that’s just expensive as going to the hospital ED itself.

Adding to this problem, independent FEDs (which are not affiliated with a hospital) are often “out of network” for consumers with commercial insurance. About a third of FEDs are independent, although the trend recently has been for hospitals to acquire or partner with independent FEDs, bringing them onto the hospital’s payer contracts. Although the ACA mandated that consumers be provided access to emergency care regardless of network status, it did not prohibit “balance billing”, the practice of billing patients the difference between out-of-network reimbursement from the health plan and the remaining charge (including the facility fee).

Operators of FEDs have been vilified in the media and by policymakers for targeting their services to more affluent, younger populations in neighborhoods where the residents are more likely to have commercial insurance—and thus more susceptible to “surprise billing” of this type. That may be, but an alternative reading is that entrepreneurs and incumbents are investing FEDs and other access alternatives to tap into an unmet market need for care—and placing the facilities in locations where they can profit from meeting that need. The model itself isn’t the problem, it’s that the market isn’t functioning correctly—consumers aren’t able to discern in advance what the right setting of care would be for their condition, or what price they’ll be expected to pay for services.

3. Consumers need more help understanding when it’s a good idea to use a freestanding ED—and when it isn’t

Policymakers are beginning to push for transparency around FED care and pricing. Colorado recently passed legislation requiring operators of FEDs to provide more visibility to consumers about prices for the most common services they provide. Other proposals include requiring FEDs to more prominently display signage indicating that the facility is intended for emergencies, not routine care. And some lawmakers have suggested limiting the ability of FED operators to “balance bill” consumers for the facility fee portion of charges for a visit.

These kind of consumer protections make good sense, and policymakers are right to be concerned about shielding consumers from the financially disastrous consequences of seeking care in the wrong location, on unfavorable terms. But ultimately providers themselves will be confronted with the need to be more proactive in educating consumers about which site of care to use when. National media scrutiny about ED billing practices generally has already sparked a reaction from the American Hospital Association and others. Consumers are increasingly sharing their stories of shockingly high bills with each other on Yelp and other platforms—a worrisome indicator as more consumers use crowdsourced reviews to choose care sites. And if FEDs fill with patients who are only seeking urgent care services—which is reportedly the case with about 80% of FED visitors—then the cost structure of the FED provider will eventually overwhelm the revenue produced by low-acuity care (even with the facility fee tacked on).

There are some providers moving to educate consumers more aggressively about when they should seek care in an expensive FED. One is Legacy ER & Urgent Care, a Dallas-area provider that has adopted a consumer-centric approach to the problem. They combine a membership-model platform with explicit consumer education and upfront triage to direct patients to the right level of care—and they combine UCCs and FEDs under one roof so the patient has the same convenient access to both levels of care. (A similar approach can be found in San Antonio, where Full Spectrum ER & Urgent Care operates.)

As healthcare migrates to a consumer-focused model, we’ll surely see more of these kinds of innovative care offerings crop up in the market. As long as consumers have full visibility into the cost of care provided and are educated on the most appropriate way to use various care settings, we should view this as good news for patients. But if hospitals use FEDs and other access approaches as Trojan horses to trick consumers into paying higher prices, they’ll just hasten the day when true disruptors (Walmart, Amazon, CVS and others) swoop in and cut them out entirely.

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