Considering that they’re the smallest players in the healthcare arena, retail clinics get a lot of attention. In an industry that has seen dozens of hotly contested (and failed) approaches over the years to achieving “right care, right provider, right time, right cost,” retail clinics are a rare thing: a model that truly delivers these goals and resonates with consumers. Retail clinics have increased price transparency, quality and convenience, and everyone–including the media, regulators, the medical establishment, investors and major hospitals–is taking notice.

In the past year, the number of retail clinics grew from roughly 150 to 700 clinics, managed by more than 40 operators. To date, 15 percent of these clinics are owned and run by hospitals, and more than a third of the clinic operator companies are part of hospital systems. This, in and of itself, is surprising. Retail clinics typically generate a modest $1 million in revenues per location, compared with hundreds of millions (or billions) in revenues generated from a hospital.

So why are multi-billion dollar hospital systems interested in these relatively small-time operations? In short, it’s because there are strategic, operational, and learning opportunities for hospitals in the retail clinic space. Forward-thinking hospital managers are looking for ways to capture the upside of retail clinics and mitigate the potential future loss of patients and earnings they represent.

The retail clinic model is straightforward: The clinics offer a limited menu of medical services on a walk-in basis, are staffed with nurse practitioners who are lower cost than physicians, and are located in small, relatively inexpensive retail spaces. Consumers have responded very favorably to this approach to care, with 1.35 million clinic visits to date and 90 plus-percent reported satisfaction rates on quality of care, convenience and cost. While initially clinics appealed to the two ends of the economic spectrum (affluent consumers who didn’t care about out-of-pocket cost because they wanted convenience and people who didn’t have insurance and were looking for lower out-of- pocket costs), consumers from all socioeconomic groups are now using these clinics, reporting high levels of satisfaction and intent to return.

So what does this mean for hospitals? Consider the following value points of retail clinics:

1. Increase capacity and reduce costs in the ED by redirecting patients.

Hospitals that have overcrowded emergency departments are diverting non-urgent patients (e.g., a child with a mild middle ear infection who comes in on a Friday night) to their own branded clinics within their facilities or in nearby retail stores.

For example, Aurora Health Care System in Wisconsin, serves its non-urgent patients far more quickly and economically (for both patients and insurance carriers) in a clinic than would not have been possible in a busy emergency room. If the patient is insured, clinics reduce the consumer co- payment costs; if the patient is not insured, he or she will pay a much lower out of pocket cost in a retail clinic than an ER. For uncompensated care, the hospital saves by caring for the patient in the most cost effective manner.

Hospitals are implementing this strategy by either owning and operating clinics in retail stores (such as Aurora in drug stores); other hospitals are evaluating the use of a modular retail clinic facility situated next door to their ED–patients can self-select or are provided with the clinic option when they check in with a nurse.

2. Keep patients in network–a defensive move.

Establishing retail clinics as part of a hospital chain “saturates” the market, dissuading the competition from establishing a foothold in that marketplace. AtlantiCare in New Jersey is an example of this strategy.

“We were the first to open a retail clinic in New Jersey. Our intention was to get started and to create some barriers to entry. If we had retail clinic stores then we hoped that Minute Clinic wouldn’t come into our market,” says AtlantiCare Health Services President Don Parker. To date, this has worked–the AtlantiCare retail clinics are the only clinics in this market.

In a similar vein, Sutter Health wanted to keep patients in its network in the competitive California market. Sutter named its clinics Sutter Express, leveraging a strong brand name, differentiating itself from other clinics, emphasizing the clinics’ hospital roots, and highlighting the advantage of a common EMR.

3. Attract new patients into the network.

Retail clinics are an inexpensive way to bring your services and brand to new patient populations. This can be a way to pave the entry for a new or larger hospital facility, or a way to draw new populations to your existing facilities.

For example, Geisinger established its retail clinics 10-plus miles from its hospital locations in an explicit effort to bring new patients from a broader area into its network. Alegent Quick Care (part of Alegent Health of Omaha) opened a new clinic in Plattsmouth, 20 miles south of its hospital base, because it couldn’t yet justify a full service hospital in this small (but growing) bedroom community, but wanted to establish a foothold for its brand in a promising market.

