April 12, 2017

Freestanding Emergency Rooms: Real ERs or Just Really Expensive?

Freestanding emergency rooms (ERs) advertise a less-crowded environment and more convenient location than a traditional hospital-based emergency room, but a new study suggests that the growth of for-profit freestanding ERs in Texas may be contributing to higher health care spending by delivering care for conditions that could be treated at lower cost elsewhere.

Conducted by Blue Cross and Blue Shield of Texas’ (BCBSTX) Center for Collaborative Studies and researchers at Rice University in Houston, the analysis showed that:

Freestanding ERs look and feel much like the traditional urgent care facility. It is a walk-in medical facility that is structurally separate and distinct from a hospital, but it still receives patients for emergency care. These facilities are often found in commercial shopping centers, close to more affluent neighborhoods and residential areas. The majority are not affiliated with any established hospital or health system.

“An immense amount of capital has been poured into these freestanding ERs without making health care more accessible or affordable,” said Dr. Dan McCoy, president of BCBSTX. “A lot of money was truly wasted, sadly at a time when the health care industry needs to be more fiscally responsible. It has been a step in the wrong direction.”

Given the recent proliferation of freestanding ERs in Texas, other states may gain important insights from the study.

Understanding the Impact on Health Care Costs
To better provide accessible and convenient alternatives to overcrowded ERs, established hospitals in 2008 began building stand-alone emergency rooms within the communities they served. Dr. McCoy noted that these facilities generally were thoughtful about the long-term medical needs of these patients. More recently, however, independent, for-profit freestanding ERs staffed by doctors who were not affiliated with a hospital began proliferating, first in Texas and then across the United States.

The Texas Legislature passed a law in 2009 requiring licensure and regulation of freestanding ERs. At the same time, it amended the Texas Insurance Code provisions, adding freestanding ERs to the list of facilities that were required to be reimbursed at the “in-network” level of benefits for emergency care. Since then, the number of freestanding ERs in Texas has more than tripled, moving from 40 in 2009 to more than 200 in 2016.

“In Texas, anybody can build a freestanding ER. License standards have uncoiled ERs from hospitals and there is a lack of cost containment. It has created the perfect storm,” McCoy said.

Using BCBSTX medical claims data from 2012 through 2015, BCBSTX and Rice researchers compared usage rates, cost per visit and the type of care provided across freestanding ERs, hospital-affiliated ERs and urgent care centers in Texas. An urgent care center can treat patients for health issues needing immediate attention, but that are not life-threatening, such as strep throat or a cut that may require stitches. The data showed that during this period, freestanding ER visits rose 236 percent as more facilities opened in Texas. By comparison, visits to hospital-affiliated ERs and urgent care centers increased by only 10 percent and 24 percent, respectively.

Meanwhile, as members visited freestanding ERs more, the care they received there became more expensive. Average cost at freestanding ERs was nearly $2,200 per visit in 2015, which is on par with the average cost of a hospital-based ER visit. By comparison, average cost for a visit to an urgent care clinic in 2015 was roughly $170 per visit, the researchers found.

The study found that many of the patients who visited a freestanding ER could have had their health issues handled by the less-expensive urgent care center. In fact, 15 of the 20 most common diagnoses treated at freestanding facilities were also treated at urgent care clinics.

However, costs for patients with the same diagnosis were on average almost 10 times higher at freestanding ERs compared to urgent care clinics. For example, the most common diagnostic category treated at freestanding ERs is “other upper-respiratory infections,” which has an average price of $1,351 – more than eight times the price of $165 that was paid for the same diagnosis at urgent care clinics.

“Although freestanding ERs may appear to be convenient options for care, they certainly are not the most efficient and may result in higher costs,” said Leanne Metcalfe, senior director of the Center for Collaborative Studies. “With health care expenditures continually rising, consumers should be more aware of what conditions require emergency care versus illnesses that are less pressing and can be treated in alternative care settings.”

Knowing Where to Go Matters
To avoid paying exorbitant bills, consumers need to educate themselves on the appropriate times to use their local doctor as opposed to an urgent care center or an ER, whether it is attached to a hospital facility or in their neighborhood. Controlling health care costs for individuals requires combined effort of the government, insurers, hospitals, physicians and informed patients.

According to the Texas study, while previous legislation and business practices may have allowed freestanding ERs to proliferate, a new Texas law requires the freestanding ERs to inform patients that costs should be similar to a traditional ER. But it may be too little, too late.

“The new transparency law is a good step forward, but it only requires freestanding ERs to disclose to patients that they are in an emergency department with ER pricing. But what patients don’t realize is many of these facilities aren’t contracted with insurance providers and can set their prices at their discretion, so this is nowhere close to a true buyer beware,” McCoy said.

Approaches being championed by BCBSTX along with other industry proponents include:

  1. Legislators need to protect consumers: The legislature should grant the AG authority to protect consumers from being victims of price gouging when they have suffered from a personal medical emergency. This is similar to the protection afforded Texans who are caught in a natural disaster and are victims of price gouging.
  2. Facilities need to be held accountable for their advertising: Based on a review of the Texas market, vaguely marked signs and misleading advertisement for freestanding ERs have drawn in unassuming consumers looking for an urgent care or retail clinic. The Texas legislature should prevent the use of misleading statements such as “we accept all insurance” when, in fact, the facility isn’t in the network. To prevent misstatements about when coverage is available, the Texas Department of Insurance also should be directed to develop a standard explanation about coverage in emergencies, regardless of the type of facility providing the ER service.
  3. Patients should be protected against balanced billing: Insurers will pay out-of-network freestanding ERs “usual and customary charges” under Texas insurance regulations. But the current regulations do not protect patients from being balanced billed (expected to pay the remaining balance of the charges) by the facility in all circumstances. The Texas legislature should expand the current mediation process to include balances billed to patients from freestanding ERs. This offers a consumer a fair forum to discuss excessive charges.

For More Information
Learn more about freestanding emergency rooms and how members may be affected: