FEC Historical Impact and Expansion on the Market: Part 1

employee clinicFreestanding Emergency Centers (FECs) are a much debated area in the healthcare industry.  In the beginning they were seen as competitors with hospital Emergency Departments (EDs).  However, since 2009,  FECs have become a growing area of the industry that has also grown to form a sense of partnership with hospitals in some situations.  In this two piece series, The Ambulatory M&A Advisor takes a look at the history, impact on the market, and routes for expansion in the FEC industry.

Moving from Hospitals to Independence

FECs gained their initial room for growth in 2009 when legislation was passed that made them a legitimate choice for care. Carrie De Moor, MD, President of Code 3 Emergency Physicians says that before 2009, there were a handful of early companies like First Choice ER and 24 Hour ER.  According to De Moor, some of the earliest companies were actually practicing with hospital outpatient departments and had arrangements with hospitals.

“They would basically be a satellite department for the hospital and at the same time, could operate as an Emergency Room,” De Moor says.

The reality is, practicing emergency medicine in an environment that the physicians could not control (i.e. in a hospital) was not  ideal.

“This was really a movement by physicians to control their environment and make it more efficient, patient friendly, and physician friendly.  It really prompted that move towards taking the Emergency Department away from the hospital. Physicians began to recognize the fact that they could practice their specialty in an ambulance, or anywhere they are.  We don’t need the hospital attached to us, we just need the modalities to practice emergency medicine available to us.  It  doesn’t really matter that there is a big hospital building attached to us or not,” De Moor says.

John McGee, former Chief Operating Officer with ER Centers of America Inc. says that the origin of the FEC started as a way to provide emergency care out closer to the people in need of it.

“It was founded by four doctors in the Texas area who came up with the concept and originally opened them up.  In 2010, Texas passed legislation that recognized FECs and began licensing the entities,” McGee says.

Lonnie Schwirtlich, MD, Physicians Premiere Emergency Rooms says that Jacob Novak, MD started First Choice in 2002, then in 2008-2009 there was the desire to try to have FECs officially recognized by the state of Texas.

“They then went through the process of getting certification.  FECs basically have the same requirements that hospital-based ERs are required to do.  Hospital ERs contain exactly the same equipment that FECs do, but FECs actually have a little more up-to-date equipment in them and tend to try to run things more efficiently,” Schwirtlich says.

“Hospitals tend to use big, multi-unit analyzers in their lab that take 1 ½ to 2 hours to run because they fill up the different units and there is a delay in getting back information.  FECs tend to use the stat lab analysis equipment that gets information back within 5-10 minutes.  That same equipment is available to hospitals but there is a big difference in cost between utilizing the stat type equipment versus the multi-system analyzer.  We have the same type of equipment, we just tend to use the faster supplies.”

Initial Response in the Medical Community

“It really didn’t happen all of a sudden,” De Moor says.

“It has been a slow movement for people to understand the model.  There was some resistance to it in the beginning from people who didn’t understand it.  We saw that from expanding out of Houston and other areas.  It didn’t start expanding for quite some time, again, because there was not an understanding of the complete model and how physicians were able to do it all on their own.  We still see that resistance as we expand out into other states.  There is  kind of a fear in the model because it is disruptive and different.”

De Moor says that originally, hospitals saw FECs as competition, and over time FEC owners saw hospitals wanting business referred in from their locations.  It is much more accepting now and has been for the last couple of years.

“Really, it wasn’t until 2013 or 2014 that we started to see a bigger, broad scale acceptance of the model.  Once Private Equity got involved it helped expand the model, and that is when we started to see a bigger growth in FECs,” De Moor says.

McGee says that as far as the formerly discussed development trends he has noticed that rapid growth is the main development trend over the last few years.

McGee says the market for FECs will continue to see consolidation with bigger players merging with smaller companies.

“I think that is going to be where this is going and I think it is also going to expand into other states.  In one fashion or another, they are either going to be developed by hospitals, or they will be made by people who go into states and other companies to build micro-hospitals that will have FECs,” McGee says.

