Substitute or Supplement? The Role of Freestanding Emergency Departments in the Emergency Care Market

Background: Freestanding emergency departments (FrEDs), which are emergency departments unattached to a hospital, have been viewed by some policy makers as a mechanism to alleviate overcrowded hospital emergency rooms. The rapid growth of FrEDs in the U.S. brings opportunities and challenges to providers and legislators. This study examines the changes in hospital emergency visits and patient casemix after the entry of FrEDs, to show market competition between different emergency care providers.

Methods: This study uses all hospital emergency visits in Texas from 2015-2017, to answer two main questions: (1) how FrEDs influence overall usage of emergency care, and (2) who the target consumers are. Using generalized linear models, it investigates whether the newly entered FrEDs serve as substitutes or supplements to traditional hospital-based EDs. The dependent variables include the total ED visits at the zip code level and the hospital level. Additionally, patients are stratified into hierarchical groups based on illness severity, insurance types and age. The main explanatory variables are the numbers of FrEDs within different distance bands. All analyses control for multiple demographic characteristics and include fixed effects of time.

Results: The results reveal that patients are sensitive to distance traveled for emergency services; the entry of FrEDs decreases visits to hospital-based EDs locally. However, they also increase overall usage of emergency care by expanding the market. Low-acuity, well-insured and middle-aged patients are more likely to be diverted to FrEDs. Owning hospital-affiliated FrEDs helps the parent hospital increase visits and acquire profitable patients.

Conclusion: The estimates suggest that the newly introduced FrEDs not only serve as substitutes to hospital-based EDs, but also supplements with an expansion of the emergency services market. FrEDs are likely to grab a proportion of patients wandering between the traditional hospital-based EDs and other non-emergency options. The results also indicate that owning FrEDs is financially favorable to hospitals. The current policy for FrEDs in Texas encourages entry and stimulates demand for seeking emergency treatment for low-acuity illness, which might substantially increase healthcare spending.