By Julie Wright, MBA, CMPE
Introduction
The steady growth of new urgent care centers (UCC) has garnered publicity and caught the eyes of entrepreneurial thinkers across the country. As medical groups have become more responsive to patient needs, and as patients have become independent, urgent care centers have found their niche in the market.
UCCs are an important addition to our healthcare system and have been growing in popularity for both patient and practitioner for 30 years. Their importance lies within service delivery, cost effectiveness of care, and convenience. These criteria – along with basic defining characteristics such as offering outpatient care with extended hours and no appointment needed – have defined their role in the marketplace.
The growth of urgent care has also been supported by the evolution of the American workforce, the majority of whom have a typical 40-hour, 8 to 5 workweek. Getting time off work to tend to minor illnesses does not hold the necessary opportunity costs to the individual.
Previously, physicians had the mindset that patients will come to them because “I am their doctor.” This dictum no longer dictates patient care, however. Patients prefer an urgent care center for treatment of minor illnesses, injuries and, at times, disease management in lieu of a hospital emergency room, due to ease and speed of service. The emergency room has served as an after-hours delivery system, but is unsuitable for routine medical care and minor emergency treatment due to its cost structure and inconvenience.
Physicians and ancillary staff have begun shifting the concentration to increasing patient satisfaction, further driving the success of many urgent care centers.
Our research group studied four urgent care clinics, using specific factors as a method of rating or determining the possibilities of success or failure.
The group expressed an interest in reviewing the details of why an urgent care could be/is successful as compared to an urgent care center that failed 1.75 years previously. We created a survey that posed key questions to help us differentiate a successful organization from an unsuccessful organization. Our questions were based around the following key criteria:
– demographics (size of population, potential for urgent care center utilization)
– financial details (cash flow, capital, productivity vs. salary, payor mix, etc.)
– marketing (roles/functions of competition in community served)
– mission/vision
– strong leadership skills.
Research
The four clinics in the study were of mixed demographics but fairly geographically related. Of the four, only one was unsuccessful. Many reasons could explain what led to the demise of the one organization, but the previously listed criteria are the most obvious in our research.
Mission/vision
Organizations often have mission/vision statements printed on placards hanging in the lobbies of their corporate headquarters. The intent of the statement is to outline why the organization exists and where it will be in the future. Successful organizations not only print their statements, but also imbed them upon their employees’ subconscious. The statement brings unity to the employees as well as providing clarity to the organization’s future objectives. Thus, the organization lives its mission/vision statement in its daily operations. Southwest Airlines, for example, often uses its statement of being “The Low Cost Airline” as a rallying point during difficult financial times. Their employees believe in the mission and work longer and harder to remain successful.
We found that only one of the successful UCCs we studied had a clear and concise mission.
In order for the mission statement to serve as a rallying point, the mission must be one the employees understand and believe in. They must trust their employers to use the vision statement as a guiding principle.
Clinic A demonstrated all five of the previously outlined factors for success. The combined mission, value, and culture was the number-one factor for its success, as described by its physician leader. “I guard our culture closely,” he told us. “(We) know where we are going and the impact of getting there. This is one of the keys to our success.”
Clinic B (the failed venture interviewed), in contrast, lacked a clearly understandable statement. Asked if the organization had a mission statement, one employee answered “No,” while another answered “Yes, but I am unsure what it says.” Clearly, if the organization had a mission/vision statement, its focus and purpose was not clearly disseminated to the employees (or even the directors interviewed).
When asked if the organization operated according to the values of its mission statement, confusion was evident. One employee answered, “Yes” even though she was unclear if the organization even had one, and another employee answered “No.” It is evident from our survey that a clear vision for the future of the organization was not known to all employees.
Is a clear understanding of where the organization is going and why it is going there necessary for an organization to be successful? If this understanding is not present, is the organization prone to fail?
We believe organizations do need a clear understanding of who they are and where they want to be in order to be successful. Robert Quinn introduced the concept of the inner voice of the organization in Deep Change. The inner voice of the organization requires the continuous realignment between the internal values and the external realities. Clinic B never realized the external realities that the clinic was facing. This is not the only difference between our successful and failed centers, however.
Financial acumen
Another reality for success is that the financial details of operations must be understood well by senior management. Conducting a financial analysis prior to opening an urgent care (or any other venture) is equally important. It seems, however, that many owners assume that since they have a CPA providing financial reports, they are well informed and a complete financial analysis of the economic health of the company is not necessary.