Moving back to the beginnings of FEC acceptance Schwirtlich says the original drive of FECs was just to get them up to par with the hospitals and have something that would regulate the centers and try to keep them consistent.

“Initially, you are supposed to have hospitals that will accept your patients.  Hospitals did not like the idea that we were going to the competition.  The reason we broke off and started doing this is, that most of us that formed these ER companies have been hospital ER administrative docs and have worked as Medical Directors in hospitals.  We have worked with hospitals for years trying to expedite the system and figure out ways to make them more functional  and had run into multiple obstructions to getting that done.  The end result was that the hospital systems were backed up with long wait times and many of us had become disenchanted with the fact that many of our family and friends were coming into the hospitals to see us and were ending up waiting 12-24 hours,” Schwirtlich says.

“Also, when you have been in ER medicine for a significant amount of time, the physicians out in the community have gotten to know you and trust you with respect to taking care of their patients.  So, a family doc out of his office gets a patient in that needs a further workup and they know the ER docs.  They call in and allow us to take a look at them.  They would send them to the ERs but because they were backed up, a few hours later we would get a call back from the physician asking what we found, and would have to tell them that the patient is still sitting in the waiting room because the hospitals are so backed up.”

With the decrease in access to medical care in general, Schwirtlich says there was a shortage of medical facilities, so a lot of patients were coming into the hospital to be seen and utilizing them for their primary care facility.  These actions by patients were causing a humongous overload of facilities which ultimately led to the modern FEC.

Working with Hospitals and More

“We have to get a certificate of transfer from a hospital signed agreeing to take our patients when they need to be admitted.  We just have to have one but we are not bound to only transferring admitted patients to that hospital if they need to be admitted.  We can transfer to what ever hospital has the capacity and the capability and they have to accept it as per the EMTALA regulations that hospitals are held to,” Schwirtlich says.

Schwirtlich echoes De Moors statement by saying when FECs began to open up, hospitals were not for them and said they were cherry picking just the paying patients by putting FECs in the more affluent areas.

“There were even some rumors that some of the hospital administrators had met and were trying to get the others to not accept our patients.  However as more of these facilities have opened up and our volume of admitted patients from these facilities have increased and the hospitals have noted the payor mix is much better from the FECs, the hospitals administrators have become very friendly to us and the hospitals in our area actually are actively courting our patients and asking questions about mergers or cooperative programs between them and us to try and capture this volume of admitted patients that they couldn’t capture because of their overburdened dysfunctional Hospital based ERs,” Schwirtlich says

Schwirtlich says the Emergency medical systems and municipalities are also contacting FEC physicians and asking them to come to their areas to try and help them alleviate problems that they are facing.  Because of the congestion and back up of hospital based ERs and the traffic congestion and distances to the surviving hospitals in the rural areas, the municipalities and EMS systems have realized that by having FECs in their areas, and by forming an agreement with the FEC to take their ambulance patients and walk in ER patients, they can better serve their populations for ER access with less ambulance personnel and ambulances.

“Many of these municipalities have lost their hospitals and so all of their pts that the ambulance (EMS) pick up have to be transported long distances through many times congested traffic to the site they would get the emergency care in the bigger cities or available hospitals.  This resulted in their units being out of pocket in that transport for longer amounts of time so they had to have more units and ems personnel on duty all the time to have someone available in the municipalities to provide for these  EMS services,” Schwirtlich says.

“Many times these units would get sent in to the hospitals and also have to wait for hours just to find an existing bed to unload into further decreasing turn around time of these units requiring more units in service to provide the necessary coverage.  Hospital based ERs can not be further than 35 miles from the existing hospital facility and FSERs do not have any restriction on how far they are based from an existing hospital.  So in many municipalities that have no hospital, the FSERs are the solution to shorter wait times, shorter transit times when you have an emergency, and lesser need for number of ambulance and EMS staff to provide for the EMS traffic and utilization.”

If you would like to learn more about the concepts covered in this article, want to sell your business or discuss how Ambulatory Alliances, LLC might be able to help you out, contact Blayne Rush, (469)-385-7792, or Blayne@ambulatoryalliances.com.

If you have suggestions for future topics, email Blayne@ambulatoryalliances.com.



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