Free-stand­ing ERs eye lob­by­ing to win state ap­proval for growth

Modern Healthcare - - NEWS - By David Royse

Free-stand­ing emer­gency room op­er­a­tors are ex­plor­ing how to win state reg­u­la­tory ap­proval to ex­pand their fa­cil­i­ties na­tion­wide de­spite op­po­si­tion from hos­pi­tals.

The big­gest op­er­a­tor is Lewisville, Texas-based Adep­tus Health, which owns the First Choice chain of free-stand­ing emer­gency rooms. Since go­ing public in June 2014, Adep­tus stock has tripled. The com­pany opened seven new ERs in the first quar­ter of this year, bring­ing its to­tal to 63 cen­ters. Most are in Texas, which in 2010 be­came the first state to al­low ERs to op­er­ate with­out a hos­pi­tal af­fil­i­a­tion. Adep­tus also has cen­ters in Ari­zona and Colorado, though it part­ners with full-ser­vice hos­pi­tals in those states.

“They’re sprout­ing up like Texas wild­flow­ers,” said Vi­vian Ho, a health economist at Rice Univer­sity in Hous­ton. “Ev­ery­where you drive in up­per-mid­dle-in­come Hous­ton, you’re see­ing emer­gency rooms on ev­ery block.”

Adep­tus has hired lob­by­ists in Ohio and Washington, but it’s been quiet about specifics. Many states only al­low free­stand­ing emer­gency rooms that are op­er­ated by hos­pi­tals. Oth­ers, in­clud­ing Cal­i­for­nia, don’t al­low them at all.

Some ex­perts say free-stand­ing ERs could help solve the grow­ing prob­lem of healthcare ac­cess as hos­pi­tals in ru­ral and un­der­served ar­eas close. But the re­cent surge in free­stand­ing ERs has not oc­curred in ru­ral, un­der­served or low­in­come com­mu­ni­ties. Be­set by hos­pi­tal clos­ings, Ge­or­gia last year changed state rules to al­low hos­pi­tals to cre­ate ru­ral free-stand­ing emer­gency rooms. But by the end of 2014, no free-stand­ing ER op­er­a­tors had plans to build cen­ters.

Crit­ics say free-stand­ing ER op­er­a­tors’ busi­ness strat­egy is to cherry-pick pri­vately in­sured pa­tients in more af­flu­ent sub­ur­ban and ex­ur­ban com­mu­ni­ties who want care ac­cess closer to their homes, while steer­ing sicker and lower-in­come pa­tients to tra­di­tional hos­pi­tal emer­gency de­part­ments. “They’re very good at tar­get­ing ar­eas with peo­ple with higher in­comes, with good in­sur­ance,” Ho said.

In­de­pen­dent free-stand­ing ERs rely on re­im­burse­ment from pri­vate in­sur­ance, although they have had a some­times-rocky rela- tion­ship with health plans. Some plans have ar­gued that the fa­cil­ity fees charged by free-stand­ing ERs are not jus­ti­fied. But so far, the ma­jor in­sur­ers are pay­ing those fees.

Hos­pi­tals gen­er­ally op­pose free-stand­ing emer­gency cen­ters that are not tied to health sys­tems, par­tic­u­larly in ar­eas where providers serve large low-in­come and unin­sured pop­u­la­tions.

“These free-stand­ing (ERs) do not have to meet the rig­or­ous re­quire­ments of our hos­pi­tal fa­cil­i­ties, such as staffing is­sues that sig­nif­i­cantly af­fect costs,” said Lance Lunsford, vice pres­i­dent of ad­vo­cacy com­mu­ni­ca­tions with the Texas Hos­pi­tal As­so­ci­a­tion. “It’s a fright­en­ing disad­van­tage as our hos­pi­tals in­vest heav­ily in equip­ment, tech­nol­ogy and clin­i­cal tal­ent, while these other fa­cil­i­ties are able to ser­vice only pa­tients who have an abil­ity to pay, and pro­vide only a frac­tion of the ser­vices to re­main fi­nan­cially vi­able.”

