Big retailers are stepping in to improve how healthcare is delivered, disrupting a status quo industry that is slow to change.
Retailers, from drugstore chains to discount superstores, are looking to take market share away from traditional hospitals and healthcare systems by becoming more customer-centric. In many markets, this plan is working as consumers turn to new models of care.
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What about traditional providers? they’re starting to pay attention.
Here’s what you need to know about this industry change.
What is a retail disruptor?
The company is a leading retailer looking to offer healthcare services that have the potential to transform the way healthcare is delivered for years. Both companies specialize in a wide range of products including grocery, personal care and prescription. They have built an empire and strong brand recognition by operating thousands of stores across the country, and are able to leverage those locations and brand assets to offer their customers another choice of healthcare services.
Who are the medical vandals?
Pharmacy chains CVS Health and Walgreens Boots Alliance are natural entrants into healthcare services as a complement to prescription and wellness products. CVS is also investing in clinical trials, but plans to exit the field by the end of 2024.
Amazon got into healthcare services a few years ago, briefly pursuing joint ventures with JPMorgan Chase and Berkshire Hathaway aimed at providing low-cost care for its employees. Amazon has dabbled in insurance, pharmacies, virtual health and primary care, with varying degrees of success.
Other retailers such as Walmart and Dollar General target primarily rural populations. Walmart continues to open clinics in superstores that offer primary care, dentistry, x-rays, labs and behavioral health services, and plans to expand to three new states in 2024.
Dollar General has already rapidly expanded its retail presence, invested in the DG Wellbeing program and opened three mobile clinics in Tennessee a few months ago.
Why do these companies smell of opportunity?
Healthcare is becoming an increasingly consumer-driven industry, with patients wanting better care and more options. Healthcare providers are implementing value-based arrangements and incorporating patient experience and quality metrics, but not to the extent that consumers are demanding improvement. This creates room for the disruptive companies that have historically dominated retail to shift their business models to healthcare.
“It’s going back to serving the consumer,” said Corey Tarlow, an equity research analyst at Jefferies. “Especially in today’s world, [people] They want a fusion of the two concepts. They want great value and they want it conveniently. ”
Another factor is the lack of health services, especially in rural areas where patients are at risk of chronic diseases. Hundreds of hospitals have closed in these areas, especially as overheads have skyrocketed and it has become difficult to make a profit, due to the high proportion of government-insured and uninsured patients. ing. Industry-wide consolidation and associated cost-cutting efforts are also robbing care options from these communities.
What about primary care?
Primary care is low cost care in terms of equipment, staffing and other overheads, making it a gateway for disruptive enterprises.
Walgreens to invest $5.2 billion in 2021 to acquire a majority stake in primary care provider Village MD, with 1,000 co-branded Village Medical at Walgreens clinics by 2027 Accelerated the plan to open.
CVS says primary care complements value-based care efforts. The company acquired Oak Street Health in a $10.6 billion deal earlier this year and plans to expand its Oak Street presence to 300 locations by 2026. The company also has a nationwide network of approximately 1,200 Minito Clinics and walk-in clinics.
In February, Amazon signed a $3.9 billion deal to acquire One Medical, another primary-care provider, and last year it sold a $3.9 billion deal to treat common conditions like pink eye, eczema and urinary tract infections. opened a clinic.
What is Business Play?
Healthcare may be a low-margin business, but it offers retail disruptors an opportunity to diversify their portfolios, especially as in-store shopping becomes less profitable. This provides a new source of revenue while also potentially boosting struggling store sales. For example, when a customer comes to a store for inspection, they are more likely to stay and browse the shelves. Alternatively, customers buying groceries may enjoy the convenience of picking up their prescriptions at the same location.
“Maybe one day you’ll say, ‘You don’t need to go to the doctor.’ You can go to Walmart,” Tarlow said.
Is the initial investment paying off?
Retailers are willing to spend billions of dollars to acquire the necessary infrastructure for healthcare services. However, ROI details are often limited, especially as many of these ventures are in their early stages.
CVS estimates that each Oak Street center could generate $7 million in annual adjusted earnings. CVS also expects the Oak Street deal to save more than $500 million over the long term.
Walgreens’ health care services appear to be driving sizable sales, including $1.1 billion from VillageMD in the company’s second quarter.
Amazon is trying a similar approach to Prime membership with its One Medical service. The annual membership fee for new customers is $144 per year, typically $199 per year.
At Walmart, healthcare services are part of the Health and Wellness segment, which also includes over-the-counter treatments, medical products and pharmacies. The retailer reported double-digit sales growth for the segment in the first quarter, partly due to an increase in prescriptions and strong immunization numbers.
Should legacy providers worry?
Industry watchers say traditional hospitals and healthcare systems need to pay more attention to disruptors. Healthcare systems have long dealt with intense market competition from similar organizations, yet still saw themselves as traditional healthcare providers among new market entrants.
Some executives are starting to notice. In April, Kaiser Permanente CEO Greg Adams called the system’s recent planned acquisition with Geisinger Health “a counterbalance to some disruptors.”
Eric Gordon, a professor at the University of Michigan’s Ross School of Business, said legacy providers tend not to focus on areas such as primary care, but on how they can compete with more advanced services. Specialties such as orthopedics and surgery are areas where traditional providers make the most money, but disruptive companies have yet to venture into these types of care.
What lies ahead for the Destroyers?
Tarlow said the companies will likely continue to build out a suite of services to reach more consumers.
A major focus area is multidisciplinary and virtual care. VillageMD CEO Tim Barry says the company’s goal is to become a multi-specialty healthcare provider, as evidenced by its $8.9 billion acquisition of Summit Health-CityMD, which closed in January. Stated. Two years ago, Walmart announced plans to acquire multidisciplinary telemedicine provider MeMD before rebranding it to Walmart Health Virtual Care in 2022. Amazon and CVS launched a virtual care platform last year.
Additional services such as pediatricians and allergists could be the next step for disruptive companies with established primary care practices, Gordon said.
He said retail disruptors will treat healthcare services like merchandising, adding or removing services based on what makes them profitable and requires minimal capital investment. rice field.