4. Create new, lower-cost methods of customer acquisition and brand exposure.

Clearly, consumers visit their supermarket, drugstore and mass merchandiser more often than they visit hospitals. The average shopper goes to the grocery store 2.2 times per week, and may only visit a hospital once a year (if that). When hospitals compare the traditional cost of acquiring a new hospital customer with the cost of operating retail clinics, they find that clinics are relatively inexpensive for large systems to operate (even if at a small loss, or small profit). Clinics can simply be a lower-cost way to market expensive hospital services and build brand exposure. Strong brands are built through customer experience, rather than only through marketing communications, and a retail clinic can offer a positive, personal consumer experience.

5. Drive changes in public health (integrated payer/provider systems).

Wellness is a major priority for the payer-provider system, and food is an essential part of health and wellness. Organizations like AtlantiCare believe that by putting clinics into grocery stores, often along with nutrition programs, they can drive better public health while also bringing down total patient costs.

Hospitals recognize that there are “ancillary” benefits to their retail clinic operations. While these benefits alone don’t justify establishing clinics, they illuminate smart ways to leverage a retail clinic operation.

6. Create a channel for new business lines.

Durable Medical Equipment Distribution: AtlantiCare uses clinics to let people try DME items they sell (scooter, canes), while Aurora drives its overall pharmacy business by placing clinics inside retail pharmacies that it owns.

7. Pilot new technologies “skunkworks” with people who embrace change.

Hospital staff who choose to work in new retail operations are often agents for change, and relish the opportunity to create new approaches to patient care or system processes. Alegent in Omaha is using their clinics as the pilot for EMRs.

“People who work in our retail clinics enjoy change, and the opportunity to create new ways to serve our patients. they are well suited to trying out new technologies,” says Rocky Fredrickson, CEO of Alegent Health Clinic.

8. Understand the new Generation X patient.

Seventy percent of all clinic visits are by Gen-X (age 28-42) moms and their kids, compared with about 22 percent of all PCP visits. This generation has a different view of a medical home and medical relationships, and this is the age where medical relationships and habits are formed. Hospitals that are struggling to understand and address the changing needs of younger patients see retail clinics as a straightforward way to serve, learn about and develop relationships with this community.

Read Part II: Tools for Hospitals to assess the potential impact on their patient and physician populations, economics, and brand–a pragmatic guide for hospitals to assess the retail clinic opportunity and create a strategy for improved patient care, patient and provider satisfaction and maximum impact.

Mary Kate Scott, Principal of Scott & Company, is a nationally recognized authority on retail clinics. Her firm helps hospital systems evaluate the retail clinic opportunity, calculate the economic and brand impact, and predict local consumer and physician response to different clinic operations. She is the author of The California HealthCare Foundation reports: Health Care in the Express Lane: The Emergence of Retail Clinics, and Health Care in the Express Lane: The Retail Clinics Go Mainstream. She offers speeches, workshops and media commentary on the intersection of consumers, healthcare and technology.

Part I of this article discussed the retail clinic model, the increase in clinics, and the consumer interest in clinics, with particular emphasis on the surprising fact that more than a third of the clinic operator companies are part of hospital systems. Retail clinics typically generate a modest $1 million in revenues per location, compared with hundreds of millions (or billions) in revenues generated from a hospital. So why are multi-billion dollar hospital systems interested in these relatively small-time operations? In short, it’s because there are strategic, operational, and learning opportunities for hospitals in the retail clinic space. Forward-thinking hospital managers are looking for ways to capture the upside of retail clinics (new patients, brand building and financial gain) and mitigate the potential downside (loss of patients and earnings) they could represent.

Before moving forward with a retail clinic, hospitals need to be clear on their own goals and understand how a clinic might play out across their system and in their community. Only then can a hospital choose the right play: to “watch and wait” as retail clinics evolve in their markets, form a partnership with an existing clinic operator, or build and manage their own branded clinic.

