The Growth in Stand Alone Emergency Departments in Texas and their Impact on Hospital Operations

• In Event: Organizational Dynamics in the U.S. Healthcare System: Incentives, Structures, and Access

Abstract

Over the last decade, the number of freestanding emergency departments (FrEDs) across the country has increased substantially. Most growth occurred in Texas, which, as of May 2023, had 338 FrEDs that were operated independently (62%) or owned by a hospital and commonly referred to as a “satellite” (38%). A growing literature has described the location and pricing of FrEDs in Texas, however, the dynamic development of the FrED market is not well understood.

Understanding the viability of these facilities is especially important because independently operated FrEDs are separately licensed and, unlike their hospital-affiliated counterparts, are not certified by the Center for Medicare and Medicaid Services (CMS) to receive reimbursement from Medicare and Medicaid. As such, hospital ownership confers substantial benefits by guaranteeing timely payment from federal and state insurance programs. At the same time, the proliferation of independently operated FrEDs displays potential opportunities to reap higher payments from private payors and opens the opportunity for surprise and balance billing of commercially insured patients.  Nevertheless, non-collection of payment from patients could also lead to the closure of facilities if a substantial proportion of patients do not pay.

There are several reasons why freestanding EDs can represent a lucrative business opportunity. First, stand-alone ED payment rates are higher than for other outpatient care settings, and stand-alone EDs can charge facility fees that are common for hospital inpatient care. Second, they limit risk by relying on treating lower severity patients and providing basic services (including imaging and laboratory services), while referring more complicated cases to hospital-based facilities. Given the risk of non-payment (as few insurers covered these entities in the early days) or out of network charges for patients, freestanding EDs must be careful in location choice.

This paper examines the growth and consolidation of independent and satellite FrEDs in Texas between 2010 and 2023 using state licensing data. We describe the geographic characteristics associated with FrED locations and, using American Hospital Association (AHA) data, characteristics of hospital systems that have invested in satellite facilities. Preliminary results suggest that as of December 2023 there have been 800 FrED facilities licensed with 56% closing within four years of operation. Consistent with previous work, we find that counties where FrEDs choose to locate are, on average, more densely populated with higher median household income, a larger insured population, and more health resources. In terms of ownership, satellite FrEDs are likely to be owned by large for-profit hospitals. Over time, satellite facilities have represented a larger share of the FrED market, growing from 26% of facilities in 2011 to 41% in 2019. Satellite owned facilities also seems to be correlated with inpatient utilization at the system hospital, by increasing the number of inpatient visits by 5%.

Author

• Benjamin Ukert, Texas A&M University
  Presenting Author