FECs in 2017: Reimbursements, M&A and More
As part of The Ambulatory M&A Advisor’s series on 2017 predictions from various sectors in the healthcare industry, we take a look at the area of Freestanding Emergency Centers and how professionals involved in that field feel about some of the challenges and opportunities that the new year presents.
Michael Falgiani, MD, associate of University of Florida’s department of Emergency Medicine says that in the New Year, there are a lot of challenges in Freestanding Emergency Centers.
“In states such as Texas and Florida, there are less challenges as the public understands what these centers are and their utility. They have shown to decrease the burden on emergency departments, and they have proven to show their value,” Falgiani says.
“In other states, both from an academic and private side, you are still going to have that competition from the major healthcare centers. You are going to have pushback on both the regulatory side from the state and federal governments, which still haven’t figured out how to regulate FECs. They need to be regulated so that they are providing appropriate care, but then there also has to be opportunities for them to open.”
Falgiani says the regulatory piece is still being worked out in many states for the state legislature. He believes that is one of the biggest challenges, and hopes that the National Association of Freestanding Emergency Centers can affect this matter.
Adam Laughton, partner with the law firm Seyfarth Shaw says that another challenge in the FEC market is going to be continued consolidation in that market as well as potential loss of private insurance if PPACA is repealed.
Other challenges that he brings up include competition and anti-competitive behavior from hospitals and health systems, limitations on ability to expand based on state law.
On solutions for working in saturated markets, Falgiani thinks FEC owners really need to be careful, look at the demographics, and do an adequate business model to see if there is enough business and need to sustain the business.
“I understand that these are businesses that are there to make a profit, and they have to look at that from a business standpoint. They also have to look at it from a patient perspective and make sure that there is not confusion with the public. The biggest argument about FEDs is that they are billing themselves as they can do everything when they cannot do everything that a hospital-based system can do. With the saturation, I think it is great that these are popping up everywhere and people are having access to them, but when they become too over saturated it dilutes the whole model,” Falgiani says.
Troutman approaches the subject of over saturation in a different way and says that unfortunately, some of the corporate based FECs are over building facilities and putting any person with a medical license in as staff where quality sometimes suffers. Troutman explains that it is very important for the public to always verify that nearby FEC physicians are not just board certified, but board certified in Emergency Medicine.
“Would you have surgery by a doctor who isn’t board certified in Surgery? I wouldn’t want to go to an ER where I am not going to see a doctor board certified in Emergency Medicine,” Troutman says.
Falgiani says that when discussing reimbursements for 2017 he would like to be optimistic, but he does not think there is room left in the budget for reimbursements to go up.
“Until someone comes along and makes healthcare more efficient, cutting out some of the red tape and bureaucracy, over redundant processes and tests, there is no way that reimbursements can go up. I see it staying the same or going down,” Falgiani says.
Troutman believes insurance companies will come under more scrutiny with their practices of raising deductibles to the point where the average American doesn’t really have insurance.
“We are reaching a point where majority of plans are, in reality, catastrophic plans, but the patients do not realize that,” he says.
Laughton is a strong believer that reimbursements will not rise in 2017 for FECs.
“At least in Texas, there are legislators that are skeptical about the value of FECs (2017 is a legislative year). Medicare/Medicaid expansion of coverage looks unlikely under a conservative administration. The ongoing emphasis on site-neutral payment will creep into private plans as well,” Laughton says.
FECs and M&A
Laughton says that regarding M&A activity in 2017 for FECs he anticipates there will be consolidation with FECs joining or joint venturing with hospitals/health systems or with independent FECs banding together to survive competition and drive efficiencies of scale.
“I think M&A has to continue in 2017 from multiple levels,” Falgiani says.
“From the FED market, a lot of them are owned either by individuals or smaller corporations. I think you are going to see the same thing that happened with emergency medicine providers. When emergency medicine providers became board certified early on, they were small groups of physicians that came together to have bargaining power. Those groups merged and became larger until you have the large corporations that we have today.”
Falgiani says that with FEDs, to have consistency throughout, the markets will see M&A in the sense of smaller companies coming together to form larger corporations and he believes that is not a bad thing from a consumer perspective.
Troutman does not believe there will be much activity in 2017.
“I think there is too much ‘wait and see’ going on with future of how healthcare is going to look under a Trump administration,” he says.
Laughton agrees that there will be challenges. Since FEC’s do not receive money from federal programs, they are primarily dependent on private insurance. Potential repeal of PPACA will be damaging as well as a continued inability to gain traction with expanding Medicare or Medicaid coverage for FEC services, if those programs are cut or limited as well.
Falgiani however, has a very positive outlook for many aspects; both as an American and as a healthcare provider.
“I think that Donald Trump and his administration are set to run the country more like a business and to run healthcare more like a business and less like a government agency. In that case, the FEC model will actually be an entity that can really provide some great value to the healthcare system,” Falgiani says.
“It is quick, it is efficient, we can do two weeks of work for a family medicine doctor or clinic within a matter of hours at an FED that has lab and CT equipment. I think that if the administration is willing to listen and willing to look in to the economic benefits and the patient care benefits of FEDs, I think that the administration will support these.”
If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or Blayne@AmbulatoryAlliances.com.