FECs and the Future of Healthcare

FEC-broker-services-sizedImagine a healthcare world where it is possible to provide excellent emergency care without the issues of overcrowding, over-billing, and uncomfortable patients.  While these problems in emergent care may seem prevalent in the everyday ER, to Freestanding Emergency Center (FEC) owners, these areas of issue are a thing of the past.  The Ambulatory M&A Advisor presents a glimpse of the future from FEC advocates and why they predict the model will be a prevalent system in the future of healthcare.

“I’ve been a pit doctor for 20 years.  Emergency medicine has been my career.  Quite frankly, it has become more difficult, if not impossible to offer patients excellent emergency care in the hospital setting.  With overcrowding and over-billing, it is absolutely miserable to be forced to work in a hospital that is completely over run with patients.  You just cannot provide good care,” Henry Higgins, MD CEO of Family Emergency Rooms says.

“How would you feel if you were the doctor, and you walked out into the lobby, and saw a patient suffering from a kidney stone vomiting over another patient that has a broken arm; and they[physicians] can’t get them back for treatment because there is too much back log?”

Higgins says that these problems faced in standard hospital ERs are why FECs are popular why they are going to continue to grow into the future as what he labels as a “winning model.”

Gerad Troutman, MD, Secretary of the Texas College of Emergency Physicians says that as far as the future holds, FECs are going to be the future of emergency medicine.

“I think if we look forward five to ten years, we are going to see FECs all across the country.  It is what patients want.  The FEC can provide desired quality level of care in a very timely environment and in a nice facility.  That is what patients want, and that is what the current healthcare needs are,” Troutman says.

Fletcher Brown, partner with the law firm Waller, Lansden, Dortch and Davis also agrees that FECs are going to play a substantial role in the future of healthcare.

“First, I think in urban areas where there are a lot of health insurance programs available for consumers, that FECs will blossom.  From a consumer standpoint, they add a lot of convenience and will certainly be driven by large hospital systems to capture market share,” Brown says.

“The second part that I see, is FECs may play a role in rural areas around the country where there is not a large enough in-patient census to maintain a critical access hospital.  There may be a market for converting these critical access hospitals with declining population in their community.  Many of these old and outdated facilities can be turned into FECs of some form that will also have either a rural health clinic or an urgent clinic attached to it.  This way, they could provide the emergent care in rural populations without the excessive overhead that is required for a fully licensed acute care hospital.”

Brown explains that 86% of Texans live in only six cities; meaning that there is a vast area of the state that has a low population but is geographically enormous.

“It’s those areas where I see that there is a niche market for FECs to replace older acute care hospitals that are having a declining population in the community or are having a very low in-patient census to begin with…I think that is a long-term trend that will occur between five and fifteen years,” Brown says.

Troutman says that another trend that FECs can expect in the near future is that of Private Equity attention and investors in the model.

“I believe that there is at least one free-standing group that is publicly traded as a large corporation.  I think any time that happens in an industry, that obviously gets the interest of big money folks,” Troutman says.

Whether this movement is good or bad for the future, Troutman cannot predict.  However, he believes that the ideal situation is that such attention will prompt locally owned emergency rooms by local ER doctors to continue to pop up in the hopes of creating a nation-wide care model.

“I don’t know that it is [going to remain independently owned]; most things end up in either a franchise situation or owned by large corporations.  There are some benefits in economies of scale.  That is probably where it will largely be headed with a few of the mom and pop shops thrown in between,” Troutman says.

A View of the Landscape

“I believe Texas is one of the best states in the union and has been generally very friendly towards small business, which is what many FECs are considered.  Other states have a little more difficulty with that and tend to side towards the larger corporations that many hospitals are a part of,” Troutman says, adding that these states effectively try to block the FEC from being an entity in their location.

“I think that needs to change.  If you look at Texas, the vast overwhelmingly majority of patients who have experienced a FEC absolutely love the experience and we need to provide that in every state across America.  I think the states that are blocking that aren’t doing good for their citizens.  I think this type of emergency care needs to see more of a public demand all across the country.”

Higgins backs up Troutman’s statement by explaining that healthcare is controlled by different entities in different states and this will be a challenge.

In some states due to Certificate of Need laws, Higgins says they don’t allow anybody but hospitals to own or operate FECs.

“There is no licensure available and the hospitals in many markets have been able to monopolize FECs, making it impossible to build one unless the business is already a hospital.  The only time the hospitals really get interested in FECs is when they are trying to compete with one of their competitors,” Higgins says.

Challenges the Future Holds

Brown says that although the future of FECs is predictably bright, there are still some challenges that will be faced.  One of the challenges involves too much saturation in particular market areas.

“It depends on if the FEC is affiliated with a hospital system or not.  In urban areas, I think that is just a battlefield for market share; whether they are independently investor owned, free standings, or if they are a division of a larger system.  I think in the future there will be a competitive tension there,” Brown says adding that in his practicing city of Austin he has seen competing facilities directly across the street from each other.

Troutman says that a current issue that will lead into the future pertains to instances of public ignorance on what a FEC provides.

“I think FECs are really well regulated in a state like Texas.  Urgent Care in many states have very minimal, if not zero stipulations other than just meeting the requirements of being a public business.  Having that word “Emergency” is something that is very important.  “Emergency” means open 24/7 can see and treat all diseases and illnesses from age zero to age 120,” Troutman says.

Troutman says that emergent care is something that FECs don’t take lightly but occasionally, there are cases where Urgent Cares that say they are a minor emergency clinic.

“I don’t even think Urgent Care should have “emergency” in their name.  I think that has what has caused some of the public issue,” Troutman says.

Brown also believes that this is an issue and says that the industry needs to be careful that it avoids consumer confusion.

“People see these emergency centers and they don’t necessarily realize that they are going to get billed as if it is an emergency department of a hospital.  That’s a lot different billing rate than going to any urgent type facility,” Brown says.

“I think there is some consumer confusion out there and some surprise when the bill shows up.  I think the industry would be wise to make sure that that distinction is clear so that you don’t have people who later complain or call the local newspaper and get a front page article about perceived deception in billing.”

 

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.

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