1. Prioritize the hospital’s goals for a retail clinic.

Retail clinics can help hospitals achieve several goals, so it’s critical to ensure which are the highest priority needs. Some examples of high- priority goals are: cost reduction from uncompensated care, better quality of service, keeping patients in networks, and caseload reduction in other areas of the hospital network. Different strategic priorities lead to different clinic solutions. For example, if the goal is to keep patients in network, a high-traffic external location in the community (even next door to potential competitors) makes sense; whereas if the goal is to reduce uncompensated care and overcrowding in the ED, it makes more sense to extend the ED with a co-located modular facility where uninsured patients can be easily redirected.

2. Understand local consumer attitudes about health care options.

Consumer response to clinics has been positive and strong. Still, it’s critical to understand how local consumers respond to competitive health care offerings. It’s relatively easy to commission consumer research in your own market to determine patient response to a hospital affiliated clinic. One hospital in the Pacific Northwest tested several different retail clinics models, with different clinic names, prices, menus of services and different retail locations to predict consumer acceptance. This research can be tailored by Zip Code, by in or out of network patients, and by insured or uninsured populations. Consumer research can help a hospital reduce its risk by better understanding which patients might be attracted and the overall impact on hospital operations.

3. Develop a financial forecast based on the volume of patients who might shift from the ED to retail clinics.

Within your own hospital, how many ED patients would be candidates for retail clinics given the limited scope of service–that is, how many of your current ED visits are for diagnoses or treatments that could be provided in retail clinics? Beyond the basic numbers, you must also understand who these patients are and why they might opt to use retail clinics (for convenience or cost) or not (perceptions of quality of care, awareness of the options). What will be the economic impact of moving patients to a different facility? Reimbursement rates will be lower from insurance carriers for retail clinics, but if a hospital has significant uncompensated care, savings are substantial. It is not as simple as determining if a patient is insured or not– both groups of patients can have positive economic impact.

4. Anticipate the physician reaction and the hospital’s response and communication plan.

One unique challenge for hospital-affiliated clinic providers has been to secure their own physicians’ support. Clinic advocates have made two arguments to physicians: one, if the hospital didn’t offer a clinic then a competitor would; and two, that clinics are an opportunity to keep a patient in the network. Despite substantial investments in outreach to physicians to educate them on the rationale for the clinics, the majority of clinic operators experienced significant physician concern prior to opening. However, once the clinics were open, physicians were more positive, viewed the clinics as one of several points of delivery of care, and saw it as worthwhile to maintain the patient within the system with continuity of care. Hospital systems can test local physicians’ potential reactions using online research techniques. This research can enable a system to determine the fit with their own hospital goals, anticipate physician response, and formulate communication strategies for different constituents.

5. Decide who will operate the clinic–the hospital or an external provider.

Several hospitals are choosing to operate their own clinics (see above for examples) and others are working with existing clinic operators, providing their brand names, expertise, physician oversight, and access to nurse practitioners. Aurora- -the earliest hospital entrant to the retail clinic world–operates its own clinics, whereas Hermann Memorial in Houston, Texas, provides its brand and physician oversight to RediClinics, and has developed a deeper understanding of the potential of clinics and their patients as a result of this partnership. Several other hospitals work with external operators (such as Medcor and others) who operate the clinics under the name of the hospital system.

6. Determine where the clinic should be located–on hospital grounds or in a retail environment.

Most hospitals who are participating in this trend are using retail locations for their clinics, including drug, grocery and mass merchandiser formats. Aurora is in WalMart, Sutter is in drug stores, and Atlanticare is in grocery stores. Several hospitals are now considering establishing clinics on their own grounds–either outside the front door of an ED, near the ED, or in a modular facility. Hospitals need to make this decision based on their goals–and an understanding of which patients will use this new facility, for what conditions and when. Each location offers different economics and will need a higher or lower volume of patients to justify the economics of different venues.

7. Understand the non-economic commitment it takes for a hospital to be a retail clinic operator.

Launching a clinic business has required a paradigm shift for hospital providers, who are eager to innovate and extend their knowledge of new delivery models, but who often know little about executing consumer-driven health care.

“We’re learning every day about consumers and the retail world,” says Linda Khachadourian, VP of Strategy and Business Development at Sutter Health. “This is so consumer-centric, and we don’t have retail experience . We hired a program director, specifically recruiting someone with a retail background. We’ve also had to learn to be lean and simplify. As a large organization, making these changes has required a mindset shift.”