Cash is an integral part of the financial foundation all businesses must maintain in order to guard their operations from financial failure. Ventures require cash or credit with a fast turn-around for fluidity of production. In order to obtain financial success, an organization must consider all of the capital expenses that will be required for patient care.
Just as important to knowing the financial components that make up a business, owners and managers must strive for a healthy percentage of financial support from outside sources. Forecasting in advance of project implementation or opening new clinics is synonymous with financial conservatism.
Our interviews from the unsuccessful venture displayed no knowledge of the financial “homework” that was conducted prior to the start-up of the urgent care center. The unsuccessful venture was unsure of its payor mix. One person stated that Medicare accounted for 50% of the visits, while the other person stated it was 5%.
The successful ventures seemed to have a concrete understanding of their financial details. They are aware of their economic competition in the area, the size of the community they serve, and their payor mix.
Another aspect critical to sound financial management is to develop controls that ensure the integrity of the accounting system and protect assets. During our interview with the unsuccessful venture,
we learned that the organization had identified a problem with employee embezzlement. They were uncertain how long the embezzlement had occurred. However, they did admit that lack of sufficient controls was one piece of their center’s ultimate demise.
While we hope a problem such as this is rare, it does underscore the importance of developing accounting systems that accurately reflect the organization’s operations. Many new entrepreneurial endeavors are often begun without this level of control and oversight.
Obtaining and sustaining knowledge of the economic market in the geographic area relates intimately to the financial understanding of a venture. Although the market seems viable in many socioeconomic environments, support of the clinic by physicians in the community plays a critical role in the success of the clinic.
Community
Accessibility and location are also important factors, as discovered during our interview with the organizations. Other physicians who see the need for accessibility will refer patients to the clinic. Both accessibility and location directly affect patient volume.
Can a UCC survive on only 39 patients per day? That is the daily patient volume of Clinic B. The successful ventures we interviewed have a daily patient visit census of at least 60 and as many as 180, a drastic difference in comparison with Clinic B.
A related difference among the unsuccessful vs. successful ventures was that the successful organizations had productivity-based salaries for their providers, while Clinic B paid their providers a straight salary. While some might believe that the providers did not have control over the volume of visits, we tend to disagree. If a practitioner is invested in the venture by having a productivity-based compensation package, he or she will be markedly more customer service orientated. This quality service will ensure word-of-mouth marketing and result in higher utilization by the community.
Understanding the demographics of your community and the financial characteristics of your line of business is imperative for success. Clinic B was unsure of the community it served.
Common characteristics
The successful UCCs were also similarly dedicated to numerous characteristics fairly common to the urgent care model, namely:
– episodic treatment of disease, illness, or injury that is fully corrected in seven to 14 days
– services available seven days a week for an average of 13 hours per day
– no appointment required
– physician and medical staffs are full-time providers
– no obstetric services, in-hospital admissions, long-term management of chronic diseases.
Demand
Now that we have a good understanding of what a UCC looks like, we will discuss the demand for their services. According to the National Center for Healthcare Statistics, only 15% of the population annually is diagnosed or inflicted with a major or debilitating disease and/or injury requiring hospitalization. Of that figure, the remaining 239 million-plus people (on average) seek outpatient general medical care 3.1 times per year. Using an average cost per visit for all service types equaling approximately $129.10, we further presume utilization costs of $95.7 billion per year in the U.S. The area within Washington State where the four UCCs involved in our research are located, with its relatively small population, could realize more than $59 million in utilizations costs.
How do UCCs garner some of this revenue generation? People utilize general medical care 52.8% of the time when they need to seek care. Assuming a never-ending demand for general medical care, and if there is a short supply of care to be delivered to the 52.8% of populous that is seeking care, then a healthcare entrepreneur should look at this opportunity as prime. A profitable urgent care center needs a population base of approximately 20,000- 30,000 to support its success. This led us to figure that six urgent care centers might operate within a defined catchment area of 148,456 residents. At the time of our report, there were five existing centers; as a team, Clinic C and Clinic A planned to open a sixth center. Considering our calculations, this new UCC should have the populous demand to support it.
One final point related to understanding the market’s demand for service is that the successful entrepreneurial venture must pinpoint which services the market will demand. When Southwest Airlines began, it understood that a considerable market existed to provide a low-cost service that would be more convenient than bus and car travel in its designated service area.
In contrast, Clinic B failed to appreciate the need for convenience. When the center relocated approximately one mile from the hospital clinic, leadership did not recognize the inconvenience posed by not providing diagnostic imaging services at the center. Instead, patients who required x-ray had to travel to the hospital campus and then return later to the clinic with the x-ray film. This meant that patients could, potentially, extend their time waiting for services by two or more hours.
