The Health Care Investor
Update on Urgent Care Centers: Current Trends & Developments
(co-authored by Drew McCormick and Marc Anderson of Allen, Mooney and Barnes Investment Advisors)
Urgent Care Centers (UCCs) provide walk-in, extended hour access for acute illness and injury care that is beyond the scope or availability of the typical primary care practice or retail clinic. The emergence of UCCs in the United States in the early 1980s was spurred by consumer demand for immediate care and accelerated by frustration over long wait times in the emergency department (ED) for non-emergency care, as well as a reduction in the availability of primary care appointments.
Several trends in the healthcare market have continued to catalyze the proliferation of the UCCs over the last decade. For example, since 2000, the supply of primary care physicians (PCPs) has declined, while the demand for PCPs has increased. It is currently projected that by 2025, there will be a shortage of approximately 65,000 PCP's in the United States. In addition, between 2000 and 2010, the number of ED visits increased by nearly twenty four percent (24%), or 2.4 million visits per annum, while the number of EDs simultaneously decreased by approximately two percent (2%). With the recent Supreme Court ruling upholding the Patient Protection and Affordable Care Act (PPACA) of 2010, healthcare coverage expand to include over 32 million Americans within the next 10 years, the demand for fast, affordable primary care services will sharply increase. In response to these dynamics, the urgent care industry continues to grow and is expected to increase from the approximately 9,000 centers with $13 billion in revenues in 2012 to more than 12,000 centers and nearly $18 billion in revenues by 2017.
This rapid growth of UCC's in response to the changes in the healthcare market has garnered significant interest from both current participants in the healthcare sector, such as provider organizations and payors, as well as outside investors. Traditionally, hospital systems created their own UCC's to ameliorate demands placed on their EDs, but were either out-competed by private operators or elected to divest urgent care as not core to their operations. In recent years, however, those same hospitals and other providers have been increasingly interested in identifying mechanisms to incorporate an urgent care strategy into their operating strategy, such as by seeking to expand their own UCCS or to partner with private operators through joint ventures. CareSpot's (formerly Solantic) recent joint venture with HCA's TriStar Health to build UCCs in Tennessee is one example of such trend.
Further, those funding healthcare costs and other outside parties, such as institutional investors, have been looking to leverage the industry tailwinds to achieve cost reductions and/or increased profits. Examples include Humana's acquisition of Concentra in 2010, and the acquisition of the Boston-based nonprofit insurer Neighborhood Health Plan by Partners Healthcare, the largest hospital and physicians network in Massachusetts. In addition, payors have recently sought to partner with private equity investors for access to urgent care, including HighMark's investment in private equity-owned MedExpress in 2011, and WellPoint acquiring Physician's Immediate Care in June 2012.
In addition to enhanced access to care, there are important financial considerations that make urgent care a compelling investment opportunity. An average UCC visit costs around $165, while costs range from $228 to $583 for the same treatment at an ED. The availability of urgent care will also help to eliminate unnecessary visits to EDs, which, based on a series of studies, account for somewhere between 8 and 57% of all ED visits. Finally, the ability to obtain primary care and earlier medical intervention presents another strategic opportunity to reduce costs and achieve better health outcomes for patients. By offering an affordable, accessible alternative through UCCs, patients can seek treatment earlier and will be less sick for a shorter period of time, resulting in a lower cost of care.
Due to the tremendous pressure building within the healthcare sector and the capacity that urgent care presents to both relieve demands for supply and reduce the cost of care, the rapid growth of UCCs as a modality of care is likely to continue. Investors, including large, integrated health systems, payors and private equity, have a range of options for leveraging the growth of urgent care as a strategic growth opportunity. Examples include partnership with other industry players through joint ventures, creation of de novo UCCs, or the stock or asset purchase of existing UCCs. Investors in urgent care should work with a knowledgeable business and legal support to determine appropriate markets, develop a model for sustainable growth, and navigate the complex healthcare regulatory landscape.