Every hospital-affiliated clinic operator has different business goals and economic models, and retail clinics may not necessarily be suitable for every hospital. However, every hospital should know how to assess the opportunity clinics present. Understanding the economics and business models of clinics is a start, but, in fact, hospitals have numerous cost-saving advantages over standalone clinics: They can leverage their existing infrastructure (technology, protocols, and electronic records), assets, physician referral networks, brands, and insurance carrier relationships. Hospitals should systematically evaluate their assets, their strategic goals, their patients’ needs, local consumer attitudes, and potential physician responses in order to realize the full potential economic and brand impact retail clinics can offer.

Mary Kate Scott, Principal of Scott & Company, is a nationally recognized authority on retail clinics. Her firm helps hospital systems evaluate the retail clinic opportunity, calculate the economic and brand impact, and predict local consumer and physician response to different clinic operations. She is the author of The California HealthCare Foundation reports: Health Care in the Express Lane: The Emergence of Retail Clinics, and Health Care in the Express Lane: The Retail Clinics Go Mainstream. She offers speeches, workshops and media commentary on the intersection of consumers, healthcare and technology.

This guide will be updated quarterly. Free updates are included duringthe first 12 months.

$495 includes the report, tools, updates, and a webinar presentation.

Mary Kate Scott, Scott and Company
September 2007

An update to the 2006 report on retail clinics, this report explores the industry’s development and its integration with the health care system, as well as the challenges involved in establishing retail clinics in California.

Located in drug stores, groceries, and other mass merchandisers, and offering a limited menu of services, retail-based health clinics have captured the attention of the media, public, investors, and the medical establishment.

Typically staffed by nurse practitioners who provide diagnoses and prescriptions to customers on a walk-in basis, these clinics have proliferated rapidly, from 62 at the beginning of 2006 to more than 500 in 2007, with forecasts of more than 1,500 by the end of 2008.

This 2007 report updates the findings of Health Care in the Express Lane: The Emergence of Retail Clinics, published in July 2006. It describes the forces, individuals, and companies behind this fledgling industry, and notes that its evolution has been driven in large part by acquisitions and partnerships with national retail chains such as Target, Walmart, and CVS, as well as major health care systems.

While the fundamental business model remains the same, clinic operators have made different strategic decisions with regard to scope of services, type of retail outlet, and geography. The report explores these different models and their organizational philosophies, as well as the extent to which insurers reimbursed for care delivered in the retail setting. It also probes the legislative forces shaping the national supply of clinics, with special attention to the opportunities and challenges involved in establishing retail clinics in California.

The complete report is available for D0wnload Here.

In a commentary invited by the Archives of Internal Medicine (registration required) titled “The Geographic Accessibility of Retail Clinics for Underserved Populations,” CHCF’s Mark Smith and Margaret Laws argue that the clinics, targeted to mainstream consumers, are not an alternative to comprehensive primary care.

Read the full report and related information at the www.CHCF.org website.

Retail clinics in grocery, drug, and discount stores promise affordability and convenience and are reshaping consumer options in health care. This landmark report examines this innovation from a national and California perspective. It provides an overview of in-store clinics and converging trends in retail and health care, and explores the potential for these clinics to succeed as a viable business model.

With catchy slogans such as “You’re Sick, We’re Quick,” and promises of affordability and convenience, a new wave of retail health clinics located in mini-malls and popular discount stores is making its mark on the health care landscape.

This report examines this innovation from a national and California perspective. It provides an overview of in-store clinics and converging trends in retail and health care, and explores the potential for these clinics to succeed as a viable business model.

Surveys indicate that retail-based clinics appeal most to higher-income consumers willing to pay for convenience, and uninsured consumers, who have few alternatives and limited flexibility. According to the report, national consumer reviews have been positive and retail clinic numbers were expected to skyrocket from fewer than 100 in mid-2006 to several thousand by the end of 2007.

In California, which has a relative handful of in-store clinics, the lure of a huge consumer market is irresistible. But health regulations and looming turf battles with physicians may limit profitability and scalability.

The complete report is available for Download Here.

View this report at the www.CHCF.org website.