How to Build Your Own Freestanding Emergency Clinic

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From working with architects and IT consultants to setting up transfer agreements and CLIA licensures, here are 16 steps to establishing your own freestanding emergency clinic.

A Freestanding Emergency Center (FEC) is unattached to a hospital, open 24/7, equipped with CT scanner, X-ray, ultra- sound and a lab. It is staffed at all times with board certified emergency medicine docs and emergency nurses.

ED docs have been the driving force behind the development of FECs. There are many reasons for this including improving the practice environment, physician autonomy and control, decrease in overcrowding, improved quality of care and an improved patient experience. In addition, EDs are brought to the neighborhoods, allowing for better access to care, less wait times and higher satisfaction of both patients and staff.

Setting one up might initially seem daunting, yet, as with anything, there are a series of steps that, if you follow them all, can ease the process. This guide briefly outlines those steps and the resources required for opening a free- standing emergency center.

Background
It’s important for would-be owners to have an understanding of the impact that FECs may have upon hospital referral systems. In some states, FECs 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 FECs to give all of the stakeholders time to sort out the issues involved with them. There have been instances where competing hospital systems have effectively used FECs to “squeeze out” their competitors and monopolize entire healthcare systems.

The ownership of FECs varies from state to state. In some states, non-physicians, corporations and physicians may own them, whereas in other states, only hospitals may own them. A few states – like Alabama – require a certificate of need in order to operate an FEC. Anyone interested in ownership should first check with their state and the rules that apply to the ownership and operation of FECs.

Texas has shown that allowing physician ownership of FECs and not requiring a certificate of need will foster significant competition to arise. This competition is facilitating 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 simultaneously increasing the quality of care. In states such as Alabama, which requires both a certificate of need and hospital ownership, it is close to impossible to build a FEC unless you are the largest hospital system and have the most political pull. Interestingly, the one or two FECs that have been built in Alabama have cost nearly three times more than similar-sized FECs built in Texas. Many states have yet to recognize FECs at all.

If your state does recognize FECs, here’s a step-by-step guide to setting one up.

1. Choose the site and the development team carefully!
Choose a site and development method. Either use the investor/lease approach, in which you solicit investors with existing capital or if you have about $900,000 cash to invest, then do it yourself ($700,000 goes to facility down payment and $200,000 to equipment lease down payments). Either way, the overall project cost will likely range from $3.5 to $12 million. Unless you or one of your partners has recently won the lottery, you will likely need 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 must not have ever declared bankruptcy. The SBA program offers very competitive loans, and the bankers that focus on SBA lending are your best re- source for information about them. 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 Certified Development Company (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, X-ray, even otoscopes, etc). The SBA 7A program will supply you with working capital: the money used to run your business until you become profitable. Many new FSEDs use $500,000 to $1 million 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 “pro bono” until you break even.

Make certain that your engineers and architects know how to design a code-compliant FEC. 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 make sure the facility is code compliant.

There is still much confusion about FECs. For example, many architects and engineers may assume that they are designing a “fancy” urgent care facility. The code requirements for FECs 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 overruns. No one wants to create a facility which fails to achieve state licensure. Hire experienced people! I won’t go into the details of construction at this point, but please, use a seasoned professional.

2. Develop a business plan
The SBA will require that you do many things. One is to develop a business plan. When you do this, underestimate the income and overestimate the costs (aka “prepare for the worst and hope for the best”). Familiarize yourself with 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 during that time, your working capital will be your lifeboat.

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. The market analysis cost will likely be nominal and take around one week to prepare.

Location, location, location! A poor man’s market analysis would suggest that you locate a FEC next to a Walgreens or CVS. However, be mindful of demographics in your location. If you are not planning to accept Medicaid, Medicare, or Tricare, then you should avoid locating your ER in an area with a high percentage of people on those plans. The only freestanding failure known to me occurred in a very affluent suburb of Austin. This FEC 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!). The facility closed its doors over a year ago due to lack of business. Let me reiterate: Do your homework on location! Make certain that your location supports your business plan.

3. Marketing strategies
Consider the FEC 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. As of yet, no one has discovered the ideal way to market FECs. Some feel that having good signage is the best place to start. Others feel that having highway billboards is worthwhile. It’s likely that each FEC would benefit most from a very individualized marketing strategy.

4. Hire your professional team first
Once you’ve set an intent to open an FEC, hire a business attorney, accountant and a business manager. Have the business manager begin the process of bidding out the various contracts needed. Have your attorney and accountant focus on setting up your new legal entities (corp, professional association, etc.) As your project develops, you’ll need the assistance of all these professionals to see your project through. The sooner they’re 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.

5. 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 the local chamber of commerce and visit with the city’s 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.

6. 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 setup of your business. If possible, discuss your options with other business owners whose experience may help guide you. Building an ER is very complicated and requires the expertise of many people—so don’t 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 muster set forth by the state. Work with hospital attorneys and your own attorney to get this done. This can time intensive, so start early. If you have the luxury of choosing which hospital to make a transfer agreement with, then research the hospital to make certain that your facility’s 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 care that your ER will have.

8. Hire an experienced IT consultant
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. Because their work is both so essential and so specialized, IT consultants 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, setup 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). Once that’s completed, you’re responsible for the rest. Hire an experienced IT consultant.

9. Set up payroll and benefits for employees
You may want to have two accountants. One personal and one for payroll. In my situation, I found that payroll was very easy to set up. Many options are available along with payroll systems that include: web portals for employees, benefit packages, background checks on new employee applicants. Payroll accountants can give 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 that allow the employer to pay up to 100% of an 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 FEC’s lab, they must take a 20 CME hour online course. This can be a time-sensitive matter, as it can take 2-3 months to complete the review process of your application. If the review process isn’t finished when you begin operating, it may be difficult for you to charge for labs. Since FECs do CBCs, the lab is a CLIA moderate complexity lab (even though 90% of our lab testing is CLIA waived). You can find the link to this course at www.cola.org. It can take CLIA up to 6 weeks to approve your application. Your lab will also require a technical consultant. Hire a lab tech who is qualified to be a technical consultant for CBC, and you’re good. Consider applying for COLA accreditation, as this will allow your patients to know that your lab is high quality.

12. Set up transfer agreements and develop relationships with local EMS facilities
It is very important that you develop relationships with local EMS. Discuss with them what the freestanding emergency center is capable of and whether or not you’ll be accepting EMS traffic. It is also important to establish relationships with nearby hospital-based ERs. Set up transfer agreements 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 respond- er meetings to become aware of policies that may affect your business. In some areas. EMS will deliver patients to FECs and in other areas they will not.

13. Become a member of local medical societies and FEC groups
In Texas we have TAFEC (Texas Association of Free-Standing Emergency Centers). TAFEC comprises the vast majority of physician-owned FEC owners. TAFEC has been EXTREMELY helpful in assisting the process of building and operating FECs. 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.

14. Choose coding and billing vendors
Not all coding and billing companies are created equal. 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 manager in these decisions.

FECs 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.

15. 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 online access 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, the easier it will be to implement.

16. Get Insurance
You will need to obtain a bunch of different insurance policies; builder’s 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’ll have the time to choose the options that will best fit your needs.

If you follow all of these steps, you’ll be in good shape when it comes time to receive your first patients. You’ll be able to ensure high-quality care for them as well a good environment for your staff, not to mention the financial reward of running a successful business.

ABOUT THE AUTHOR

Henry Higgins, MD is the CEO and owner of Family Emergency Room in Austin, Texas.

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