Changes in the healthcare industry are driving new growth and substantial capital investment by professional investors in the urgent care business. The U.S. has approximately 10,000 urgent care centers, handling approximately 160 million visits per year and generating $16 billion in annual revenues. Typically located in consumer-friendly and easily accessible locations, such as in shopping centers and along highly-trafficked highways, they offer walk-in primary medical care to individuals with routine illnesses and injuries, 12 hours per day, seven days per week. Generally, these clinics provide these services at a significant price discount to hospital emergency rooms, and offer immediate access to care, even during times when normal physician offices are closed or when pre-existing appointments prevent physicians from seeing sick or injured patients.
While urgent care centers are not a new concept, recent years have seen the emergence of larger, well-capitalized players who are building dramatically larger chains of centers operating across wide geographic areas. These large chains include Nextcare® Urgent Care Centers, MedExpress® and American Family Care. Many of these larger players are backed by venture capital funds or private equity firms. In some cases, they are expanding by buying up smaller chains or individual centers to create chains of hundreds of clinics, operating under a single brand name. This consolidation is reminiscent of the consolidation seen previously in other areas of healthcare, such as the laboratory, imaging, surgery center and pharmacy sectors. Meanwhile, some chains are also expanding through franchise models, like fast food chains expanded a generation ago.
Many industry experts expect consolidation to continue toward a small group of large chains. Other large healthcare industry players have begun to show interest in the sector as well. For example, Dignity Health (an operator of hospitals) acquired the 200-plus U.S. Healthworks® chain of urgent care clinics in 2012, and Humana now owns 330-plus clinics operating under the Concentra® banner. Some experts believe that large pharmacy companies may soon look to establish a presence in the industry. Hospital systems may also look to invest in these clinics in order to have them serve as “feeders” of business to the hospitals, for types of care that cannot be performed in urgent care centers. Ownership of urgent care centers by hospital systems or other healthcare providers is also connected to the movement towards integrated care delivery under the Healthcare Reform.
THREAT OR OPPORTUNITY?
For owners of single centers or small chains, these developments represent both a threat and a potential opportunity. The presence of larger chains, with superior buying power, access to capital and economies of scale may pose a significant competitive threat to smaller (often physician-owned) centers. On the other hand, the presence of multiple players looking to expand through acquisitions may offer opportunities for owners of individual centers or small chains to sell their businesses at attractive prices.
Owners considering a sale would be well-advised to consult with appropriate financial, legal and tax advisors well in advance of any planned transaction to prepare their business for a successful sale.
A cover feature in Forbes Magazine’s July 21, 2014, issue called McHealthcare is a forward-looking article on the subject.