Freestanding Emergency Departments Capture Market Share — but at what cost?

Freestanding Emergency Departments (FSEDs) Capture Market Share— But At What Cost?

Freestanding emergency departments deliver business value and expand access, but with financial consequences for payors and patients.

By Neil Carpenter & Jillian Barbaro

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Freestanding Emergency Departments (FSEDs) have been controversial both for policy and business planning reasons.

Some system executives believe in their expanded market presence and many emergency room physicians are huge proponents of them, arguing that they increase patient access and improve service. Meanwhile payors and many policy leaders argue that they are high-priced urgent care centers and some health system’s leaders worry they simply cannibalize existing ED volume. We at Array Advisors wanted to bring more data driven rigor to the conversation.

We analyzed 12 different recently built freestanding EDs in Florida. Specifically, we looked at market activity before and after “go live” to answer these key questions:

KEY QUESTION

OUR FINDINGS

Did the new ED bring meaningful incremental market share (ambulatory or IP)?

Did that share come from taking volume from competitors or developing new demand in the market (i.e. supply induced demand)?

Did these conditions vary between markets—or did we see a similar pattern for the EDs we studied

Yes, for ambulatory and no for IP share.

Volume came from both.

The markets were consistent.

We then augmented our analysis with key research from others on freestanding EDs from a cost perspective to present a more holistic view.

Freestanding emergency departments deliver market share growth.

Freestanding EDs did bring meaningful increases in ambulatory market share quickly. The mean gain in market share (as measured by patients who were a 15-minute drive time around the site) was 6.4% after one quarter and 10.5% after one year, while the median gain was 5.5% after one quarter and 9.3% after one year in the zip codes in or immediately around the new freestanding center.

Collectively, these EDs had an annual incremental new volume of ~71,200 cases (mean annual incremental volume of ~6,500 cases and median of ~5,800 per site). Again, this represents net new volume in the immediate area. This therefore is a conservative estimate of total incremental volume since some patients will be coming from more than 15 minutes away from the ED. The chart below presents market share trends before and after the introduction of the freestanding ED (noted with a bolded point in each market):

ED Market Share Trends (Pre and Post FSED) West Kendall

50%

Lake Mary

45%

Normandy Park

40%

Four Corners

35%

Joe & Loretta Scott Millenia

30% 25%

Osceola

20%

Perdido Bay

15%

Blue Cedar

10%

Baldwin Park

5%

Heathrow

0% Q3_17 Q4_17 Q1_18 Q2_18 Q3_18 Q4_18 Q1_19 Q2_19 Q3_19 Q4_19 Q1_20 Q2_20

Temple Terrace

Freestanding Emergency Departments (FSEDs) Capture Market Share—But At What Cost? | PAGE 2

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The average gains belay differences. In general, there was a material first-mover advantage in opening the new facility. For example, Orlando has seen an explosion of freestanding ED growth, and thus seven of the facilities studied were in the greater Orlando area and two were practically neighbors. Within the greater area, the first three facilities to open had average market share gains of 12.2% after one-quarter, while facilities that opened after them only averaged a 4.5% increase. Even more of a stark contrast is seen with the neighbor facilities: though only two miles away from each other, there was a 15.1% difference in first quarter market share gain in favor of the facility that opened eight months earlier.

The data suggests that an individual market can get saturated. However, there was no common ED saturation point across markets except for an abundance of Freestanding EDs. For example, Orlando’s market was saturated because there were 7 freestanding ED’s built in a market of around 300K people, or one new ED per 50K residents. To give one geographic analogy, that would be roughly equivalent to adding 35 freestanding EDs to Manhattan (more than doubling its total ED access points).

Other limitations to new ED’s impact may be driven by variables not included in this analysis and could range from the exact real estate location of the sites to the performance of competing entities like the existing hospital EDs.

While emergent market cases alone could not sustain a freestanding ED’s economic viability—it’s a strong start.

In general, one year after a freestanding ED’s entrance into a market, ED visits in each market had grown on average by ~4,700 to ~4,900 visits (annualized). This equates to a total volume growth of approximately 10%, with some exceeding 15% annual growth. In comparison, from CY18 to CY19, the state of Florida saw annual ED growth of 2%.

Annualized Growth of ED Visits in Market 20% 18% Florida State ED Growth

16% 14% 12% 10% 8% 6% 4% 2% 0% Joe & Blue Cedar Four Lake Mary West Perdido Temple Millenia ER Baldwin Loretta ER Corners ER ER Kendall ER Bay ER Terrace ER Park ER Scott ER

Heathrow Normandy Osceola ER Park ER ER

While these approximately 5K visits mean about 13 new cases a day, most ER’s have a minimum viability threshold closer to 10-12K visits a year. Thus, these new entrants, on average, need to take about 50% of their volume from existing ED’s in the market (theirs or competitors).

