Modern Healthcare

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

- 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.

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 ??  ?? 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.
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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