The Complete Idiot’s Guide to Owning a Free-Standing Emergency Room

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Objective

The objective of this guide is to briefly outline steps and resources required for opening a Free-Standing Emergency Room. This new facility type has many different names such as Satellite ER, Free-Standing Emergency Department, Free-Standing Center, Freestanding Emergency Facility, FSED, FEC. All of these terms refer to the same thing a “Free-Standing ER”. The term “Free-Standing ER” is the most self-explanatory and has also become the TAFEC (Texas Association of Free-Standing Emergency Centers) industry standard. Therefore, this Guide will only use the term “Free-Standing ER”. A Free-Standing ER is unattached to a hospital, is open 24/7, equipped with cat scanner, x-ray, ultrasound and a lab, which is staffed by emergency physicians and nurses.

Before we get started you should clarify with your state as to your state’s particular ownership rules. For example, in Texas and Delaware physicians can own their own freestanding ER. In some states only hospitals can own freestanding ERs. In some states Free-Standing ERs have yet to even be recognized by policy makers.

 

Background

It is important for would be owners to have an understanding of the impact that Free-Standing ERs may have upon Hospital referral systems. In some states Free-Standing ERs have created a firestorm of “geopolitical” debate regarding who is allowed to own and operate them. One state (Florida) even created a temporary moratorium on Free-Standing ERs to give all of the stake holders time to sort everything out.. There have been instances where competing hospital systems have effectively used Free-Standing ERs to “squeeze out” their competitors and monopolize entire healthcare systems. The ownership of Free-Standing ERs varies from state to state. In some states non physicians, corporations, and physicians may gain ownership whereas in other states only Hospitals may own them. A few states (like Alabama) require a certificate of need in order to operate a Free-Standing ER. Anyone interested in ownership should first check with their state and the rules that apply to ownership and operation of Free-Standing ERs.

Texas has shown that allowing physician ownership of Free-Standing ERs and not requiring certificate of need will foster significant competition to arise. This competition is forging a dramatic increase in access to care for patients while introducing “free-market principles” that are lowering the patient’s cost of emergency care while increasing the quality of care. In other states such as Alabama which requires both a certificate of need and hospital ownership it is close to impossible to build a Free-Standing unless you are the largest Hospital System and have the most political pull. Interestingly, the 1-2 Free-Standing ERs that have been built in Alabama have cost nearly 3 times the amount than similar sized Free-Standing ERs built in Texas. Many states have yet to recognize Free-Standing ERs.

 

Steps

  1. Choose the Site and Choose the Development Team Carefully!

Choose a sight and development method. Either use investor/lease approach or if you have about $900,000 cash to INVEST then do it yourself ($700,000 for facility down payment and $200,000 for equipment lease down payments). Either way the overall project cost will likely be around $3,500,000 to $12,000,000. Unless you or one of your partners has recently won the lottery you will likely be needing to obtain a loan. The SBA (Small Business Association) has a very attractive loan program. If choosing to utilize the SBA loan program you must have an excellent credit rating and not have ever declared bankruptcy. The SBA program offers very competitive loans and the bankers that focus on SBA lending are your best resource. Not all banks like to involve themselves with SBA loans. I strongly suggest you check online to find a banker that frequently awards SBA loans or a CDC that overseas SBA lending. Having the right banker can make or break you. The SBA 504 program will supply you with project costs (equipment, land, building, CT, Xray, even otoscopes etc). The SBA 7A program will supply you with working capital (money used to run your business until you become profitable). Many new FSEDs use $500,000 to $1,000,000 in working capital prior to breaking even. Your biggest working capital expense is the physicians. Since many of you are physicians you may be able to GREATLY reduce your working Capital needs by working “probono” until you break even.

Make certain that your engineers and architects know how to design a code compliant Freestanding ER. This is so important that it is worth repeating “Make SURE that your crew knows how to build a code compliant freestanding facility!” In most areas of the country the freestanding facility must comply with both local city and state health department building codes. These two codes do not always agree with one another. So the designers must often consult with both state and city officials to design code compliant facilities.

