Thursday, November 07, 2019

A Tale of Two Chains: Walgreens Exits Pharmacy Clinics While CVS Reinvents In-Store Care

For retail clinics, is it the best of times or the worst of times?

Walgreens  retail clinic business has been floundering. Last week, Walgreens announced that it would shut the last of its in-house retail clinics and in favor of outsourcing clinic operations to hospitals and health systems.

Other retailers are investing in more expansive healthcare services to realize the promise of store-based healthcare. That’s one reason why CVS Health is rolling out its HealthHUBs, while Walmart is phasing out its traditional retail clinics in favor of a more comprehensive Walmart Health offering.

Below, I review the retail clinic market in 2019. Many large retail chains operate clinics, but their strategies and growth rates differ. I expect the traditional retail clinic model to fade in favor of locations with broader healthcare services. This new direction will put pharmacies in more direct competition with urgent care clinics and primary care providers.

Pay close attention to how CVS Health leverages its Aetna business to manage site-of-care costs. Investors, payers, and patients will soon determine whether this has been the age of wisdom or the age of foolishness.

Portions of today’s post have been adapted from Section 1.4.1. of our 2019 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.


In-store clinics had been hyped as the next big thing to disrupt healthcare. They once seemed poised to become a crucial adjunct of the retail pharmacy business. However, growth in the number of clinics has stagnated. Clinic revenues remain a very small share of pharmacy chains’ prescription revenues.

The table below summarizes the retail clinic market as of January 2019. Our research has found fewer than 2,000 retail clinics. The total number of retail clinics has declined from its peak, in 2015.

[Click to Enlarge]

Here’s our 2019 review of the major players:
  • CVS Health’s MinuteClinic remains the largest retail clinic business, operating more than half of all industry sites. MinuteClinics are located in CVS retail pharmacy locations and Target stores. We estimate that revenues accounts for less than one percent of CVS retail pharmacy dispensing revenues.

    CVS Health has the boldest plans for on-site retail healthcare services. CVS has begun to convert retail locations into its new HealthHUB format. These sites will offer a broad range of healthcare services, including expanded services from CVS MinuteClinics. See the “Blue Train (To Healthcare)” section in CVS Health: Will This Giant's Scale and Scope Confound Its Vision for Healthcare?.

    On its earnings call yesterday, CVS revealed that it now has 14 HealthHUB store formats open in four metro areas: Florida, Georgia, Texas, and New Jersey/Pennsylvania. CEO Larry Merlo also stated that its first few sites have been outperforming a control group on script volume, MinuteClinic visits, front store sales, and store margin. The company also confirmed its plan to have 50 HealthHUB locations by the end of 2019 and 1,500 locations by the end of 2021.
  • Walgreens has been the second-largest location for retail clinics, with more than 400 locations at the start of 2019. Before last week’s announcement, the company had been slowly replacing its in-house clinics by partnering with health systems that own and operate retail clinics within Walgreens retail locations.

    Walgreens is also experimenting with other in-store clinic models. Partners in Primary Care, a subsidiary of the health insurer Humana, is operating senior-focused primary care clinics inside two Walgreens stores in the Kansas City, Missouri, area. Partners in Primary Care also operates free-standing clinics that are unaffiliated with Walgreens. These clinics are not counted in the table above.
  • Kroger is the third-largest retail clinic operator, through its Little Clinic business. The company releases no performance information about its clinics, nor did it provide any further clarity during its November 5 investor day meeting.
  • Target has expanded its clinic presence through a partnership with Kaiser Permanente, which operates clinics inside Target stores. There are also MinuteClinics in Target stores.
  • Walmart has reduced the number of clinics within its retail stores. Walmart’s own Care Clinics operate within its stores in Georgia, South Carolina, and Texas. In September, Walmart launched its first Walmart Health center in Georgia.
  • Rite Aid has fewer in-store clinics, because the company sold nearly 2,000 stores to Walgreens. As of January 2019, RediClinics operated 31 clinics inside Rite Aid stores in Delaware, New Jersey, and Pennsylvania. 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.
There are also clinics in other retailers’ locations, though many are operated by hospitals and health systems. For example, retail clinics located within the stores of the supermarket chain Hy-Vee are operated by various hospitals and health systems.


The early promise of retail clinics has given way to today’s disappointing reality.

Payers are only reluctantly supporting retail clinics. Health plans have added retail clinics to their provider networks, allowing patients to use third-party insurance for clinic services. For 2019, 77% of large employers covered services provided in retail clinics, compared with 47% in 2010. However, few employers provide financial incentives for employees to visit these clinics. (source)

Meanwhile, health systems are rapidly opening urgent care clinics that can compete with retail-based clinics. The Urgent Care Association (UCA) has estimated that in 2017, hospitals and other providers operated about 7,700 urgent care clinics. Urgent care clinics have a reputation for having better-qualified medical staff, whereas patients have concerns about the qualifications and expertise of retail clinics’ staff. (source)

The urgent care market has quickly become crowded with both independent and hospital/IDN operators. Consumers have many with options from providers they know.


CVS Health sees an opportunity to compete directly with legacy providers and emerging urgent care centers. CVS Health CEO Larry Merlo hinted at the coming battle when he outlined a key benefit of its HealthHUBs:
“Our plan design innovations aim to incentivize members to utilize more cost-effective settings and providing our pharmacies with integrated medical when pharmacy data allows for improving the delivery of a member’s next best health action to impact behavior changes and improved health outcomes.”
CVS has generated significant synergies by owning a PBM along with a variety of dispensing channels. It looks poised to use Aetna to run a similar same play with healthcare services. Site-of-care management may turn out to be the key to the CVS Health-Aetna merger.

So, will this be a far, far better thing that it has ever done?

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