By Atossa Araxia Abrahamian
NEW YORK (Reuters) - Walk-in clinics are popping up in shopping malls and main streets across the United States and private equity is helping fund the expansion.
At least a dozen private equity firms have in the last few years plowed millions of dollars into urgent care clinics, which have become popular with people who do not have regular doctors or who like the convenience of their extended hours of operation.
Several private equity executives told Reuters they are eager for more acquisitions in this sector because they expect profits to grow as healthcare reforms boost the number of Americans with health insurance by more than 30 million over the next decade.
"If you think about where healthcare is headed, urgent care is very clearly part of the solution, said Stan Blaylock, a former executive at drug store chain Walgreen Co
The number of such clinics in the United States climbed almost 20 percent to 9,400 in the last four years, according to the Urgent Care Association of America. Almost 40 percent of clinics surveyed by the trade group expect to expand their facilities or add new clinics this year, up from 18 percent in 2010.
After poor management caused many walk-in health centers to close in the 1970s and 1980s, today's clinics are much improved, thanks to investor money and customer demand. They are in more convenient locations, open earlier and close later, and offer online billing. Some also sell snacks and dispense medicine to boost profits.
"We borrow a lot from the restaurant industry," said Zach Wooldridge, co-founder of Elm Creek Partners, a Dallas-based equity firm, which in 2011 bought a majority stake in Millennium Healthcare Management, an urgent care chain with clinics in Louisiana and Mississippi. "We have to be good, fast and kind to be successful.
Wooldridge declined to say how much Elm Creek paid for Millennium Healthcare. The firm - like others - plans to remain invested for several years, before selling the company or taking it public. He expected that his chain and others would generate EBITDA (earnings before interest, taxes, depreciation and amortization) margins of about 20 percent when fully operational.
Private equity firms invested $4 billion in 2012 in health and medical services, which include urgent care, up from $3.5 billion in 2011, according to Thomson Reuters data.
One of the first in the recent wave of investments was in 2010, when venture capital firm Sequoia Capital and private equity firm General Atlantic bought MedExpress, the country's No. 3 urgent care chain. They did not disclose the size of their investment.
In the same year, health insurer Humana Inc
Most urgent care chains are privately run and investing in them is not risk free. Too many clinics in close proximity can saturate a market, and low insurance reimbursements can cut into the bottom line.
Consumer advocates also say they worry investors will drive clinics to focus more on profits than on quality of care.
Private equity firms say they help clinics standardize procedures and consolidate overhead costs like billing. Scott Perricelli of LLR Partners said his firm also spends a lot of time helping clinics look for new branch locations and recruit doctors - two tasks physicians are usually too busy to tackle.
When Aaron Money, an executive at FFL, a San Francisco-based private equity firm, saw the potential in urgent care, he teamed up with physician Lee Resnick to start WellStreet, a chain of walk-in health clinics in Georgia. FFL owns 70 percent of the business.
WellStreet's clientele are mostly privately insured, said Money, who expects business to grow as health reforms under the U.S. Affordable Care Act kick in.
"We thought it would be mostly people who would otherwise go to the emergency room. But it's equal parts E.R. and primary care physician-type appointments," he said.
Health industry experts say urgent care centers should keep their services simple to maximize profitability. They are better equipped to treat a kid with an ear infection, than a diabetes patient who needs ongoing, complex care, for instance.
The clinics could lose money if they spend time with patients or take on complicated health problems because insurance companies generally reimburse at a flat rate for each visit, said Franz Ritucci, president of the industry group American Academy of Urgent Care.
Mike Williams, who heads the Abaris Group, a consulting firm that advises urgent and ambulatory care clinics, said, "It's not complex, critical-care medicine. It's a low-tech, high-touch business." (Reporting By Atossa Araxia Abrahamian; Editing by Jilian Mincer, Tiffany Wu and Leslie Gevirtz)