Over the past several decades, rural hospitals have closed at alarming rates. A 2016 study identified over 650 rural hospitals vulnerable to closure in 42 states with 38 percent of 1,332 Critical Access Hospitals (CAH) operating at a financial loss. CAHs are rural hospitals that meet specified criteria (size/rurality) and have applied to the federal government for CAH designation and subsidy support. The Centers for Medicare and Medicaid Services (CMS) reimburses CAHs for Medicare patients at 101 percent of costs; however, this support is frequently insufficient to maintain solvency. The reasons for closure can be partially attributed to low admission volumes—some hospitals achieve an average daily census of four inpatients, and many intake fewer than one per day—and decreasing reimbursement from third party payers and CMS, which cannot sustain hospital operating costs.

Hospital closures create an economic and health care access void, which is magnified in rural communities that typically have few other employment and health care service options. Job losses directly impact medical and ancillary staff, and the community tax base is diminished when a large employer like a hospital closes, forcing people to move away from communities where they want to live or to retire. When hospitals close, so do their Emergency Departments (EDs) and the life-saving care they provide. When an ED closes, patients are forced to seek care elsewhere, introducing long travel times to other EDs, which can increase mortality for time-sensitive diseases such as trauma, stroke, sepsis, and acute myocardial infarction. This has become a crisis for a large portion of rural communities: 77 percent of 2,050 rural counties are designated Health Professional Shortage Areas (HPSAs) by the U.S. Department of Health and Human Services.

Freestanding Emergency Centers (FECs) present a practical solution to this crisis. While rural communities may have insufficient demands for inpatient care to support a full hospital, FECs have a lower cost structure and higher patient volume.

Explaining Freestanding Emergency Centers

There is often a misunderstanding of what FECs are and are not. FECs are not urgent care centers. They are full-service EDs, which by statute in most states are open 24 hours. They have advanced equipment including laboratory, x-ray, and CT scan; emergency-trained doctors and nurses; and typically offer pre-arranged transfer for patients requiring inpatient hospitalization. FECs can bring time-sensitive critical care to rural communities, along with treatment for urgent conditions that require complicated diagnostic evaluations. FECs also fill gaps in access to other services, including urgent and primary care functions that are inaccessible in many rural communities. Finally, FECs can serve as economic engines for retaining local jobs and tax revenue.

FECs operate as either Hospital Outpatient Departments (HOPDs) owned by health systems, or in some states are independently-owned. As of 2015, there were 387 HOPDs and 172 independently owned FECs.

FECs are an efficient, safe, and cost-effective way to deliver emergency care allowing for the 24/7 risk stratification and stabilization of potentially ill and injured patients. For example, FECs are focal to the acute care strategy for the Mid-Atlantic branch of Kaiser-Permanente, an integrated health care delivery system that operates under a capitated model, where efficient care delivery is paramount. Kaiser’s FEC model also provides prolonged observation care for up to 24 hours to assess whether patients require hospitalization.

Barriers to the Dissemination of Freestanding Emergency Centers

A major legislative barrier to wide adoption of FECs is Certificate of Need (CON), which requires approval for any new hospital or FEC by a state CON board. Currently, 35 states have CON regulations. These regulations can be difficult to overcome, as many boards have hospital representatives who use CON to control competition by voting to deny new approvals. To address this, states could allow FEC licensure without CON board approval in “underserved” communities or change the requirement in most states for FECs to operate as HOPDs within a certain distance of the licensed hospital. Currently, most FEC regulation is handled by states; however, the creation of a federal definition of “underserved” and federal licensure requirements could also be considered.

The lack of CMS recognition is also a major barrier to wider adoption. Currently, independent FECs cannot bill CMS for reimbursement because they are not under the license of a hospital. Therefore, they do not serve Medicare and Medicaid patients. In Colorado, Arizona, and other non-CON states, independent FEC operators have overcome the lack of CMS recognition by building CMS-recognized micro-hospitals, which have approximately eight to 10 inpatient beds, and use a “Hub and Spoke” model where subsidiary FECs are placed in underserved areas operating under the micro-hospital license. Another model used in non-CON states is a joint venture between independent FEC operators and existing hospital systems. In this case, FECs care for Medicare and Medicaid patients under the hospital license. However, a broader solution could be for CMS to expand the recognition of independent FECs in “underserved” areas or create an Innovation Center pilot to test this approach.

Another major barrier to dissemination is the economic considerations of where FECs are placed. Given a choice, health systems and independent groups tend to place FECs in densely populated communities because they generate higher volumes and revenues. Critics claim that this placement strategy pulls patients from hospital-based emergency departments (EDs) and primary care in these areas. However, this is less of a concern in rural areas without a hospital-based ED or poor access to primary care. To make it financially advantageous to open rural FECs, enticements will be necessary.

In its June 2016 report, MedPAC recommended to Congress that CMS financially support FECs in rural communities through federal, state, or county grants or stipends, and create local bond issues or tax levies. MedPAC has proposed similar solutions to prevent CAH closures. Most importantly, the Federal Government could shift current funds allocated for CAHs that have closed to help subsidize replacement FECs.

Finally, there are concerns about FEC pricing, specifically the practice of charging facility fees similar to hospital-based EDs. This can make FECs a costly proposition, but is justified by the high cost of maintaining advanced equipment and being open 24/7. To address these concerns, some FEC operators have developed a hybrid model where separate FEC and urgent care functions exist within the same location. Lower-acuity patients are triaged to the urgent care side and reimbursed using the lower-cost CMS urgent care fee schedule. By allowing appropriately triaged, higher-severity patients to be treated on the FEC side and reimbursing the hospital facility fee or creating a new hybrid FEC fee structure when more intensive services are needed, CMS could economically support greater access to higher-acuity emergency care.

While most recent health policy changes have been centered around improving access to coverage and reimbursement for high-quality care, the ever-growing crisis of poor access to care for rural populations has gone largely unaddressed. We urge Congress and the new administration to prioritize rural health and address barriers to allowing the FEC model to become a viable solution in addressing the rural health care access crisis.

Author’s Note

Dr. Pines is a recipient of a separate research contract with Adeptus, Inc. to study independent freestanding emergency centers. Adeptus did not fund this article and did not take any part in its writing. Dr. Ernst is the President and Chief Medical Officer of EPOWERdoc, a Healthcare Software Company.