Urgent Care Model Market Predictions for 2016
In the Urgent Care market, there are a number of different models that are in competition with each other. Some of the main examples are the pure play, hybrid, rural, and on site models. The Ambulatory M&A Advisor discusses some of the predicted market trends for these models as 2016 approaches and even more centers begin to come out of the wood work.
Gary Gertler, partner with McDermott Will & Emery says that in his personal experience, he sees the pure play Urgent Care model as the method that most of the large providers are working with. According to Gertler, these larger providers are investing in and utilizing the pure play model as a branding mechanism. This way, Gertler says these hospital health systems investing in Urgent Care, are using these centers as a way to spread their brand in the community.
Sheryl Dacso, partner at Seyfarth Shaw says that in her opinion the pure models are just going to continue to expand.
“You can drive around any city and you see them popping up all over the place,” she says, adding that in 2016 she sees a newer outlet coming down the line that could help impact expansions.
“Telemedicine could have an impact on the expansion of these types of facilities, she says. With the availability of telemedicine, these facilities can be developed at a lower cost, and the cost of operation may be less because the accessibility to specialists through telemedicine technology will have a secondary effect of possibly allowing these urgent care facilities to go beyond primary care,” Dacso says.
Aside from the straight-forward method of the pure play model in Urgent Care, Gertler says in 2016, the on site model is also a strong model that will continue to grow.
“There are lots of places to put them; not just in pharmacies,” Gertler says referring to big name retail stores like Wal-Mart and Target.
“I think that is growing and there is some room for maturity. Most of the pharmacies already have the services like Minute Clinics and other on site models. This gives these models a chance to expand into larger territory, right where people shop.”
Gertler has personally worked on a deal in California between a big-box store and major healthcare payor. Gertler says stores like Walmart and Target believe they can generate foot traffic through adding on an Urgent Care and in the end, keep bringing in crowds to the store.
“I think that a payor moving into the urgent care marketplace is looking to see if it can spread its brand and hopefully bring in new customers to that payor,” Gertler says.
Dacso agrees that the on site model is going to continue to be an important model depending on the particular site.
“On site urgent care includes those that are retail (open to the public), but also extend to those which are operating in an employer’s workplace or related facility. Having a place where people can come and receive care in an on site settting is going to continue to evolve. We are certainly seeing a lot of on site clinics that are being set up for employees in particular to be able to go to when they have a cold or other types of conditions,” Dacso says.
Geoffrey Cockrell, partner at McGuire Woods, head of the private equity group says that the models that have the most green space to grow into will be the models that remain strong and relevant in the 2016 market.
“The traditional model, in some respects got bogged down as a lot of the urban areas in particular, became saturated in a lot of different geographies. Building new de novos became more challenging, acquisitions became more expensive, and for a while was a challenging pathway,” Cockrell says.
“For example, the rural market is still a challenging one to figure out. When folks can figure out how to do it properly, they will find that there is a lot of green space. The ability to use Urgent Care rather than to compete with a hospital and be an ER diversion function, it can almost be an extension of a hospital into more rural communities. I think the rural urgent care market is going to continue to be vibrant for those investors that can figure out how to properly do it. Not everyone has been successful in properly refining that model and roll it out in a way that works, but for those that can figure it out, there is a lot of opportunity.”
Dacso adds that if there was ever a place where Urgent Care and freestanding facilities made sense, it certainly is in the rural markets. However, she says, aside from circumstances where there can be incentives put in place, she does not think that there is going to be a lot of revenue or resources to develop those in the rural areas.
As far as the hybrid model, Dacso believes that they will continue to be on the rise in 2016.
“I think we will see more of are the hybrid models. One of the things that has occurred recently that may affect the type of model is the new regulation regarding hospital outpatient departments. Those have been siginificantly restricted and the only types of HOPD arrangements that will likely survive are going to be those around urgent care. Which means a lot of the other arrangements that hospitals used to set up with physicians and other providers, are no longer going to be able to be qualified under the hospital liscence. I think that is going to have a very profound effect on the ways in which these models come together. This will probably result in more joint ventures as opposed to HOPDs,” Dacso says.
For more information on the impact of the recent HOPD regulations, click here for a past article on the topic.
Cockrell says that there will also be other challenges facing models in 2016, but reimbursement pressure is not one that he forsees as a problem.
“I wouldn’t think that there would be a lot of reimbursement rate pressure. There are challenges to the business model, but most of them are not from the perspective of them making a lot of money by having relatively high reimbursement rates. They are still a much cheaper option than higher cost treatment locations. So, I don’t think reimbursement rate pressure is likely to be the challenge,” Cockrell says.
According to Cockrell, the pricing for acquisitive gross has come down.
“Two or three years ago when the prices were sky high, that became its own impediment. It will be interesting to see if prices for smaller and mid-size operators, which are the targets of larger platforms that are trying to grow through acquisition. If those prices go up, that could then be a challenge to the growth of larger platforms.So, if pricing became expensive in 2016, that would be a challenge to the particular financial buyers in that space. I think figuring out the dynamics with payors can be a real challenge. There are many varieties of payor postures as there are locations. Sometimes the payor can be your best friend, and there are certainly some private equity backed urgent care platforms that are collaborations with payors. They can be your best friend or they can be the enemy because they have a lot of tools at their disposal that can make business models more viable or less viable,” Cockrell says.
If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or Blayne@AmbulatoryAlliances.com.