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Are freestanding EDs forcing hospital evolution?

 In healthcare, the name of the game is market share. Recently, a number of hospitals have become wise to this idea, branching out into ventures that are likely to grow or secure specific groups of patients. One of these ventures, a newer solution, is the freestanding emergency department.

Freestanding EDs attract a particularly lucrative subsection of patients — those looking for the care a traditional ED can provide but who are also looking for a faster, more pleasant experience. Typically, these patients are insured. As such, in the states in which freestanding EDs are legal, they offer a potential increases in margins for anyone who can capture the patients.

The placement and construction of freestanding EDs may not require certificate-of-need approval but does follow a certain logic: "Freestanding EDs go into regions where hospitals don't have locations. They'll use the freestanding ED to create an entry portal into the system, maybe a suburban market dominated by another hospital, a market where they might have less impact otherwise," says Jeff Hoffman, a senior partner at Kurt Salmon, a consulting firm.

The competition

Hospitals putting up freestanding EDs are far from being safe from competitors, however. Companies that specialize in freestanding EDs are in the process of expanding.

Recently, freestanding ED operator Adeptus Health moved into the Columbus, Ohio, area, somewhat to the surprise of its hospital neighbors. The company already has about 50 sites under development across the country. For legal and economic reasons, the majority of these sites are currently in Texas, though Adeptus is expanding to other states as well.

Adeptus, and companies like it, is looking to capture the same patients that might use a hospital, with one caveat: Patients must be privately insured. They market convenience to attract their patients, who are mostly suburbanites, due to both the insurance subset of the facility and its location.

Despite the strict selection of patient population, Mr. Hoffman says the fact that companies such as Adeptus exist in the first place demonstrates a market need for the services they provide: "Adeptus' play is going in and disrupting the market with a convenient service for commercially insured patients at a lower cost. The question then becomes: Does the market for emergency care change because other providers are now more convenience-oriented?"

For now, it's not clear if this is the case. For large hospital systems putting up their own freestanding EDs, Adeptus is a competitor. However, for smaller hospital systems, Adeptus is a potential market partner. In fact, Adeptus itself is actively looking to partner with local hospitals. However, how hospital providers choose to proceed with the speed and mode of making care more convenient may depend on their relationship to the new market player and their plan for handling their market share of patients.

New service line + old idea = ?

The concept of creating specialized spaces for specific service lines has been around for a while. Mr. Hoffman references cardiac hospitals of the 1990s and orthopedics hospitals. "We've seen this before — someone coming in and taking only one segment of the market, potentially to skim off the margin and use it to fund other things. Historically, the play has an impact and changes how hospitals do business, but it's short-lived," he adds. "It's an old strategy, just a new service."

He postulates that as value-based systems and narrow networks develop, large non-health system partnering insurance plans might gravitate toward the freestanding ED model, for the reason that it will be more convenient to insurers and cheaper, on average, than visiting an on-site hospital ED. However, the narrow networks will also partner with specific insurance providers and will keep freestanding EDs in-network for only the largest insurance companies. This will put the ball in hospitals' courts as to how they choose to develop their emergency services over time.

For now, watching, waiting and keeping an eye on the local healthcare market is the best plan of action for understanding the impact of freestanding EDs on local hospital EDs. "In each community, health systems will adapt. We'll see what the reaction is. In five to 10 years, the landscape will look very different, how many free standing EDs unaffiliated with health systems will still be in operation?" says Mr. Hoffman.

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