Freestanding Emergency Departments have been one of the hottest trends in healthcare delivery for over a decade now, growing by more than 155% since 2008. Texas alone now has more than 260 FSEDs, which account for nearly 25% of all emergency discharges in the state.
It’s easy to see the appeal. Today’s more empowered healthcare consumers appreciate the quicker service and easier access of suburban FSED locations, while hospitals appreciate the reduced cost and simplified staffing of a smaller, more focused facility.
But along with all that growth comes growing criticism from analysts who charge that the proliferation of FSEDs is pushing patients to seek care in a higher-cost setting than they really need. For instance, researchers in a 2024 study analyzed CPT billing codes from Texas emergency departments of all types, categorizing them as critical care, high intensity, moderate intensity, and low intensity. They found that avoidable visits were 50% higher at satellite, freestanding EDs compared to on-site, hospital EDs. Respiratory infections, sprains or strains, and abdominal pain were among the most common conditions treated in the FSED setting.
Speaking to NC Health News, the study’s lead author concluded: “Basically, what we’re seeing is patients coming to these facilities for conditions that could be treated in an urgent care center for a 10 times lower cost.”
Growing Urgency
Speaking of urgent care centers, they have been growing right along with FSEDs. Urgent care locations are growing by 7% a year, according to the Urgent Care Association, and patient utilization is up 25% compared to pre-Covid levels (on average, 32 patients per day in 2019, 40 patients per day in 2022). The trend is far from over: According to Grand View Research, the urgent care market will reach $136 billion by 2030, at a compound annual growth rate of 11%.
Advocates argue that urgent care plays a crucial role in the fragmented US healthcare system because of lower costs and convenient locations that help to relieve pressure on overcrowded emergency departments. There are plenty of studies showing the value and efficiency of urgent care centers, but they are still underutilized by one important metric: Consumers keep showing up in emergency departments even when their conditions are minor enough for urgent care.
It's largely a matter of triage. Consumers can’t diagnose their own chest pain or shortness of breath. The underlying cause might be urgent or emergent, but only a medical professional will know for sure. If they have to go somewhere to get that medical opinion, many consumers will choose the ED just in case. If it’s a heart attack rather than indigestion, better to get the diagnosis in a setting where treatment can begin immediately.
Best of Both Worlds?
But what if consumers didn’t have to make that choice at all? What if they could walk into a single building where a medical provider could tell them whether their condition was urgent or emergent – then treat and bill them accordingly?
That’s the promise of a relatively obscure new model for walk-in care. It’s a hybrid ED/UC that promises to save money for patients by taking the guesswork out of triage. For hospitals, meanwhile, the hybrid model is a way to stay competitive by offering lower-cost urgent care plus the promise of emergency care and an inpatient bed, if needed.
The concept started in 2008 when three emergency physicians in Texas launched Intuitive Health. Altamont Capital Partners, a private equity powerhouse, bought a controlling stake in 2014, and since then, Intuitive has been steadily working to open hybrid centers in partnership with established hospitals and health systems.
Today, Intuitive has inked deals for 30 locations across a dozen states. Clients range from smaller systems like Deaconess or Riverview Health to respected academic medical centers including OU Health, UF Health, and MUSC.
I talked to an Intuitive representative and a health system client to get a better understanding of how these partnerships work. Then, using information from those interviews, we ran the numbers from an actual Ascendient client to get a clearer picture of the financial possibilities and pitfalls.
I’ll go into considerable detail below, but here’s a spoiler: the hybrid ED/UC is an intriguing strategic option that might just be a good fit for health systems well beyond the current Intuitive client base – but it’s no panacea, and it’s unlikely to work in every community. In particular, if there’s no need for an FSED in a given market, then there’s likely no need for a hybrid ED/UC, either.
Getting Under the Hood
I spoke to Sean McGranaghan, Intuitive’s VP for Business Development, who was kind enough to share the company’s presentation for prospective partners. Nothing that follows is intended as an endorsement of Intuitive or the hybrid model. Rather, recognizing Intuitive as one of the first movers in this space, we simply wanted to go to the source to fully understand the model.
A core part of the value proposition is that everyone wins when patients can move seamlessly between the ED and UC, as needed. Intuitive says that more than 70% of patients are billed at the lower rate for urgent care, which saves money for both the consumer and the payer. Just how much is the savings? Baptist Health, an Intuitive partner in Louisville, Kentucky, says uninsured patients at its hybrid locations save an average of $1590 by avoiding costly care in the ED. On the payer side, McGranaghan gave me a similar number – $1600 to $1700 in savings per patient.
Add it all up, and Intuitive CEO Thom Herrmann told Modern Healthcare that patients and payers together saved around $200 million last year on 860,000 visits.
There are potential financial benefits for health systems, as well. First, better use of urgent care helps to reduce healthcare spending, which is good for hospitals in value-based payment programs. In terms of volume, Intuitive says its hybrid facilities attract more patients than a standalone ED, and the company can negotiate 50% higher rates on commercial payer contracts for UC services. Finally, hospitals benefit from downstream visits when truly emergent patients need to be admitted for care.
Hospital partners can also save on upfront and ongoing expenses, because Intuitive provides development capital for the new building; employs non-clinical staff at each facility; and builds its unique workflows into the hospital’s EHR.