There is still much confusion about Freestanding ERs. For example, many Architects and Engineers may assume that they are designing a “fancy” urgent care. Free-Standing ERs code requirements not only exceed Urgent Care requirements but in many cases exceed Hospital ER code requirements. This misunderstanding can lead to delays in your project and budget over runs. No one wants to create a facility which fails to achieve state licensure. Hire experienced people! I won’t go into the construction at this point as I could likely write a book about the construction of the FSED facility, and I believe most will use developers and seasoned professionals for this.

  1. Develop a Business Plan

The SBA will require that you do many things. One is to develop a business plan. Underestimate the income and overestimate the costs…(prepare for the worst and hope for the best). I suggest becoming able to use excel. Prepare spreadsheets that demonstrate how your business will perform over five years. Pay close attention to the first 6 months of your operation and how you may limit your costs. It typically takes 3-6 months for your reimbursement for service to “kick in” and “mean while” your working capital will be your life boat.

Obtain a market analysis. The market analysis is a great investment. In fact, you may spend a little more and get a “heat map” showing the best location for your ER.  I used Mike Strube of GeoMarket Solutions (office  972-594-0218, email Mike@geomarketsolutions). The market analysis cost will likely be nominal and take around one week to prepare.

Location, location, location…. a poor man’s market analysis is to locate next to a Walgreens or CVS. However be mindful of demographics in your location. If you are not planning to accept Medicaid and Medicaire or Tricare then you should avoid locating your ER near a hot bed of their recipients. The only freestanding failure known to me occurred in a very affluent suburb of Austin. This FSED did not take Medicaid or Medicare and was surrounded by wealthy folks over the age of 65 who were all on Medicaid and Medicare (oops!). They closed their door over a year ago due to lack of business. Do your homework on location! Make certain that your location supports your business plan.

3.  Further Develop Your Business Plan and Marketing Strategy

Begin to develop a business plan way before you open. Consider the FSED market and begin a method of marketing. Look at how your facility may best supply the care needed in your community. Consider how your facility may participate in giving free care to those in need. Make plans to support your community and become involved with your city’s chamber of commerce.

No one has discovered the ideal way to market Free-Standing ERs. Some feel that having good signage is the best place to start. Others feel that having highway billboards is worthwhile. It is likley that each Free-Standing ER would benefit most from a very individualized marketing strategy.

  1. Hire Your Professional Team First

Hire a business attorney, accountant and a business manager first. Have the business manager getting busy bidding out the various contracts needed. Have your attorney and accountant busy setting up your new legal entities (corp, pa etc.) As your project develops you will need the assistance of all these professionals to see your project through. The sooner they are hired the more greatly they can benefit your project. You may also consider hiring your Medical Director, Imaging Director, Director of Nursing, and Laboratory Director at the beginning of the project so that ample time will be available to set up your facilities policy and procedures. Delineate roles for everyone with clear expectations.

  1. Make Your Plans Known to Officials in the Community

Discuss your plans with nearby Hospital officials. Set up transfer agreements. Discuss your project with local physicians and Urgent Cares. Join local chamber of commerce and visit with the cities economic development authorities. They want your business to work. Put your face on your project. Discuss your project with State officials. Anticipate paying an application fee for licensure. Schedule an architectural pre-survey and go to it with your professionally sealed architectural, mechanical, electrical etc. designs. Also schedule a pre-survey conference with the state regarding your procedural manual. If necessary have the property rezoned with the city

  1. Set up Your Legal Entities

With the assistance of your attorney and accountant set up your legal entities. Take the time to closely examine the options and make wise decisions that best suit your needs in the set up of your business. If possible discuss your options with other business owners whoes experience may help guide you. Building an ER is very complicated and requires the expertise of many many people so do not ever pass up the chance to listen to others advice.

7.  Obtain a Transfer Agreement with a Hospital

Obtain a transfer agreement that meets the mustard set forth by the State. Work with hospital attorneys and your attorney to get this done.  This can be a very timely endeavor. Start working on this agreement very early in the project. If you have the luxury of choosing which hospital to make a transfer agreement with then research the hospital to make certain that your facilities “mission statement” is in line with the hospital’s “mission statement”. Once you open the ER most of your patients needing hospitalization will be transferred to this hospital. Make sure that the hospital shares the same high level of caring that your ER will have.