In June, the new Na­tional As­so­ci­a­tion of Free­stand­ing Emer­gency Cen­ters held its first con­fer­ence in Dal­las. The meet­ing in­cluded ses­sions on lob­by­ing state and fed­eral pol­i­cy­mak­ers, public per­cep­tions and CMS ac­cep­tance of the in­dus­try, and com­pli­ance with fed­eral law re­quir­ing emer­gency care providers to sta­bi­lize and treat all emer­gency cases. Con­fer­ence or­ga­niz­ers ac­knowl­edged the con­tro­ver­sial na­ture of their in­dus­try with a ses­sion called “FECs—Boon or Bane of Emer­gency Medicine?” That ses­sion was billed as a “de­bate-like” panel dis­cus­sion ex­plor­ing an “ad­mit­tedly dis­rup­tive” emer­gency medicine prac­tice model.

Daniel Stern­thal, a con­fer­ence pre­sen­ter and Hous­ton at­tor­ney ad­vis­ing the group, said a ma­jor goal of the new na­tional as­so­ci­a­tion is to de­velop qual­ity stan­dards that will ad­dress con­cerns among law­mak­ers and reg­u­la­tors about whether free-stand­ing ERs pro­vide qual­ity of care that is com­pa­ra­ble to hos­pi­tals. Another goal is sim­ply to get gov­ern­ment of­fi­cials com­fort­able with these new emer­gency-medicine en­ti­ties.

“It’s clear these guys are dis­rup­tors, so there are go­ing to be chal­lenges,” Stern­thal said.

Sh­eryl Dacso, another con­fer­ence pre­sen­ter and Hous­ton lawyer work­ing with the as­so­ci­a­tion, said the re­sis­tance that free-stand­ing ERs face re­calls sim­i­lar ini­tial op­po­si­tion to am­bu­la­tory surgery cen­ters. Hos­pi­tals “did not like the idea that these up­start or­ga­ni­za­tions were tak­ing busi­ness from them,” she said. “Even­tu­ally, the hos­pi­tals em­braced the idea.”

Some emer­gency physi­cians share hos­pi­tals’ con­cerns, while oth­ers say more free-stand­ing fa­cil­i­ties are needed. “Open­ing up a new full-ser­vice hos­pi­tal is cost-pro­hibi-

“They’re sprout­ing up like Texas wild­flow­ers. Ev­ery­where you drive in up­per-mid­dle-in­come Hous­ton, you’re see­ing emer­gency rooms on ev­ery block.” Vi­vian Ho, health economist Rice Univer­sity, Hous­ton

tive,” said Dr. Paul Kivela, an emer­gency-medicine doc­tor in Napa, Calif., who serves as vice pres­i­dent of the Amer­i­can Col­lege of Emer­gency Physi­cians. His group sup­ports in­de­pen­dent free­stand­ing ERs as long as they meet qual­ity stan­dards, and screen and sta­bi­lize all emer­gency cases that come through their doors, re­gard­less of abil­ity to pay.

“I don’t think it would be a good thing if these free-stand­ing fa­cil­i­ties take away the pay­ing pa­tients from the ER,” Kivela said. “But I don’t think ev­ery com­mu­nity can sup­port a full-ser­vice hos­pi­tal.”

Adep­tus of­fi­cials de­clined to be in­ter­viewed for this ar­ti­cle. In a writ­ten state­ment, the com­pany made clear that it plans to grow be­yond Texas, not­ing that such ex­pan­sion may hap­pen through joint ven­tures with hos­pi­tals. The com­pany pointed to a re­cent Amer­i­can Col­lege of Emer­gency Physi­cians sur­vey in which three-quar­ters of emer­gency physi­cians re­ported that the num­ber of ED vis­its is ris­ing. Adep­tus said the sur­vey demon­strates there’s a need for free-stand­ing ERs.

“Our in­no­va­tive, scal­able emer­gency care de­liv­ery model, com­bin­ing both free-stand­ing emer­gency rooms and part­ner­ships with lead­ing healthcare sys­tems ... pro­vides us with flex­i­bil­ity in ex­pand­ing ac­cess to high-qual­ity emer­gency med­i­cal care,” Adep­tus of­fi­cials wrote. “We are con­tin­u­ously talk­ing to other healthcare sys­tems ... around the coun­try about how we can help them bring im­proved ac­cess to emer­gency care to the com­mu­ni­ties they serve.”

Free-stand­ing ERs of­fer many ser­vices avail­able in tra­di­tional ERs. They are staffed by board-cer­ti­fied emer­gency physi­cians, treat more com­plex emer­gen­cies than ur­gent-care cen­ters and are open 24 hours a day. They charge rates sim­i­lar to hos­pi­tal emer­gency de­part­ments, plus fa­cil­ity fees. They do not bill Medi­care or Med­i­caid. In some states, free-stand­ing ERs can be built with­out a cer­tifi­cate of need.

