Tony Gutierrez/AP Photo
A sign for First Choice Emergency Room, pictured in August 2016, in Richardson, Texas. First Choice is a chain of freestanding emergency departments operated by Adeptus Health, the largest operator of FSEDs in the country.
In 2018, Tom Oliverson, a Republican state representative in Texas and a practicing anesthesiologist, went to the emergency room. As a medical professional, he knew it was good practice to ask if the ER accepted his insurance before beginning treatment. Yes, they told him. Then, when he was being treated, they changed their response. He continued to ask if they accepted his insurance or not, and they continued to waffle on the answer. When he left the ER, he told me, he knew he had a new “Pandora’s box” to target.
Almost ten years earlier, the Texas legislature had passed a seemingly innocuous piece of legislation. The Texas Freestanding Emergency Medical Care Facility Licensing Act allowed freestanding emergency departments, or FSEDs, to open across the state. These facilities are emergency rooms without an attached hospital, and often without the high level of care that a hospital can provide. Lobbyists who pushed for FSEDs argued that the facilities could provide stopgap care for the huge numbers of Texans who lack adequate emergency care.
This law provided an opening for profit-maximizing private equity firms and other financiers to nurture and exploit a new business model. FSEDs are out-of-network for nearly all patients across Texas, something the businesses purposely obscured. The care the FSEDs provide is limited and sometimes substandard, while costing untold thousands of dollars. A fragmented, complex health care system has created space for scam operations and businesses that serve mainly to maximize their profits, even if that means deceiving patients.
FSEDs aren’t solely responsible for the high out-of-network charges that plague the medical system. Surprise billing, or when providers bill patients for out-of-network care received at an in-network facility, is relatively common. This month, private equity–owned physician groups, doctors, hospitals, and air ambulance lobbyists killed bipartisan legislation to prohibit surprise billing. Within this milieu of taking advantage of vulnerable patients, FSEDs are just one of many.
Providing quality emergency care can be challenging for a few reasons. First, it has a high fixed cost. Around-the-clock infrastructure, including physicians, nurses, and hospital beds, is expensive. Usually, this high overhead is made up through an additional fee called a “facility fee,” charged to insurers and patients for any visit on hospital grounds. Second, since the 1980s, hospitals that accept Medicare and Medicaid (almost every hospital) have been required to treat any patient who walks into the emergency room. Finally, patients have little or no time to decide where and when to receive care; it might be a matter of life or death. Texas and other states actually require insurers to provide some coverage for emergency services anywhere, even if the facility is out-of-network.
FSEDs, which are present in a majority of states but are heavily concentrated in Texas, Colorado, and Ohio (due to lax licensing laws), eventually developed business strategies that took advantage of all three of these facts.
Initially, I was told by a Texas researcher knowledgeable about the topic, FSEDs were largely owned by physicians. They intended to provide care to populations that the physicians thought were underserved: rural residents needing care, and suburban professionals who didn’t want to waste time at hospital ERs, which tend to have long wait times. Some FSED owners also saw profit potential. As FSEDs proliferated and began raking in money, they grew in political power (three of the people I talked to about FSEDs asked to remain anonymous because of the nature of the industry). Soon, private equity groups became interested. The Texas researcher found herself fielding calls from private equity analysts asking for details on FSEDs, which they had heard were a good investment.
The dominant profit motive of the owners of these ERs is often barely disguised. Interviewed by The Washington Post in 2017, Richard Yount, the founder of a chain of three FSEDs, said he had opened his chain after noticing how much money could be made from emergency care. “You had not a lot of competitors and you had all the patients you’d ever want, and they paid a lot,” he said. “Money just fell in your lap.” In 2018, Rob Morris, the CEO of FSED chain Complete Care, told the El Paso Times that, with FSEDs, “it’s easier to make a profit.”
In other cases, the financial entanglements are more hidden. According to a list of FSEDs with active licenses from the Texas Department of Health and Human Services, there are over 200 FSEDs across Texas. Of these, over 10 percent have publicly announced their partnerships with private equity firms. An additional 12 percent publicly partnered with investor firms. And an additional 30 percent have refused to name their investors, with one chain of FSEDs suing another over “soliciting Plaintiffs’ confidential financial investors.” Tracking the financial information of many of the FSEDs uncovers a complicated web of LLCs and investments, all hidden behind the FSEDs’ PR strategy of proclaiming themselves community- and doctor-driven.
The business strategy of these firms has warped the provision of emergency care. Despite initial promises to legislators, FSEDs in Texas have rarely located in rural areas, preferring instead affluent suburbs. According to a Texas-based government affairs professional who agreed to talk to me on the condition of anonymity, the FSEDs had a specific target: insured suburbanites who were financially capable of paying medical bills, while being too financially unstable to risk their credit scores fighting them.