None of this comes for free, of course. Health systems pay a management fee to Intuitive as well an incentive fee for hitting various performance targets. Services are billed under the hospital’s CMS Certification Number, but revenue and expenses get disbursed to a joint venture management company. (Intuitive does not take any revenue share on downstream admissions.)
Getting beyond the pitch deck, I wanted to know how these deals work in the real world, so I spoke to a senior strategy executive at one of Intuitive’s partner hospitals. He said that working with Intuitive was a relatively low-risk way to experiment with the hybrid ED/UC model, which fit with the organization’s strategic emphasis on lowering costs for both patients and payers.
For this particular health system, Intuitive did indeed negotiate higher payment rates for urgent care, but most operating income still comes from downstream admissions – the same as a traditional FSED without an Intuitive partnership. Beyond any financial benefits, this executive cited the value that Intuitive adds by managing the facility and educating providers on appropriate clinical documentation for diagnosing patients during triage.
Creating a Model
Of course, neither Intuitive nor its partner hospitals will disclose actual operating results, so we turned to an Ascendient client to produce a rudimentary financial model based on real-world numbers.
Really Good HealthCare (not the real name, clearly) is a multi-billion-dollar health system with 6 hospitals serving residents in more than 20 counties. RGHC is studying a freestanding ED in a county where it currently has no acute care hospitals or urgent care facilities. Using market demographic data combined with patient data from other RGHC locations, we created utilization and revenue scenarios for a traditional FSED and a hybrid ED/UC.
Based on conversations with Intuitive Health and one of their partner health systems, approximately 60% of patients who would have been seen and treated in a traditional FSED are triaged, diagnosed, and billed as an urgent care patient. Additionally, from historical patient volumes, the hybrid ED/UC model brings in more patients (ED and UC combined) than the traditional FSED, and urgent care visits now account for 70% of total patient volumes.
As illustrated by the graphic below, downstream hospitalizations in the hybrid model do not change from the traditional FSED model. However, due to several factors including lower patient co-pays, the hybrid model experiences more total patients being treated daily and annually than traditional FSEDs. In short, we can expect 25% greater patient volume in the hybrid facility without a corresponding increase in revenue, due to lower charges on the urgent care side.
RGHC can still come out ahead with the hybrid model if Intuitive can negotiate higher urgent care payments in its commercial contracts, as promised. But if those rates can’t be known in advance, it does introduce an element of financial risk for hospitals trying to do right by their patients.
(Incidentally, the importance of negotiated insurance rates also might serve as a warning for any health system considering launching a hybrid ED/UC on its own. The scale and experience that Intuitive brings to payer negotiations appears key to its value proposition. As far as I can tell, AdventHealth in Colorado is the only system to launch hybrid ED/UC entirely on its own, without an Intuitive partnership.)
Beyond the Sales Pitch
After talking to Intuitive Health at some length, I can vouch for the persuasiveness of their pitch. They weren’t trying to “sell” me, per se, but they do have compelling data and logic for their business model. Just to reiterate a few highlights:
- More rational utilization of the ED
- Savings for patients
- Savings for payers
- Staffing solutions for non-clinical roles
- Third-party development capital
- Higher negotiated rates for urgent care
Some health systems have struggled to run a profitable FSED, and probably even more have struggled to compete with venture-backed urgent care centers. In those cases, especially, it might make sense to perform further due diligence on the hybrid model.
We can also see potential in some rural communities, where urgent care centers often are not sustainable due to low population density. If your market research shows borderline demand for urgent care, then the addition of an ER could be exactly what’s needed to justify the move.
But there are also plenty of reasons to proceed with caution – or even skepticism. For instance, most hybrid ED/UCs are in states where CON regulation is light to nonexistent. The model has proven to be a tougher sell in some CON states, where regulations don’t yet recognize the model, or officials are waiting to see data on cost savings. In terms of overall impact on the healthcare system, the model also raises questions as to whether the capital costs required for an FSED are warranted when the vast majority of cases are UC visits that could be treated in a lower-cost setting.
From a financial standpoint, we see several red flags. First, downstream admissions are crucial to the new model, so if your current ED is not competitive in the market, then the numbers are unlikely to work for you. We would also advise caution in markets that are saturated with UC competition, because you could have trouble attracting enough patients to generate a positive margin, even with higher negotiated rates.
Finally, we would point out that urgent care is less expensive than emergency care, but it’s still much more expensive than primary care. For a health system truly focused on healthcare transformation, the ultimate goal should be what we call Primary Care Done Right, which includes extended hours, team-based care, and same day/next day appointments. It’s great to divert more patients away from the ED, but focusing on a hybrid model could distract from the real goal of stable, long-term primary care relationships.
Conclusion
Ascendient has always taken the position that healthcare transformation can’t happen without innovation. For health systems that are trying to keep up, the trick is to know the difference between an innovation and a fad.
Though it’s still early days, we think the hybrid ED/UC model may have staying power because it is designed to save money for both patients and payers by rationalizing ED usage. Intuitive is the first mover in this space, but competitors are likely to emerge if the promised cost savings are backed up by data, and larger systems may try to wade in without an outside partner.
If the big “payviders” like United Healthcare and Kaiser Permanente start opening their own hybrid centers, then we’d say the model is all but certain to catch on nationwide. But there’s no need to wait for that day. With good financial modeling and strategic planning – including market analysis and site selection – any health system can begin to assess the viability of the hybrid model versus other solutions that might be more effective at delivering the care that patients need.
Ascendient would be honored to help with that assessment.
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