Health sys­tems have been op­er­at­ing free-stand­ing ERs for years, and it’s es­ti­mated there are cur­rently 400 to 500 such cen­ters in more than 40 states. But in­de­pen­dent ERs with no con­nec­tion to a hos­pi­tal are rel­a­tively new. Some are owned by doc­tors. But more than 50 have been opened by Adep­tus, which is ea­ger to ex­pand to other states.

But faced with le­gal and reg­u­la­tory hur­dles, the com­pany has adopted new tac­tics over the past year, work­ing with hos­pi­tals in Ari­zona and Colorado to ex­pand its ser­vices. Rather than go­ing solo, it is giv­ing health sys­tems eq­uity own­er­ship in its fa­cil­i­ties.

Adep­tus man­ages a joint-ven­ture hos­pi­tal in Ari­zona with Dig­nity Health. It also signed a deal in April with Univer­sity of Colorado Health in Aurora, giv­ing U-C Health a ma­jor­ity stake in Adep­tus’ 14 ERs in the state. In Ohio, the com­pany has pur­chased prop­erty but hasn’t opened any fa­cil­i­ties yet.

Adep­tus and oth­ers that want to en­ter the free-stand­ing ER busi­ness hope to get lob­by­ing help from their new na­tional trade as­so­ci­a­tion. But Brad Shields, ex­ec­u­tive di­rec­tor of the Texas As­so­ci­a­tion of Free­stand­ing Emer­gency Cen­ters, said the na­tional or­ga­ni­za­tion isn’t yet or­ga­nized to lobby. “It will prob­a­bly take some type of role in Washington (D.C.) and (in the) states to track leg­is­la­tion,” he said.

In the mean­time, Adep­tus has hired its own lob­by­ists in the na­tion’s cap­i­tal, as well as in Ohio. It also has a po­lit­i­cal ac­tion com­mit­tee, although it re­ported that it raised no money and made no con­tri­bu­tions in 2014.

Nev­er­the­less, the com­pany hopes to open sev­eral new free-stand­ing ERs this year, Adep­tus CEO Tom Hall said in an April con­fer­ence call with mar­ket an­a­lysts. Dur­ing that call, the com­pany an­nounced first-quar­ter net op­er­at­ing rev­enue of $81.5 mil­lion, up from $38.8 mil­lion in the same quar­ter of 2014, mostly at­trib­uted to its new fa­cil­i­ties. Adep­tus’ full-year 2014 net op­er­at­ing rev­enue was $210 mil­lion.

Other than the three states where it al­ready op­er­ates free­stand­ing ERs, Adep­tus’ ap­par­ent fo­cus has been on Ohio, where it has pur­chased prop­erty and filed plans with lo­cal gov­ern­ment for a pro­posed 24-bed full-ser­vice hos­pi­tal in Colum­bus. In fi­nan­cial doc­u­ments, Adep­tus has iden­ti­fied health sys­tems in sev­eral Ohio cities as po­ten­tial com­peti­tors.

In most ar­eas, Adep­tus’ only com­peti­tors run­ning free­stand­ing ERs are hos­pi­tal sys­tems. In Texas, there are other in­de­pen­dent ER op­er­a­tors but none are close in size to Adep­tus. The next big­gest op­er­a­tor, Pear­land, Texas-based Neigh­bors Emer­gency Cen­ter, runs 11 cen­ters and has 13 other sites in de­vel­op­ment across Texas. Sev­eral other com­pa­nies op­er­ate one or two free-stand­ing ER cen­ters.

In Cal­i­for­nia, state law­mak­ers re­cently con­sid­ered a pro­posal to al­low Sad­dle­back Me­mo­rial Med­i­cal Cen­ter in La­guna Hills to op­er­ate a free-stand­ing ER in Or­ange County as a way of pre­serv­ing emer­gency care in the area if Sad­dle­back’s hos­pi­tal in San Cle­mente closes. That could set a prece­dent for other hos­pi­tals. But for now, the mea­sure has stalled and is await­ing ad­di­tional study.

This First Choice free-stand­ing emer­gency room in Deer Park, Texas, is one of dozens owned by Adep­tus Health. Head­quar­tered in Lewisville, Texas, Adep­tus also has cen­ters in Ari­zona and Colorado.

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