Retail clinics are putting a new face on health care. With competition and community health at stake, how should hospitals react?
By Karen L. Wagner
From the local Walgreens drugstore to the nearest Wal-Mart, retail clinics are popping up all over the country. These clinics, generally overseen by physicians and staffed by nurse practitioners, are reshaping the delivery of health care and creating a lot of controversy along the way. While critics question the quality of care these sites offer, advocates question where else uninsured patients can receive such care. For more and more hospitals and health systems, however, the main question is not why they should enter the retail clinic market, but why they shouldn’t. One thing’s for sure—the clinics are here, and they’re multiplying.
The total number of retail healthcare clinics nationwide was expected to exceed 700 by the end of 2007, according to Tine Hansen-Turton, executive director of the Philadelphia-based Convenient Care Association (CCA), which represents retail clinics. That's up from roughly 200 clinics the previous year. And in both 2008 and 2009, Hansen-Turton says the number of clinics in the United States is expected to double.
“Everybody should pay attention to the retail clinic movement because what it speaks to are critical customer considerations, such as convenience, cost, and access—the kinds of things we’ve talked about for years, but not many people have done much about,” says Preston Gee, a healthcare consultant and senior managing director with Phase 2 Consulting in Austin, Texas.
According to Gee, many people in the industry also believe that unlike the urgent care centers that opened in the 1990s (and then a number of which subsequently closed), retail clinics, which treat more minor conditions, are less expensive to operate and so are here to stay.
“I can tell you that everyone who hasn’t gotten into it is at least considering it at a very high level,” says John Thomas, vice president of Market Strategies International, a research and consulting firm based in Livonia, Mich. “There are healthcare systems both small and large looking at this.”
Mutual Benefits
The benefits to the retailer that houses the clinic are obvious—the potential for increased sales of pharmaceutical and any other items the retailer carries that the consumer/patient may purchase while visiting the clinic. According to Thomas, although the clinics might seem to directly compete with physician practices and hospitals, providers may benefit from this model of healthcare delivery by obtaining referrals of patients who don't have primary care physicians or those who need additional care that the clinics don't offer. A survey of 1,500 consumers conducted by Market Strategies reported that almost half of clinic patients that needed a referral were referred to a specific physician or practice at a hospital, Thomas says.
By operating clinics in high-traffic retail locations, providers also market their name to a greater portion of the community, thereby garnering the chance to gain customer loyalty and increase the potential for new business.
Saint Alphonsus Regional Medical Center, which has a main hospital plus clinics throughout southwestern Idaho, opened its Express Care clinics in Albertsons food stores and Rite Aid drug stores. The goal is to capture the state's uninsured workers, about 15 percent of the population, says Tom Reinhardt, vice president of the Saint Alphonsus Medical Group, the physician arm that runs the clinics.
“These Express Care clinics provide a new front door to the Saint Alphonsus healthcare system,” he says. “So, if we can figure out how to serve that significant market segment, then that is an important strategic benefit to us.”
Dean Lin, CEO of CareWorks Convenient Healthcare, operated by the business arm of Geisinger Health, says satisfaction rates are high—99 percent of its patients would refer the clinics to family and friends. “We’re making such a positive impression within the community, our business is growing basically through word of mouth,” he says.
Business Structure
Deciding how to structure a new retail clinic depends on the provider's goals. Providers may enter the market primarily to generate new business for the hospital, or they may want to preempt potential competitors, Gee says.
Those who choose to set up their own clinics at retail locations may opt to co-brand the clinic with the retailer. Other providers might choose to lease space from the retailer and put their own name on the clinic.
With the Express Care clinics, the business structure is a simple lease arrangement. There is no co-branding or revenue sharing between Saint Alphonsus and its retail landlords. The lease-only arrangement allows Saint Alphonsus to protect its brand and provide a continuity of care within an integrated health system, Reinhardt says.
“That’s what we feel makes us different from some other of the independent, unintegrated clinic operators,” he says.
Market Barriers
Although the retail clinic market is showing strong growth, as with any business venture, there is risk. Entrants to who expect to turn a profit may be disappointed. Hansen-Turton says clinic operators who have been in the market for a while are making a profit; other experts say because the industry is still in its embryonic stage, profitability may be a long way off.
In the meantime, there are costs. According to a 2006 report prepared for the California HealthCare Foundation by consultant Mary Kate Scott, the average start-up cost for a clinic is $50,000, with costs ranging from $25,000 for a barebones operation to $145,000 for a better-equipped facility. Reinhardt says Saint Alphonsus spends $110,000 to build each clinic, plus an additional $30,000 per location to outfit the facility with high-tech equipment such as a self-registration kiosk and an electronic medical record system that creates a patient record and sends it to a referring physician, if necessary. To break even, Reinhardt says, the five clinics need to see two to three patients per hour, at a flat fee of $45 per visit. “We do expect that we can break even on this in the fifth year,” he says.
Aside from the financial risk, the clinics also have come under scrutiny from the American Medical Association and other medical groups. These groups mainly are worried about a lack of regulatory oversight, the potential for substandard care and the conflict of interest that exists when a pharmacy-owned clinic prescribes medication.
Currently, clinic regulations vary by state. Peter Carmel, MD, is a pediatric surgeon and member of the board of trustees of the American Medical Association, which has adopted principles to ensure that these clinics offer quality care. He says that although some states have good regulations, in other states retail clinics are subject to the health and safety codes of produce grocers, while many others have virtually no oversight at all.
Carmel said clinics will become a “major force in the delivery of health care,” but he says for now the main issue is how to provide the basic services safely. He mentions visiting one clinic in a grocery store where patients were waiting for their appointments while seated on folding chairs next to the produce department—not a good practice when patients are ill, he says.
“So the retail clinic will change the way medicine is practiced. Not all of those changes will be bad, but many of the practices are substandard by anybody’s values,” he adds, noting the need for better oversight of clinics by individual states. “We have to have some good way of keeping the scary ones from ever opening and encouraging the good ones.”
In addition to safety concerns, some physicians also worry that these clinics will drain away their patient base. But Michael Patmas, MD, CEO of Saint Alphonsus Medical Group, says these concerns are unfounded and miss the point. “The majority of patients being seen do not have a ‘medical home’ and are uninsured,” he says.
Health care is becoming more consumer-directed, and Patmas says providers like Saint Alphonsus should be at the forefront of this movement. “We feel that if retail clinics are an important evolutionary step in becoming more patient-centric, that it’s really a natural fit for doctors and for medical groups together in partnerships with their hospitals to lead the way,” he says, “and not necessarily wait for Wal-Mart to do it for us.”