  1. Hire an Experienced IT Consultant

Building the business infrastructure of your business requires your accountant, attorney and you. Do it now. The technical aspect of your business will require the expertise of many computer IT experts from different vendors who speak in “IT Jargon”. I strongly suggest you hire your own IT consultant to oversee the project. The IT consultant can be worth their weight in gold. The IT person should be responsible for setting up your IT closet which is the head end for all low voltage systems including your EMR, RIS, LIS, Telephone, Computer system, Security, Fire alarm etc. Your IT consultant should be responsible for overseeing the design, set up and implementation of all of your low voltage systems along with a timeline for completion. Your developer will not be taking care of this. Your developer will be supplying you with the high voltage only (a wall plug). Then you are on your own. Hire an experienced IT Consultant.

9.  Set up Payroll and Benefits for Employees

Payroll … You may wish to have two accountants. One personal and one for payroll. Payroll was very easy to set up.  Many options exist along with payroll including; Web portals for employees, benefit packages, back ground checks on new employees applicants. Payroll accountants can give absolutely great advice regarding benefits. Meet with a local payroll accountant with your business manager now and set it up.

10.  Employee Benefits

Employee benefits will require you to vet several different insurance companies to offer health insurance. If you wish to be a Scrooge many plans have very high deductibles and cost the employer very little. Other plans are available which allow the employer to pay up to 100% of employee’s health insurance. The choice is yours but employer sponsored health insurance may cost your business anywhere from $5,000 to $20,000 per month. I suggest you involve your business manager on the vetting of different policies. I will not even pretend to forecast the ACA’s impact on any of this.

11.  Obtain Licensures

Contact your state CLIA office and begin the application process for your lab’s CLIA license. In order for ER docs to qualify to serve as the Medical Director of a Free-Standing ERs lab they must take a 20 CME hour on line course. This can be a time sensitive matter as it can take 2-3 months to complete the review process of your application meanwhile it may be difficult for you to charge for labs. Since you will be doing CBC it makes your lab a clia moderate complexity lab (even though 90% of our lab testing is CLIA waived). The link to this course is www.COLA.org or 800-981-9883.  It can take CLIA up to 6 weeks to approve your application. Your lab will also require a technical consultant. Hire a lab tech that is qualified to be a technical consultant for CBC and you are good. Consider applying for COLA accreditation, as this will allow your patients to know that your lab is high quality.

  1. Set up Transfer Agreements and Develop Relationships with local EMS

It is very important that you develop relationships with local EMS. Discuss with them what the Free-Standing Emergency Room is capable of and whether or not you will be accepting EMS traffic. It is also important to establish relationships with nearby Hospital Based ERs. Set up transfer agreement with local EMS to take patients from your facility to the hospital for admission. It is highly recommended that you become involved in local first responder meetings to become aware of policies that may affect your business. In some areas EMS will deliver patients to Free-Standing ERs and in other areas they will not.

13. Become a Member of Local Medical Societies and Free-Standing ER Groups

In Texas we have TAFEC (Texas Association of Free-Standing Emergency Centers). TAFEC is comprised of the vast majority of physician owned Free-Standing ER owners. TAFEC has been EXTREMELY helpful in assisting the process of building and operating Free-Standing ERs. Membership in groups such as this will help “would be” owners navigate the many hurdles that must be overcome to build and open the ER.

  1. Choose Coding and Billing Vendors

Not all coding and billing companies are created the same. Significant variance exists in cost and quality. Choose your vendors very wisely. Decide how you want to bill, how you want to discount, how you want to treat the uninsured. Develop a “work flow” for the patient’s bill. These decisions will greatly impact your “bottom line”. Involve your business manger in these decisions.

Free-Standing ERs are a facility and you will be billing both a professional fee and facility fee. Bundling these services can frequently save on costs with coding and biller vendors. Shop around and research your options. Do not assume anything.

  1. Obtain Radiology Support

Establish a contract for radiology official readings with a radiology group. Local and national groups exist for this. Remember that they will need to have access on line to your imaging system. This will require the assistance and coordination of your IT consultant and technology vendors. The sooner you have a plan of action then the easier it will be to implement.

  1. Get Insurance

You will need to obtain a bunch of different insurance policies; builders policy, renovations policy, life insurance policy for your SBA loan, Professional Liability, General Business Insurance, and workers comp Insurance to name a few. All of the policies take time to develop and to vet. Start early so that you may have the time to choose the options that will best fit your needs.

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