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

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 free-standing 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 free-standing ERs has not occurred in rural, underserved or low-income 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 relationship 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-prohibitive,” 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 free-standing 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 free-standing 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 free-standing 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.

David Royse is a free-lance writer based in Chicago.