Just Checking In: Episode 34 – Ownership Evolution of Urgent Care in the United States

We have seen a transition in urgent care ownership from independent physicians, to regional and super-regional private equity-backed platforms, to now hospital and health systems.

Good afternoon! This is Alan Ayers and I am Just Checking In from the Southwest Urgent Care Conference here at the Westin Galleria in Houston, Texas, speaking to you about the evolution of urgent care in the United States.

So, although urgent care had several iterations in the 1970s and the 1980s, the current iteration of urgent care really started about twelve to fourteen years ago as primarily emergency medicine physicians saw an opportunity to leave the 365-day, 24-hour grind of the ER and open their own urgent care businesses in the community. They could contract with payers as fee-for-service, and effectively by opening their urgent care, charging lower prices than the hospital ER, getting patients in and out more quickly, customer service emphasis, they were able to create local businesses that would pull consumers into their centers and effectively – we’re not supposed to use the word “cherry pick” – but that’s effectively what they were doing. They were cherry picking the more affluent, self-pay – or I mean – privately insured patients from the community, taking volume away from the ED.

Well, many of these initial urgent care pioneers were very successful, and we saw organic growth in their business. Some grew to three centers; some grew to five centers. There’s some examples where they grew to twenty centers or more. But what we ended up seeing was across the country these physician entrepreneurs – in lockstep but completely independently of one another – were doing almost identical things in their communities. There was talk for a long time about consolidation. The grand consolidation never really did occur, but what we did see was private equity take an interest in the space.

So, private equity came in, and by investing capital, starting about six or eight years ago, that’s really when we saw this take off. The capital provided by private equity was built on a business case of what is called multiple expansion. But the idea was that a private equity group could come in, buy one of these physician-led platforms for maybe four or five times earnings, continue to build upon or grow that platform, and then sell the larger scaled business for ten times earnings or more.

So, we kind of went through our iteration, starting with physician entrepreneurs, private equity. And then now the iteration of urgent care we’re seeing goes more to hospital urgent care providers. There are multiple reasons why hospitals want to be in the urgent care business. First of all, hospitals see urgent care as a very attractive way to generate downstream referrals for the health system. So, patients who come into urgent care, they may need a primary care physician, they may need a specialist, they may need a referral to a facility for imaging or diagnostic work. All of that is revenue that can be pushed from the urgent care to the health system. Hospitals also see urgent care as a big part of their brand strategy. It’s not only very expensive to build a new hospital, but building a new hospital facility requires a certificate need, and multiple other hurdles. If you can buy urgent care centers, flank your competitors – your competing health system with urgent care – you can pull patients in through urgent care, almost like the front door to your hospital system; and then push those patients to the hospitals affiliated, primary care, and specialists.

So, with the concept of accountable care that we’re going to have hospital and insurance groups managing entire populations, not only do accountable care organizations need a mid-acuity plank – somewhere patients can go for minor medical needs on demand – but it also fits into an entire strategy of creating a front door for patients to access the health system.

Now, hospitals operating urgent cares, it does not come without challenges. Some of the challenges we see is that hospitals, a lot of the bureaucracy or rules that may make sense in an in-patient setting start getting shoved down to urgent care and other out-patient settings. And it becomes very difficult for hospitals to run urgent care profitably or efficiently. Some of it goes to work rules. Some of it goes to compliance type issues. And some of it goes to process and systems. So, for instance, an electronic medical record that works in an in-patient setting probably isn’t going to do anything to facilitate flow or provide efficiency in an urgent care type setting.

So, what we’re seeing is that while there is a big interest in hospitals being in the urgent care business, and hospitals acquiring urgent care, we’re increasingly seeing that hospitals don’t really want to run the day-to-day business of urgent care, or many admit that they can’t run urgent care well. So, what’s interesting is some of the private equity back concerns that I had mentioned had an idea that they were going to build a McDonald’s-like footprint of urgent care centers are now changing their business strategy to partner with hospitals and health systems. So, an example would be Well Street in Atlanta. Originally a private equity backed concern had Well Street Urgent Care. They’ve now partnered with Piedmont, which is a major health system in that market. CareWell, similarly in New England, has partnered with a number of health systems in their area. And MedSpring, which is owned by the global dialysis company Fresenius, has partnered with Partners, which is the Harvard affiliated ACO in the Boston or the Massachusetts area.

So, in conclusion, we’ve seen a transition of urgent care ownership from physicians to private equity to hospitals to hospitals partnered with third parties. If you’re looking to start an urgent care center or looking for strategic advice regarding an urgent care center that you have, or if you’re a hospital looking to optimize the operations of your urgent care, we at Practice Velocity and Urgent Care Consultants would love to chat. You can contact us using the information that’s on your screen. Until next time, this is Alan Ayers Just Checking In.