Leadership
Another key factor was strong leadership with a healthcare background. This also relates closely to having a clear and concise vision. We found that the successful organizations had a strong physician ownership/leadership. We felt this finding to be consistent with our understanding of accountability and employee ownership as drivers of success.
In Good to Great, Collins notes that “a vision is considered fundamental for helping a firm, quite literally, visualize its future.” Many books written to review successful companies have found patterns that parallel Collins’ findings. Without a vision, you cannot expect the company to achieve goals, as no one (except the secretive leader) knows what they are.
In summary, the successful company had a clear idea of the vision.
Strategic Marketing
Developing a strategic marketing plan is necessary in the competitive healthcare environment. Through a marketing plan, you set up multiple avenues to drive increased volume of visits through an urgent care. To be passive about marketing is, indirectly, asking for failure. Our most successful venture was the only one of the four to have had a substantive marketing plan. A key point of its plan was to market to community physicians.
Interestingly, its campaign was to alleviate any concern physicians may have that the center would steal patients away and instead concentrate on how to assist them in their practices. In contrast, the other centers did not appreciate this point. One, in fact, noted that lack of physician support had been a contributing factor in its failure. Additionally, the owners of the successful ventures are involved in community activities, and the center provides brochures in the community. If the failed centers did any marketing at all, it was limited to these two activities.
Through these criteria, we have defined major drivers for success related to ventures in urgent care centers. Although many other factors are pertinent in an urgent care clinic’s success, we have identified these criteria as integral.
Lessons Learned
We have identified that a city within the Puget Sound region of Washington, home to 148,000 residents, has the necessary demographics to support the number of urgent care centers that served the area. Why, then, did we see failure at Clinic B? It is not for lack of opportunity. It is not for being in the wrong place. It is likely also not due to lack of financial backing. In this case, the center would have had the backing of a good-sized provider to get it off the ground.
But Clinic B did fail. Representatives state they got out because the venture lost money. This seems to have been a foregone conclusion when we look at the bits of finance-related information available to us. Clinic B’s volume was considerably less than the other centers. It served a higher percentage of indigent cases. It also had the highest number of accounts receivable days.
This project has driven home the relevance and importance of looking at the numbers and seeing what they can tell us. We were reminded over and over again to look at the numbers whey trying to fit the puzzle’s pieces together.
Further, we learned an important lesson about sound financial control related to the embezzlement issue. The admonition by O’Connor and Fiol in Reclaiming Your Future: Entrepreneurial Thinking in Health Care to manage cash flow was borne out as we saw what could happen when these controls are not in place.
So why have three other centers succeeded while Clinic B failed?
The other three have greater volume than Clinic B does. How did they achieve this? We identified four critical factors that we believe are important to a center’s success:
1. Leadership
2. Mission and vision
3. Financial controls and cash
4. Marketing
Only Clinic A could claim all four attributes. However, two other centers, Clinic C and Urgent Care D, have succeeded while possessing just some of them. Clinic B had problems with each of the four. While we may not be able to define definitively why one succeeds, we do feel that Clinic B failed because of an overall absence of any sound business acumen.
While of course we cannot offer a recipe for success, we did find one common attribute among the successful centers: All three successful centers have a physician leader. We believe these individuals possess the focus and commitment necessary to make their individual ventures succeed. This focus may overcome the lack of some of the other factors that are missing.
Another lesson learned has to do with understanding the external environment. Clinic A shows great insight into appreciating the community physicians’ concerns in potentially losing patients to the center. The center has wisely developed a marketing campaign to reduce this concern while increasing referrals. The center has thus created allies to strengthen its position. In contrast, Clinic B very unwisely made its patients shuttle between the center and the hospital campus for imaging services. They did not appreciate the impact this could have on customer satisfaction. Clinic A, along with the other two successful ventures, also aligned its physician incentives with the center’s success. This system further enhances the potential for success.
Conclusion
While we have seen three ventures achieve success somewhat differently, we have seen the solitary face of failure. Representatives at Clinic B admitted they made many mistakes and got out because they couldn’t make the center work.
In our interviews, you could feel their sense of failure. They became, for us, a cautionary tale of what not to do.
They did not possess the necessary, focused leadership.
They had no defined mission or vision.
They did not understand their market.
They did not possess the necessary financial systems.
As a result, they never earned the business necessary for financial success.