Freestanding Emergency Departments (FSEDs) Capture Market Share—But At What Cost? | PAGE 3

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Freestanding EDs serve an ambulatory—not an inpatient—market.

As noted in table below, the market share pickup for the health system is largely limited to ambulatory care. There is some small IP market share pickup (around 1-2%) in that market likely driven by transfers and/or community awareness of the health care organization. This conclusion of the limited patient acuity (resulted in discharge home instead of admission to the hospital) is aligned with the payor research on this topic as well. For example, Dr. Ho (Rice University) and her team conducted a deep dive into the Texas1 freestanding ED market and found the profile of freestanding ED patients reflects something between an Urgent Care Center and ED’s patient profile.

In her team’s work on diagnosis codes, the top 20 diagnoses account for 57% of all ED visits, 68% of all freestanding ED visits and 77% of all urgent care visits. In fact, the #1 diagnosis code in Dr. Ho’s study was the same for freestanding EDs and urgent care centers: upper respiratory infections2.

ED Market Share Increases After FSED Opening 12% 10% 8%

1Q Average 4Q Average

6% 4% 2% 0% IP

ED

However, these EDs are a high cost, high service option.

From a consumer point of view however, the experience is clearly more mixed. As Dr. Guarisco points out in AAEM news, “Freestanding EDs usually generate patient satisfaction scores in the 90th percentile, have a left-without-being-seen rate of virtually zero and extremely low door-to-provider times”3. However, that service comes at a high cost to patients and payors. As Dr. Ho and her team’s work points out, the charges of freestanding EDs look similar to hospital based EDs for both patients and payors.

A graphic within a study back in 2016 of Texas sites by Dr. Ho and others’ make that point around charges very powerfully 4.

Mean Total Price Per Visit and Mean Amounts Paid by Insurance Versus Out of Pocket by Provider Type and Year (reproduced from Dr. Ho et. al) $2,500 Out of Pocket

$2,000

Insurance

$1,500 $1,000 $500 $2012

2013

2014

Freestanding ED

2015

2012

2013

2014

Hospital Based ED

2015

2012

2013

2014

2015

Urgent Care

[1] https://www.annemergmed.com/article/S0196-0644(16)31522-0/abstract#secsectitle0100 [2] https://www.annemergmed.com/article/S0196-0644(16)31522-0/abstract#secsectitle0100 [3] http://www.aaem.org/UserFiles/file/SeptOct16CommonSenseOMC.pdf [4] https://www.annemergmed.com/article/S0196-0644(16)31522-0/abstract#secsectitle0100

Freestanding Emergency Departments (FSEDs) Capture Market Share—But At What Cost? | PAGE 4

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Conclusion In summary, freestanding ED’s are a consistent market share win in the markets we studied, and thus demonstrate their value to consumers. While this value proposition is particularly strong for ambulatory care, it also holds true for IP care, given a handful of IP’s are being admitted at the various FSEDs most days. Additionally, customers vote with their feet and these FSED’s are an option that many patients choose over existing ED choices and other urgent care sites of care. As a result, for systems looking to make “offensive” moves into an adjacent market – and where FSEDs are allowed, this could be a good market strategy.

However, clearly the economics of FSEDs are challenging for systems with ACOs or significant lives at total cost of care risk in the region. There is nothing more maddening to some primary care doctors then to work hard managing one patient’s chronic condition (in part to help lower the cost of care) to have those savings erased by facility fees for a visit that didn’t truly require an ED level of care. In addition, since at least half the FSEDs patients need to come from existing EDs to meet scale requirements, putting a new facility too close to a system’s existing facility could manage to mostly cannibalize existing patients – in effect increase costs without truly increasing revenue.

About Array Advisors Array Advisors is a healthcare strategy consulting and operations optimization firm dedicated to both improving the way healthcare is delivered and helping clients overcome their business challenges. The team can help clients with strategic plan development including market analysis, ambulatory and service line planning, provider strategies and integrated capital and facility planning as well as operational analysis including scenario modeling, benchmarking, and lean design.

Author Contacts

NEIL CARPENTER, MBA

JILLIAN BARBARO, MHA

Vice President Strategic Planning

Strategic Planner

d: 202-795-3707

d: 202-788-5631

m: 917-576-9980

jbarbaro@array-advisors.com

ncarpenter@array-advisors.com

Freestanding Emergency Departments (FSEDs) Capture Market Share—But At What Cost? | PAGE 5

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