Thursday, February 16, 2017

Retail Clinic Check Up: CVS Retrenches, Walgreens Outsources, Kroger Expands

Retail clinics focus on convenient care for simple acute conditions. They exemplify how drugstores and other retail outlets are broadening their services to emphasize non-dispensing revenues.

As I predicted last year, clinic growth stalled in 2016. From 2010 to 2015, the number of retail clinics grew by nearly 70%, to more than 2,000 locations. As of January 2017, the number of retail clinics was unchanged compared from the 2016 figure.

Below, I update our analysis of the chains with the biggest clinic market share: CVS Health, HEB, Kroger, Rite Aid, Walgreens, and Walmart. As you will see, strategies and growth rates differ.

FYI, this post is adapted from Section 1.4.1. of our 2017 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers. Friendly reminder: Discounted pricing for the report ends tomorrow!

The table below summarizes our 2017 analysis of the current landscape for the biggest market participants. The data come from Merchant Medicine, which maintains an extensive database of every U.S. clinic location.

[Click to Enlarge]

Here’s a summary of the major players:
  • CVS Health’s MinuteClinic remains the largest and fastest-growing retail clinic business, now operating more than half of all such sites. In 2016, however, CVS closed 15 MinuteClinic locations. It also integrated and rebranded the 79 retail clinics that had been located inside Target stores. As of January 2017, there were 1,105 MinuteClinic locations. MinuteClinics account for less than one percent of CVS retail pharmacy dispensing revenues.
  • Walgreens remains the second-largest location for retail clinics. However, the number of clinics in Walgreens retail stores declined for the second year in a row. As of January 2017, Walgreens operated 300 Healthcare Clinics (formerly Take Care clinics). The company has begun partnering with health systems that own and operate retail clinics within Walgreens retail locations. Advocate Health Care operates a further 56 clinics in Walgreens’ Chicago area stores. Walgreens has announced the seven additional health system partnerships covering a further 86 stores.
  • Kroger is the third-largest retail clinic operator with its Little Clinic business, which operates inside 213 Kroger, Dillon’s, Fry's, JayC, and King Soopers stores. The Little Clinic added 19 locations in 2016.
  • Walmart launched its own Care Clinics in 2014. There are now 18 Care Clinics in Walmart 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 independently owned and operated Clinic at Walmart facilities. These clinics operate inside 57 Walmart stores, a decline from 72 clinics in January 2016.
  • Rite Aid did not alter its clinic strategy in 2016. As of January 2017, Rite Aid operated 55 RediClinics in Delaware, Maryland, New Jersey, Pennsylvania, and Virginia. (Rite Aid acquired RediClinic in 2014.) RediClinic operated a further 36 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. It is not clear how RediClinics will be integrated with WBA’s Healthcare Clinics or whether WBA will follow an outsourcing strategy.
Here are three key trends to watch in 2017:
  • Health plans are adding retail clinics to their provider networks, allowing patients to use third-party insurance for clinic services. From 2011 to 2015, commercially insured Blue Cross and Blue Shield members doubled their utilization of retail clinics. (source
  • Health systems are opening urgent care clinics that can compete with retail clinics. Urgent care clinics have a reputation for having better-qualified medical staff, but patients have concerns about the qualifications and expertise of retail clinics’ staff. (source
  • Retail clinics may actually increase healthcare spending. One study found that 58% of retail clinic visits represented new utilization and did not substitute for visits to physicians and emergency departments. (source)
Bottom line: clinics are a nice-to-have option for retail chains, but don't resolve the fundamental competitive challenges facing the pharmacy industry.

BTW, you can trust in our healthcare analysis. After all, I graduated with the highest temperature in my class. Here's a short video from my Ph.D. training:

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