A freestanding emergency department (FSED) is a healthcare facility devoted primarily to emergency department (ED) services and located apart from hospitals, also known as stand-alone EDs. FSED which provide ED services and basic imaging and laboratory services, come in two forms: off-campus emergency departments (OCEDs), which are affiliated with a hospital and therefore reimbursed by Medicare; and independent freestanding emergency centers (IFECs), which are not affiliated with a hospital and therefore not eligible for Medicare reimbursement. The ability to build, own and operate IFECs and or OCEDs is driven in large part by the local state laws. Certain states allow the development of OCEDs and IFECs while certain states prohibit IFECs and limit OCEDs through various state regulatory requirements such as the need for a certificate of need. OCEDs and more recently an increase in IFECs, have hospitals as part owners in the business which creates the need for any transaction with the FSED to be at fair market value given the potential referral relationship with the FSED and local hospital(s).
VMG Health has worked extensively within the freestanding ED industry since inception. The state with the largest number of FSEDs through 2017 was Texas of which we have a strong presence. VMG has been involved in a number of large health system and FSED affiliations in multiple states including but not limited to Texas, Colorado, Arizona and Florida.
FSED industry as a whole has seen a tremendous amount of growth in recent years but special attention must be placed on the specific risk and volatility for any one particular FSED or platform of FSEDs in a specific market.
The FMV of a FSED or platform of FSEDs is reliant upon numerous variables and drivers of value. A few key factors that require special attention is the reimbursement by payor, ED competition both existing and future, provider compensation/subsidy and local reputation. Understanding the FSED’s specific commercial contracts or lack therefore and how they could be reimbursed going forward is a key driver to the value of the subject business. FSEDs should be viewed similar to other retail type healthcare entities versus a traditional physician referral driven business. An important question to ask “how is the local market embracing the FSED?”