Full-service hospital operators long have viewed specialty providers with suspicion. But they increasingly are adopting the philosophy of, “If you can’t beat ’em, join ’em.”
With inpatient admissions lagging year over year, systems are using a number strategies to increase the volume of patients they see, and one of their primary areas of focus has been their emergency rooms—the primary entry point for admissions.
The market for emergency and urgent-care services has become increasingly crowded with stand-alone competitors, and systems are no longer content to stand on the sidelines. Instead, they are building the infrastructure themselves or forming relationships with free-standing emergency rooms to get the benefit of increased referrals without investing scarce capital.
“The reality is sinking in that hospitals can’t build everything,” says Tip Kim, managing director and partner at L.E.K. Consulting, who specializes in healthcare services.
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Lewisville, Texas-based First Choice Emergency Room is a private equity-backed stand-alone emergency department provider that signs transfer agreements with hospitals in its markets, including large chains such as HCA and specialty hospitals such as Cook Children’s Medical Center in Fort Worth, Texas. The company has locations in the metro areas of Houston, Dallas and Austin, Texas, as well as Colorado Springs, Colo.
While most stand-alone ERs are still one-shop operations owned by hospitals or doctors, First Choice is one of a growing number of multistate operations where investors see opportunities.
The number of free-standing ERs has doubled in the past several years to more than 400 in at least 45 states. One trend driving the growth is a decrease in the number of hospitals operating onsite ERs, even as patient demand has risen.
In most states, stand-alone ERs that do not accept Medicare and Medicaid—insurance acceptance varies—do not need to comply with the federal Emergency Medical Treatment and Labor Act. This allows them to accept only patients with the means to pay. In addition, some states also allow stand-alone ERs to bypass the certificate-of-need process, an additional hurdle for traditional hospital operators looking to expand in the same area.
Date: October 5, 2013