Hospitals Continue Dive into Urgent Care
Although urgent care has had a presence in the health care market for the last 30 years, the market for affordable, efficient, on-demand service has boomed within the past few years. At this point in time, experts in the healthcare M&A field say that the market’s rapid growth is expected to surpass $14 billion in revenue by 2106, making it one of the fastest growing sections of modern health care. Over the years, private equity investors and insurance companies have taken root in the urgent care market as some of the lead players, producing de novo centers and investing heavy into existing platforms across the country. According to Blayne Rush, president of Ambulatory Alliances LLC, 2014 was the emerging year for hospitals in the urgent care market and the trend will continue in 2015.
“While it has taken some of the players to get in, at least on a larger scale, over the last couple of years and more so last year hospitals have more aggressively moving into this space. 2014 was an active year for hospitals wanting in. The more sophisticated have moved or are moving into the urgent care market in a big way,” Rush says. “In the pecking order of entry points for health care, urgent care centers are seen by many as the third from the top, they are below the hospital ERs and freestanding ERs. Thus Hospitals see urgent care centers as an entry point into their system.”
Rush says one of the reason hospitals want to be in with urgent care is because as they evolve into ACOs, they want to get their members to the most appropriate and lowest-cost setting and urgent care fits that role.
“Hospitals see that more patients are demanding easier access to care and faster turnaround. They see urgent care centers as a cheaper opportunity to put a flag in the ground and build their brand compared to other types of facilities,” Rush says. “They also see urgent care’s ability to offset some of the revenue losses from patients no longer using their ERs as well as less inpatient revenue and to offset some of the leakage from their primary care physicians.”
Both Rush and Scott Witter, director of business development, M&A at U.S. Health Works explain examples of hospitals having success in the urgent care market and why this move is beneficial to both parties.
Witter gets personal with the example of his company being acquired in 2012 by Dignity Health, formerly known Catholic Health West, one of the largest non-profit healthcare systems in the country.
“Dignity has 39 acute care hospitals across California and Arizona. U.S. Health Works has over 70 clinics across California and Arizona. You can see the crossover there and why it makes sense,” Witter says.
“With Dignity, I think it’s obvious. Us bringing retail expertise that Dignity might not have had, there is a lot of cross pollination opportunities with the hospital systems.”
Witter continues to explain that many patients who utilize urgent care do not have a primary care practice that they are affiliated with. Witter says if the acquiring hospital system has a good primary care network, there is an opportunity to cross feed into primary care through the urgent care system.
“Also, you are looking at specialty referrals, orthopedic surgeries that can head over to the hospitals. You are looking at advanced imaging that often is moving out from the urgent care centers and into the hospitals. There can be some significant strategic value there,” Witter says.
Rush’s examples include Tenet Healthcare’s 2014 unveiling of their urgent care brand MedPost. In 2014 Tenet rolled out their urgent care brand MedPost; he says currently this hospital system is aggressively buying for growth.
Other players include Community Health Systems, and LifePoint Hospitals; both of which are in pursuit of platforms that will allow them to make a similar splashes in the market.
“Premier Health, an urgent care company in Louisiana has been involved with Hospital Joint ventures for some time now,” Rush says.
Rush says one of the most recent large M&A transactions occurred in 2014 when HCA purchased CareNow, which has 24 centers in the DFW market and had a $30 million EBITDA. Rush says the urgent care business was said to have traded somewhere in the $420 million range, which made for a great strategic transaction.
Witter says that the CareNow acquisition was rumored to have an aggressive valuation and that the strategic fit for synergies was what drove the decision for HCA in the transaction.
Joshua Kaye, managing partner of DLA Piper says that one of the key reasons for such growth is the fact that the definition of urgent care itself has been evolving over the years.
“Initially it was termed as an emergent situation that has risen and the patient needs that care right away. What I see happening in the market though, is that these have really become as much about that as they are about patient convenience; the ability to walk in and receive care. I think that that is driving both payer and hospital interest in terms of driving that flag in the ground as a retail outlet for that care,” Kaye says.
Rush predicts that with the evolution of the term urgent care and the expectations of modern consumerism, that more health systems will realize that they are not built to take on retail medicine; thus, are challenged to evolve with their surroundings. Rush says these reasons are why health systems now seek a platform or affiliation with urgent care.
“We have seen it in many other spaces- Hospitals need the infrastructure and intellectual capital that platforms present,” Rush says. “While there have been many smaller transactions over the years, 2014 was the hospitals’ year in the urgent care space and that will continue in the near future.”
Rush advises that health systems that are in smaller areas view urgent care centers as “doc in the boxes” will have a rough time gaining traction among the larger, more evolved players in the market.
“The smaller ones are struggling to gain traction because they refuse to see urgent care centers for what they are,” Rush says. “They cannot compete with the consolidator’s speed or offers. Those same hospitals have not been successful in opening and running a center because they do not understand consumerism.”
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