Retail Clinics: a New Delivery Channel

The Retail Clinics movement, a prominent example of a "low technology" and yet revolutionary new business model, has received much media attention. Consumerism is on the rise in healthcare, which creates newly viable positioning options along the axis of "accesibility". The irruption of clinics located in convenient, high-traffic places has proven to be very appealing to both consumers and media.

This emerging industry was pioneered by MinuteClinic (which was recently acquired by CVS) and has a large number of competitors, notably RediClinic and TakeCareHealth. These clinics treat, on a walk-in basis, acute, non-life threatening conditions, and also provide preventive services such as vaccinations. They are usually staffed with non-physician providers such as certified nurses or physician assistants, and they are located in non-traditional settings like pharmacies, grocery chains and "big box" retailers. This industry already has created an Association to defend its collective interests and has a number of dedicated blogs .

These clinics are seen by many as a prime example of disruptive innovation in healthcare. Indeed, they represent a low-cost, highly accesible option (due to both their locations and their extended hours of operation that include weekends) to receive routine medical services. What is more, quality is not only not sub-par: where it has been measured, it has been proven to be higher than that of competing providers. By adhering to protocols, using electronic health records, and by sheer "repetition" (the limited scope of services they offer means they get to see large numbers of patients with the same condition), these clinics could in fact become the provider of reference for solving basic, common ailments. In the process, a new delivery channel for healthcare services is created, a sort of ATM for easy care that could potentially have the same impact for healthcare that the ATM had in retail banking a few years ago.

A most interesting aspect of this new business model is that it is actually building an industry out of providing basic services that have largely been neglected by the incumbents (that is, services not usually viewed as a business opportunity per se, but rather as feeders for higher-margin diagnostic or specialized services). The medical establishment is still wondering how to respond to this innovation. The American Academy of Family Physicians welcomes it (as does the AMA) as long as the clinics stay within their current limits in terms of scope of services and they establish a referral network with local primary care physicians. The American Academy of Pediatrics clearly opposes it, mainly on the basis of the lack of continuity that retail clinics offer (although one must wonder what level of continuity is present in the current system). These clinics mean new competition for PCPs, pediatricians and urgent centers. Practice patterns will be affected in areas with high penetration of retail clinics. Insurers, on their part, are widely embracing this development.

It is probably too soon to know whether Retail Clinics (whose numbers are already in the hundreds) are here to stay or not, although the CVS-MinuteClinic deal somehow validates the early steps of this industry. They face significant challenges, very well described in the excellent study published by the California Healthcare Foundation and authored by Mary K. Scott. Their economics, with high fixed costs and minimal variable costs, and prices around $50 per visit, forces them to have a high capacity utilization (2 to 3 patients per professional per hour to break even).

I believe that some degree of higher concentration in the medium-term is likely and desirable (there are significant economies of scale and density) but I also expect new entrants with slightly different positionings and operating models from the one that today prevails. For instance, nothing prevents new players from staffing the clinics with primary care physicians, thus countering the reaction by medical associations and others.