December 03, 2022 01:01 AM
The past year has seen retail executives make billion-dollar moves into the care delivery space. Chain drugstores and big-box companies, perhaps better known for their pharmacy and over-the-counter verticals, have taken steps toward expanding urgent care, post-acute care, primary care and telehealth services—presenting a potential disruption for traditional healthcare companies amid economic headwinds.
Some health system leaders, seeking to respond to the challenge, have partnered with retail companies on so-called recession-resistant services. Others have purchased companies or created verticals of their own to defend their market share and provide care outside the hospital setting.
Regardless of sector, many of the leaders appearing on Modern Healthcare’s 100 Most Influential People in Healthcare list this year are seeking to shore up their companies’ offerings in the face of an uncertain future.
The Centers for Medicare and Medicaid Services projects national health spending will reach $6.2 trillion by 2028.
“This [expansion into healthcare] is a way for these retail organizations to get a piece of that $6 trillion pie, which may even be more lucrative than what they already have in terms of prescription activity and the retail portion of their stores,” said Michael Abrams, managing partner at the global healthcare consultancy firm Numerof & Associates.
CVS Health and Walgreens Boots Alliance executives, who appear on Modern Healthcare’s 100 Most Influential People in Healthcare list this year, have guided the companies through multibillion-dollar deals as they accelerated their diversification of healthcare services.
Last year, CVS announced its plan to close nearly 10% of its retail stores within three years while growing its health services arm. In May, the company launched a virtual primary care platform for eligible Aetna and CVS Caremark members starting in 2023. It signaled its plans to expand into the home health space in September with its proposed $8 billion purchase of Dallas-based Signify Health.
“We believe that our Signify Health [acquisition] will close some of the gaps that we have in home, and it will give us a platform to accelerate return to care and provider enablement,” President and CEO Karen Lynch said on the company’s third-quarter earnings call in November.
Meanwhile, Walgreens reported a successful year in primary care, specialty pharmacy, post-acute care and population health during its fourth-quarter earnings call in October.
That month, the chain stated its intent to purchase the remaining stake in post-acute care company CareCentrix, just two months after becoming its majority owner. It announced an $8.9 billion deal in November through which VillageMD, a unit of Walgreens, will acquire Summit Health-CityMD, a primary, specialty and urgent care company with presence in the Northeast and in Oregon. VillageMD—whose co-founder and chief medical officer Dr. Clive Fields also made the 100 Most Influential People in Healthcare list—operates more than 250 primary care locations in 22 markets.
“They obviously have high expectations for profitability in the coming year. They clearly believe they’ve got a winning combination here,” Abrams said, about Walgreens.
Other major retailers have made forays into the healthcare space. In September, Walmart struck a decade-long partnership with UnitedHealth Group to provide preventive and virtual care services to some members. It also in October announced a plan to open 16 more clinics adjacent to its superstores providing primary care, labs, X-rays, behavioral health, dental health and community health services.
On the company’s third-quarter earnings call in November, it announced sales growth in its health/wellness and grocery divisions while seeing a decline in general merchandise sales. What’s next for its healthcare arm remains to be seen: Dr. Cheryl Pegus, a 100 Most Influential honoree and former executive vice president for health and wellness, left in November for Morgan Health, JPMorgan Chase’s healthcare arm, though she’ll serve as a senior adviser to the retailer.
The complexity of the healthcare industry means there are learning curves for retail companies expanding services outside of their traditional offerings.
“There is some trial and error,” said Paul Schuhmacher, a managing director in the healthcare practice of AArete, a global management consultancy.
For instance, Schuhmacher noted, Amazon launched medical care service Amazon Care in 2019, only to announce its closure in August. And the joint venture Haven, formed by Amazon, Berkshire Hathaway and JPMorgan Chase to reduce healthcare costs for their 1 million U.S. employees, shuttered last year. Now, it’s pivoting again to start virtual health service Amazon Clinic.
“From my perspective, [Amazon is] trying out a few different areas in healthcare to see where they could fit in the best,” Schuhmacher said.
Experts said health systems could learn from how retailers are working their way into service delivery.
“I think more traditional organizations are going to be challenged for patient consumer loyalty. They have to either step up, or they’re going to get left behind,” said Dr. Jay Bhatt, executive director of the Deloitte Center for Health Solutions. Companies should consider their investments, unique partnerships, and potential for restructuring their business models to meet consumers’ needs, he said.
