The Non-Monotonic Relationship between Hospitals Operating FSEDs and Market and Financial Outcomes

Abstract

Traditionally emergency rooms (ERs) were an integral part of many acute care hospitals, and were seen as serving a distinct need for emergency care. In addition, they often served as a key referral point for patients needing hospitalization. Recently hospitals have been experimenting with a new form of emergency departments - i.e., freestanding emergency departments (FSEDs). These are ERs that are physically separate from acute care hospitals but provide many of the same services that are provided by traditional ERs. In the current study we examine the commercial viability of the FSED model by examining the effects accrued to hospitals in terms of market share and operating margins, when they invest in setting up a FSED. A panel data set covering 10 years is analyzed using a general method of moments approach. Results indicate that while there are positive performance implications to hospitals in creating FSEDs, a majority of these benefits are seen only for the first FSED created. Creation of a second FSEDs either has minimal additional performance impacts, or sometimes even has deleterious effects on certain measures of performance.