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Spotlight On State Urgent Care Regulation

Posted in Healthcare Services Investing

In this month’s Law360 column, we again revisited an industry that has garnered quite a bit of investor attention, the urgent care industry.  This column focuses on state level regulation and related issues.

The urgent care industry is a rapidly growing health care sector that provides cost-effective, convenient medical services for low- to mid-acuity illness or injury. The highly fragmented nature of the urgent care, which contributes to its attractiveness as an investment opportunity, has also led to uncertainty regarding how urgent care fits into existing state health care regulatory schemes.

At present, there is significant disparity among states regarding the regulation of urgent care facilities. For instance, certain states do not separately regulate urgent care facilities and regulate only certain services, such as laboratory and imaging services, as well as the physician owners and operators of urgent care facilities through their medical licenses. Other states have developed a specific regulatory track for urgent care facilities and directly regulate such facilities through licensure, certificate of need or similar mechanisms.

This article sets forth a survey of state regulation of urgent care, discusses the implications of such regulation on urgent care transactions, and makes some prognostications about the trajectory of urgent care regulation among the states.

Overview of Urgent Care Industry

The urgent care model developed in the 1970s as an annex of physicians’ practices that offered extended hours and targeted acute but non-emergent care. Urgent care provides convenient medical services for low- to mid-acuity illness or injury through outpatient diagnosis and treatment services. Services can include a medical history, physical examination and treatment services similar to those provided in a physician practice. In addition, some urgent care centers also provide advanced imaging, in-house laboratory services and point-of-care dispensing of certain pharmaceuticals.

At present, depending on the criteria, it is estimated that there are anywhere between 9,000 and 20,000 urgent care providers in the United States, with as many as two new urgent care facilities opening their doors each week. The models for urgent care ownership vary significantly, but the majority of urgent care facilities continue to be owned by individual physicians or groups of two or more physicians.[1]

Urgent care staffing depends on the scope, philosophy and resources of the urgent care provider. Most urgent care centers use a physician-based model, meaning they primarily utilize family and emergency physicians, along with support staff including medical assistants and sometime registered nurses and x-ray technicians. More and more frequently, urgent care centers are staffing with physicians assistants and nurse practitioners.[2]

Recent Transactional Activity

Growth of the urgent care industry has garnered strong buyer and investor interest. Strategic buyers, such as payors and large provider organizations, view urgent care as a key cost containment mechanism and have been active in the urgent care space in recent years. This includes buyers include players in the health care industry that have traditionally resided in other sectors have identified urgent care as a rapidly developing and profitable market and have aligned with urgent care accordingly. For example, in May 2013, Quest Diagnostics Inc. acquired Concentra’s toxicology and clinical laboratory business.

In addition to strategic buyers, the urgent care market has been of particular interest to financial buyers, namely, private equity firms. For example, WellPoint, a health benefits company, and LLR Partners, an investment group, acquired Physicians Immediate Care LLC, a management services provider to 20 independent urgent care centers, in July 2012.

Current State Regulation of Urgent Care Facilities

It is critical for any prospective developer or purchaser of an urgent care facility to become familiar with the applicable regulatory landscape in the state in which the facility is or will be located. This is particularly true because of the significant variation among states regarding regulation of urgent care facilities.

In certain states in which urgent care facilities are operated as physician practices, the corporate practice of medicine doctrine, if present in such state, may limit permissible ownership and management models for the facility. The corporate practice of medicine doctrine, which may be embodied in case law, statute or regulation in a particular state, is generally intended to the extent to which nonlicensed individuals and/or entities can exert control over the clinical decision-making of licensed physicians. In some states, this prohibition takes the form of rigid limitations that not only prohibit ownership of a physician practice by a nonlicensed individual or entity, but also prohibit the scope of management services that may be performed by a nonphysician-owned management company on behalf of a physician practice.

In states in which the corporate practice of medicine doctrine is less restrictive, an urgent care model involving nominal ownership by a nominee physician(s) and delegation of the majority of management and operational functions to a nonphysician-owned management company is permissible. Corporate practice of medicine rules vary significantly in each state and require experienced regulatory council to navigate such rules.

In other states, rather than allowing urgent care facilities to be operated as physician practices, urgent care facilities require specific licensure, registration or accreditation. Arizona is the only state that currently has a specific urgent care licensure program. Although Florida does not have a specific urgent care license, Florida regulates entities that provide urgent care services as licensed clinics, rather than regulating urgent care facilities as expanded physician practices.

Still other states have multiple regulatory tracks for urgent care facilities. For example, in New York State, urgent care facilities may either be operated as physician practices (in which case they must comply with New York’s restrictive corporate practice of medicine doctrine and are significantly limited in terms of ownership and permissible management services), or alternatively, an urgent care facility may be operated as a Diagnostic and Treatment Center in New York, which requires licensure and a certificate of need (however, such facilities are not subject to the corporate practice of medicine restrictions that apply to physician practices operated in New York). The physician practice model is limiting to certain buyers due to the corporate practice of medicine doctrine in New York. However, the licensure and certificate of need processes in New York are time intensive and onerous.

Several other states, including Maryland, Minnesota, New Hampshire and Maryland provide definitions of “urgent care” in their regulatory programs. Other states have enacted urgent care regulation that is limited in scope. For example, Illinois currently restricts the use of terms such as “emergency” and “urgent” or derivatives of the same to facilities that are actual emergency rooms under the Emergency Medical Treatment Act.[3] The intent of such laws are to avoid giving the impression to the public that a facility can provide emergency medical treatment unless the facility is an emergency room of a licensed hospital or a freestanding emergency center. Similarly, Delaware law limits the use of the terms “emergency” or “urgent” by a facility if that facility is not able to handle life-threatening emergency care.[4]

Notwithstanding the above, at present, the vast majority of states do not specifically regulate urgent care.

Future of Urgent Care Regulation

The general lack of state regulation regarding urgent care is likely a direct result of urgent care’s historical outgrowth of the physician practice. However, as the urgent care model continues to evolve and proliferate, and strategic buyers continue to vertically integrate with urgent care facilities as a cost containment mechanism, there is likely to be an uptick in urgent care regulation.

For example, enhanced regulation of urgent care facilities is currently being considered in New York. The New York Department of Health, Public Health and Health Planning Council (PHHPC) is presently considering several options for regulating urgent care facilities in New York. Among the possible requirements are registration, accreditation (as New York presently requires for office-based surgery), licensure and certificate of need, and a variety of other restrictions. The decision of the PHHPC will likely provide some indication as to the posture that other states that currently do not specifically regulate urgent may adopt toward urgent care facilities in their states in the future.

* * *

The potential changes in New York underscore the complexity and uncertainty of the health care regulatory landscape in each state, particularly in light of the extreme tumult that the health care industry has experienced in the last several years. It is more important now than ever for strategic and financial buyers who are contemplating investment in the urgent care market, or who are current owners and operators of urgent care facilities, to work with experienced health care regulatory counsel.

— By Geoffrey C. Cockrell, Amber McGraw Walsh and Drew McCormick, McGuireWoods LLP

Amber Walsh and Geoff Cockrell are both partners with McGuireWoods in the firm’s Chicago office. Drew McCormick is an associate in the firm’s Chicago office.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Search for the Urgent Care Center, Journal of Urgent Care Med., 2009.

[2] http://www.ucaoa.org/faq.php

[3] 201 iLCS 70.2.

[4] Delaware Reg. Admin.. Code Tit. 16, 4400 Health Systems Protection, 4404 Free Standing Emergency Centers, 9.0 Licensing Requirements and Procedures, Part 9.6.

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