Across the state, FSEDs also engaged in deception. FSED buildings are notoriously designed to look like urgent-care centers, which provide much cheaper care than FSEDs and don’t charge a facility fee. The idea that patients went to FSEDs instead of urgent care, even when their illnesses were low enough in severity to receive urgent care, is supported by a 2019 study finding that, when an FSED opened in a metro area, more people sought emergency care altogether. In other words, FSEDs increase the total amount of care provided in ERs, rather than providing an outlet for patients who would otherwise go to a hospital ER.
Additionally, FSEDs used language intended to deceive patients. A 2018 study by AARP found that nearly 80 percent of FSEDs in Texas said that they “took” or “accepted” certain types of insurance, even though the facilities were out-of-network for all major health plans. The false advertising was spread through signage, websites, and phone conversations with FSED representatives.
The problem became so widespread, and the out-of-network care received so expensive, that a dam began to break. The city of Longview and Gregg County, Texas, implored their employees to stay away from certain FSEDs, as did Blue Cross Blue Shield of Texas. Aetna filed at least three lawsuits against FSEDs. Another lawsuit, filed on behalf of more than 100 people in Colorado (one of the states that has a large number of FSEDs) and Texas, accused FSEDs of tricking patients through “deceptive business practices.” And in an interview with the Las Vegas Review Journal, an economics professor and director of a public policy center at Rice University named Vivian Ho called the FSED business model “highway robbery.”
Despite charging as much or more than hospital ERs, FSEDs are distinctly less capable of providing emergency care. They may have faster wait times, but they provide fewer treatments. The Governor’s EMS & Trauma Advisory Council, a Texas agency responsible for improving emergency care within the state, recommended in 2016 guidance that EMS workers should take only low-severity patients or no patients at all to most FSEDs. Further, because FSEDs are not attached to any hospital, the facilities are not capable of admitting patients or performing surgery. If a patient arrives at an FSED needing surgery, they are shuttled along to a full-capacity hospital, sometimes getting charged twice in the process.
Even the care that FSEDs are capable of providing may be worse than care received at a hospital. According to the database of licensed, active FSEDs in Texas, only 8 percent are Joint Commission–accredited, compared to nearly 90 percent of hospitals across the country. There is at least one lawsuit against FSEDs for providing inadequate care, resulting in the death of a toddler; only a medical resident, without supervision, was on call.
Another limitation of FSEDs is their status with the federal government. FSEDs are not recognized by either Medicare or Medicaid, so patients with those insurance packages are not covered. This limitation has unfortunate side effects beyond Medicare and Medicaid patients, though. EMTALA, the law requiring hospital ERs to accept all patients regardless of insurance status, only applies to hospitals that take Medicare and Medicaid. FSEDs, then, are technically permitted to turn away patients.
There is no public data on how often FSEDs turn away patients, but it has certainly happened. In 2016, Cosmopolitan reported on the case of a rape survivor being turned away from a Texas FSED for not having health insurance while she was between jobs. She was unable to access a rape kit and was sent across Houston to multiple different ERs before she found one that would treat her.
Unfortunately for the financial firms rewarded from the practice, too many FSEDs scammed too many people, and patients started to realize they were being tricked. After a period of rapid growth, some FSEDs have filed for bankruptcy and closed. In early 2017, a Forbes article lamented the decline of Adeptus, the largest operator of FSEDs in the country. Adeptus was unable to collect on the massive bills it charged patients, and its stock began to slide. According to the managing director of VMH Health, a health transaction firm, the FSED business model was failing because it depended on consumer ignorance. “Adeptus just confirmed it,” he said, “we may have a slowdown in this space going forward. Consumers are getting wiser.”
Simultaneously, Texas state legislators have tried to rein in the FSED phenomenon. In 2017, lawmakers introduced a series of bills that provide a snapshot into all the ways FSEDs try to take advantage of patients. One bill required all FSED notices to be in both English and Spanish; one limited the reporting of patients’ collection accounts to credit agencies for balances charged by FSEDs; one required notification that an FSED is not an urgent-care facility. A few of the weaker bills passed, like one that allows mediation for FSED claims, but many of the stricter bills died in committee.
In 2018, lawmakers tried again. Following his negative experience at an FSED, Representative Oliverson pushed through legislation that requires FSEDs to provide a printed disclosure, in English and Spanish, of network health plans and average prices for different procedures, including facility fees. The bill also prohibits FSEDs from declaring that they take or accept insurance if the FSED is not an in-network provider.
But as long as FSEDs continue to operate, and as long as private equity groups continue to see emergency care as a solid investment choice, some portion of the 200 remaining FSEDs will continue to engage in shady tactics. The Texas advocate told me that one FSED she used to drive past had a sign: “All Medical Insurance Accepted.” After Oliverson’s legislation passed, the sign was changed to read: “All Medical Insurance.”
