October 12, 2020

Implications of the Growth in Freestanding Emergency Departments and Micro-Hospitals

By JoAnna Younts, MBA, Berkeley Research Group, Washington, DC

Introduction

Freestanding emergency departments (EDs) and so-called “micro-hospitals” have been quietly proliferating in the United States over the past five years.  They have become ubiquitous in states such as Ohio, whose Certificate of Need (CON) program does not evaluate supply and demand for these types of facilities, and Colorado, which has no CON program at all.1  While the Medicare program has reimbursement requirements in place for these providers, the Medicare Payment Advisory Commission (MedPAC), which advises Congress on Medicare policy, has expressed concern that the Medicare rates paid do not appropriately reflect the underlying costs and service mix.2  At the same time, some commercial payors have struggled to establish payment policies for these providers that allow them to balance member access and provider choice with cost effectiveness, creating the potential for provider disputes and surprise billing risk when services are provided out-of-network. 

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