Some health system leaders are doing so by teaming up with major retailers on clinics or making pushes into new care delivery spaces, especially urgent care.
“The motivation behind that is really around scale, growth and being able to service the general population,” said Jennifer O’Brien, a partner in the mergers and acquisitions division at consultancy West Monroe.
Last year, Walgreens and New Hyde Park, New York-based Northwell Health—whose president and CEO, Michael Dowling, leads the 100 Most Influential list this year—announced a five-year partnership. Telehealth providers from Northwell are accessible through Walgreens’ Find Care platform, and the companies are considering a retail health clinic collaboration at certain Walgreens locations.
The health system offers urgent care, including virtual visits, at roughly 50 locations in the New York metropolitan area in partnership with GoHealth Urgent Care. This year, the companies teamed up with five Northeast summer camps to provide go-to services for campers and avoid unnecessary hospital visits. Northwell also offers home care services for patients through its Northwell Health at Home program.
CVS’ MinuteClinic partners with more than 50 physician groups and health systems, including Chicago-based Rush University Medical Center and Sacramento, California-based Sutter Health—both of whose leaders are 100 Most Influential honorees—to give their patients access to clinical support, medication counseling and chronic disease monitoring at CVS stores.
Abrams said these types of partnerships are a win for health systems, retailers and patients: Health system providers are staffing retail clinics; systems are generating revenue even as they give up some of their outpatient market share to the retailer; and patients have a better continuity of care.
By creating more care options through collaborations, providers at traditional health systems can direct resources toward patients most in need, O’Brien said. But she noted it’s important to ensure patient data are being shared safely among partners, such as by using electronic health records to securely transmit information.
Health systems are also purchasing or starting companies to try and connect patients with convenient care.
In 2014, Nashville, Tennessee-headquartered HCA Healthcare acquired CareNow’s 24 urgent care centers. It now operates more than 150 CareNow clinics in 10 states. The health system announced in January that it had purchased MD Now Urgent Care, expanding its services into 59 urgent care centers in Florida.
“The addition of MD Now Urgent Care in Florida enhances our already strong capabilities in a rapidly growing state by providing convenient outpatient care options for our patients,” said Samuel Hazen, HCA Healthcare’s CEO and 100 Most Influential honoree, in a statement at the time. “It also connects MD Now patients to a comprehensive statewide network of care, including acute care and specialty services should they be needed.”
Charlotte, North Carolina-based Atrium Health—whose president and CEO, Eugene Woods, is on this year’s 100 Most Influential list—has its own line of urgent care centers that also offer virtual visits.
The question for health systems is whether they can operate urgent care centers profitably, Abrams said. To do so, they need to hone marketing skills to bring in patients, maintain manageable operating costs and seek customer feedback, he added.
Nontraditional care delivery services aren’t immune from inflationary pressures, such as supply chain challenges and salary asks from on-staff clinicians. In November, Renton, Washington-based Providence closed all 27 of its ExpressCare retail facilities in Southern California, citing operating losses and competition.
But researchers said they may be more shielded from the effects of economic downturn. With the consumer price index up 7.7% from October 2021 to 2022 and a recession looming, some cost-conscious consumers may choose not to spend money on certain healthcare services, such as chronic and preventive care, said Bhatt, who co-authored a November report about the effect of rising healthcare costs on patient spending patterns.
“What our findings show is that consumers are planning now to make changes and those changes may involve seeking alternative sites of care outside of the traditional doctor’s office,” he said.
If consumers lose jobs or otherwise have a change in insurance, they could seek necessary services at locations such as urgent care and retail clinics, said Dr. Erin Ney, expert associate partner in the healthcare practice at consultancy Bain & Co. Patients who may put off primary care are still likely to maintain getting vaccinations and bringing children in for school physicals, Ney said.
“It remains to be seen, but I think that you can envision a scenario where this is actually an opportunity to drive business,” Ney said.
Abrams noted that assets such as urgent care and retail clinics have historically been regarded as recession-resistant.
“People get sick even in recessions,” he said.
And he isn’t expecting organizations to stop picking up potentially lucrative service lines.
“If the economy slows things down, what that will mean is there are more assets on sale that these organizations can pick up at a nice discount,” he said. “I don’t think that the pace of [mergers and acquisitions] is going to slack off. It may even pick up.”