I have posted a number of notes about some of the competitive advantages enjoyed by the Walgreens, CVS, and Walmart walk-in clinics (see, for example: Retail Drug Stores Emerging as Healthcare Hubs for First-Tier Primary Care); Doctor on Demand Expands Reach with Walmart Collaboration and Coupon for Care). They are competing, of course, with physician practices, multi-specialty clinics, and health systems for this first-tier business. A recent article described this competition as the "war for outpatients" (see: The War for Outpatients). I am not sure that this war metaphor is totally accurate because the physician/hospital side seems to be somewhat oblivious to what is happening. Nevertheless, below is an excerpt from the article :
[T]he common goal of emerging healthcare competitors [like CVS and Walgreens is] to dislodge the outpatient business from traditional hospitals and health systems. CVS and Walgreens are well positioned to battle for outpatients on the ground, each having about 10,000 stores. To put that in perspective, three-quarters of Americans live within five miles of a Walgreens, and 80 percent of Americans live within 10 miles of a CVS. Both companies are also well equipped to fight this battle via the Internet. Walgreens and CVS have 88 million and 62 million loyalty program members respectively, providing not only a trove of data, but also a digital relationship. Of course, CVS and Walgreens are not the only companies with their eyes on the hospital outpatient business. UnitedHealth/Optum has amassed more than 47,000 physicians in 35 of the company’s 75 target markets, all without owning a single hospital. Private equity firms invested more than $42 billion in healthcare services in 2017, with $12 billion and 75 deals devoted to nonhospital providers....And if Amazon decides to direct its 100 million Prime members toward an Amazon healthcare platform, the presence would dwarf that of any other competitor. These forces are after a piece of the $3 trillion healthcare business.
This article caused me to reflect on what I will call the "proximity advantage" held by the rapidly expanding walk-in clinics in drug stores and Walmart. As noted above, CVS and Walgreens combined have about 20,000 stores in the U.S. which means that one of them will always be very close to the vast majority of American healthcare consumers. This proximity to consumers provides a distinct advantage over hospitals in the competition for primary care patients. In addition, these clinics are beginning to offer services to a broader range of patients. When it purchased Aetna, CVS announced that it would begin to care for patients with chronic diseases, referring to a community-based care model (see: Merged CVS and Aetna Will Move Toward a Community-Based Healthcare Model). By way of comparison, large health systems are offering fewer primary care services because of the lower profit margins associated with them (see: Walmart Health: A Deep Dive into the $WMT Corporate Strategy in Health Care). Here is a quotation from this article that discussed Walmart's strategy for its Care Clinics compared to hospitals:
Walmart’s retail strategy in health care is based on the hospital inefficiency in innovation and the business theory of bundling and unbundling services. The vast majority of hospital revenue is rooted in the fee-for-service business model ....Providers are thus incentivized to provide a high-volume, high-cost standard of care, squeezing money from insurance companies. In turn, those costs are passed down to consumers in the form of higher premiums. However, as hospital operational costs ballooned, health systems began to treat their departments like a public investment portfolio. They unbundled (divested from) low-end services that required all the same operating expenses but didn’t turn a profit.
Make up you own mind on this issue but I think that, in a few years, health systems are going to be highly dependent on CVS, Walgreens, Walmart, and UnitedHealth/Optum for patient referrals. Such referrals will begin to dry up as the health systems cut back on the number of PCP's and primary care services. I will write more about this issue in upcoming blog notes.
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