Tuesday, March 06, 2018

As CVS-Aetna Looms, Retail Pharmacy Clinic Growth Stalls

Last week, the Senate Judiciary Committee held an uneventful hearing on the CVS-Aetna merger. The lack of fireworks suggests that the deal is on track for approval later this year. Click here to read the testimony.

Below, I review 2017 clinic developments for the largest retail chains: CVS, Walgreens, Kroger, Target, Walmart, and Rite Aid.

Despite the hype, there was little advancement in retail health at pharmacy locations. For the third consecutive year, the total number of retail clinics has remained essentially flat, at about 2,000 nationwide. CVS Health’s comments at last week’s hearing (highlighted below) would represent a major new direction.

P.S. Today’s post is adapted from Section 1.4.1. of our new 2018 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers. Friendly reminder: Discounted pricing for the report ends on Friday!


Our analysis is based on data from Merchant Medicine, which maintains an extensive and useful database of every U.S. clinic location. In some cases, the Merchant Medicine data differ slightly from other public sources.

The table below summarizes our 2018 analysis of the current retail clinic landscape for the biggest market participants. In 2017, the total number of clinics declined slightly.

[Click to Enlarge]

Here’s our update on the major players:
  • CVS Health’s MinuteClinic remains the largest retail clinic business, now operating more than half of all such sites. For 2017, the total number of MinuteClinic locations remained flat compared with that of 2016. As of January 2017, there were 1,103 MinuteClinic locations. MinuteClinics are located in about 13% of CVS retail pharmacy locations and 5% of Target stores. We estimate that 2017 revenues were below $400 million, which means that MinuteClinic business accounted for less than one percent of CVS retail pharmacy dispensing revenues.

    Despite a lack of growth in 2017, CVS Health’s retail clinics are a crucial part of its proposed transaction with Aetna. The companies have described a plan to convert CVS retail locations into “healthcare hubs” that would provide a range of healthcare services with minimal or no care provided by physicians. The MinuteClinics would become a crucial part of this strategy to deliver healthcare services at lower costs than those of traditional healthcare delivery settings.

    At last week’s hearing, Thomas Moriarty of CVS Health offered additional thoughts on CVS Health’s vision for community-based care:
    “We believe that integration in health care communities is one key aspect of solving rising health care costs and reducing the complexity consumers face in the system. Adding the full range of pharmacy, pharmacy benefit management and MinuteClinic™ services to an integrated health plan goes beyond existing business models and will further transform delivery of care. This integration will break down silos separating pharmacy and medical care and allow for earlier interventions to help simplify processes and improve outcomes for patients. Providers across the system are realizing how important better pharmacy coordination is to reducing excessive health care expenses by keeping patients healthy and out of the emergency room…We see the future of pharmacy doing more than what pharmacies do today, but we also see them being more integrated and aligned with doctors.”
  • Walgreens remains the second-largest location for retail clinics. However, the number of clinics in Walgreens retail stores declined for the third year in a row. As of January 2018, Walgreens operated an estimated 271 Walgreens Healthcare Clinics (formerly Take Care clinics). The company has been replacing its in-house clinics by partnering with health systems that own and operate retail clinics within Walgreens retail locations. Walgreens has announced 11 such partnerships. Advocate Health Care in Chicago is the largest external partnership, with 56 locations.
  • Kroger is the third-largest retail clinic operator with its Little Clinic business, which operates inside 217 Kroger, Dillons, Fry's, JayC, and King Soopers stores. The Little Clinic added only four locations in 2017. 
  • Target has begun to expand its clinic presence without CVS. After CVS Health’s 2016 acquisition of Target pharmacies, Target’s 79 retail clinic locations were rebranded as CVS Health MinuteClinics. There are also four Kaiser Permanente-staffed clinics inside Target stores. In 2017, Kaiser Permanente announced plans to open and operate retail clinics inside 31 California Target stores.
  • Walmart continued in 2017 to shrink the number of retail clinics within its retail stores. Seventeen of Walmart’s own Care Clinics operated within its stores in Georgia, South Carolina, and Texas. Walmart partnered with QuadMed, which helps source, staff, and train the medical professionals in Care Clinics. Walmart’s Care Clinics accept traditional Medicare, Medicaid, and cash patients. They do not accept any private Medicare or commercial managed care plans. Walmart also leases space to the independently owned and operated Clinic at Walmart facilities. As of January 2018, these clinics operated inside 43 Walmart stores, a decline from 72 stores in 2016 and 57 in 2017.
  • As of January 2018, Rite Aid operated 44 RediClinics in Delaware, New Jersey, and Pennsylvania. (Rite Aid acquired RediClinic in 2014.) It no longer operates within Maryland and Virginia. RediClinic operated a further 35 retail locations in HEB grocery stores in Texas. At some Rite Aid locations, the company leases space to other clinic operators, many of which are owned by hospitals.

    The number of clinics is declining as Rite Aid transfers stores to Walgreens. The company has not provided information as to how many clinics will operate in its remaining 2,500 retail pharmacies when the Walgreens transaction is completed or what will happen to its clinics if it merges with Albertsons.
Many factors suggest ongoing growth in retail clinics, including comparable quality of care for some medical conditions and favorable consumer perceptions of retail compared with urgent care clinics. However, the 2017 slowdown highlights the ongoing barriers to continued growth.

CVS-Aetna plans to reverse these trends. In The CVS-Aetna Deal: Five Industry and Drug Channel Implications, the companies have an innovative and intriguing idea—but one that is unproven at this scale. Nyuk, nyuk.

This short video from my Ph.D. training is too good not to share again. Of course, those who work in retail clinics are not stooges. Let’s hope they have a sense of humor.

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