The Potential Explosion of Healthcare Retailization TABLE of CONTENTS

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HEALTHCARE WHITE PAPER

The Potential Explosion of Healthcare Retailization TABLE OF CONTENTS

Introduction 01

Can You Imagine the Following Future? 02

Healthcare Focusing on the Retail Model 03

More Subtle Consequences 04

What Can You Do? 05

The Shift in Healthcare is Happening 06

The healthcare industry is becoming increasingly retail- oriented, and healthcare providers and payers must anticipate and respond to these market changes to remain successful. Several years ago we wrote about the rapid growth of on-site clinics located inside your company’s offices. This is already a real trend, particularly in the United States. Push the timeframe out another five or ten years and the options for retail healthcare delivery may increase exponentially.

Given the strong shift toward consumerism and retail in the healthcare sector, we could see an extreme scenario THE NUMBER OF PUBLIC play out in the next five to ten years in which large retailers move into healthcare services in a big way. In HEALTHCARE CLINICS MAY this scenario, we envision a near-stagnant economy, ONLY BE LIMITED BY THE combined with political gridlock, spurring employers to cut costs, transferring most health management NUMBER OF RETAILERS: decisions to individuals largely through defined contribution benefit plans. FAST FOOD The Affordable Care Act (ACA) has not lived up to its expectations; health costs have moderated but remain 14,157 high, and cuts to public subsidies make exchanges look less attractive. A whole new cadre of retail-based health providers has emerged to meet consumer demand for 11,128 cost-effective healthcare, putting new pressures on traditional providers and payers. 7,306

In this scenario, discount healthcare providers set up shop in a variety of retail centers: not just in CVS and 26,644 Walgreens, but in Target, Kohl’s, and major suburban malls. Marriott adds healthcare centers to its Marriott and Residence Inn properties in major cities. HOTELS The scope of these healthcare centers extends far beyond the retail clinics that emerged in the early 2010s. 4,602 Now, instead of merely giving flu shots or prescribing antibiotics for ear infections, these retail health centers 3,992 offer a full range of health services, including full check- ups, screening tests, long-term management of chronic diseases, and even minor surgery. A large majority of 3,519 middle- and working-class individuals and families use these centers for the lion’s share of their healthcare needs, given their convenient hours, locations, and competitive, transparent pricing. RETAILERS

4,779

3,519 02

Proof that the healthcare industry is becoming more and more focused on a retail model can be found everywhere. Over the past 20 years, we’ve seen longer-term changes in the overall healthcare market, as pharmaceutical companies have reached out directly to consumers with drug advertising, and the internet has facilitated the proliferation of independent health information sources like WebMD. More recently, the shift toward consumerism in healthcare has become even more pronounced, as evidenced by the following:

• Through August 2014, Walmart had opened six primary care clinics within existing stores in South Carolina and Texas, with another six clinics planned by the end of the year. Walmart is marketing these clinics as full-service facilities, offering chronic disease management as well as the acute care services it and others already provide.1

• Consumer-directed health plans (CDHPs) and high- deductible health plans (HDHPs) have increased their share of coverage. According to a 2013 study from the National Center for Health Statistics, 32.5% of people under 65 with private health insurance were enrolled in HDHPs, including 11% enrolled in CDHPs. Since 2008, the percentage of Americans with an HDHP of any kind has increased by 13.3%.2

• The proliferation of retail healthcare outlets in adjacent businesses like CVS with its Minute Clinics and Walgreens with its Healthcare Clinics heralds a “convenience revolution” (a term coined by the Rand Corporation). According to Merchant Medicine, the number of U.S. retail clinics has grown from 200 in 2006 to 1,615 today.3

• Non-hospital ER urgent care centers like Concentra have emerged and are growing rapidly. The Urgent Care Association of America, an industry group, estimates that there are currently 9,000 urgent care centers nationwide, with 300 new ones opening every year.4

Even without the extreme retailization envisioned in the scenario earlier, the ongoing shift toward retail in the healthcare sector will have a number of subtle consequences, including:

• Increased competition from traditional and non- traditional healthcare players. - Aetna, Cigna and other health plans are moving into more diverse services to meet demand from their consumers. For example, Aetna realized, even before passage of the ACA, that its traditional health plan revenues and profits would be capped, and the company has since moved into the health technology space, enabling consumers to make better and more informed decisions about their healthcare.

- Non-traditional healthcare players will continue to proliferate, including the retail clinics and new entrants to healthcare like Fidelity, which is offering new products at the intersection of health and wealth management that predict and measure out-of-pocket healthcare costs.

• Increasing advertising for traditional and non- traditional players through a variety of different channels.

• Proliferation of agents and service agencies to help consumers navigate and choose healthcare providers and choose health plans. These agents could be individuals, or online educational instruments fueled by advertising, much like Edmunds.com or Kelley Blue Book for car buying.

• Increased demand from increasingly better informed consumers for comprehensive, transparent information concerning both pricing and quality of health services.

The extreme scenario described earlier would signal a sea change in the way healthcare is delivered. But even the more subtle consequences of ongoing retailization of healthcare could have a dramatic impact on today’s healthcare providers. Regardless of what happens, health providers need to do the following:

• Become more customer-oriented as competition increases. This means thinking of your organization the way a retail company would, asking and answering the following questions: - What does my market look like? How do I segment? What kinds of customers am I trying to reach?

- What is my value proposition? What differentiates my organization from other similar companies or groups, and why would consumers want to use my services?

- What kind of messaging do I need to convey to current and potential customers to emphasize this value proposition? • Consider partnerships with both traditional and non-traditional healthcare players - health plans, financial services companies, health agents, and the like. These partnerships could help you reach new customer segments and better serve existing customer groups.

• Consider restructuring offerings and attendant pricing to meet the needs of those with HDHPs and CDHPs, as well as those with traditional insurance plans. Consumers with these and other kinds of plans are beginning to demand transparency around services, quality and cost, and restructuring your offerings and pricing will help you remain competitive and help to maintain margins.

In addition, there are critical competitive questions to answer:

• Have any of these retailers, hospitality providers or other consumer-facing companies begun appearing on healthcare panels or asking questions about this marketplace?

• Are these entities generally bent on organic growth, or do they “buy” the expertise they need to enter a new market? What evidence is there that they will head in one direction or another?

• What are the core competencies these entities have or lack that could facilitate or challenge their entry into the healthcare delivery market? Can you measure their level of competency or infrastructure to launch this business?

The shift in healthcare toward consumerism and retail is happening, and the industry is unlikely to return to its previous structure. Health providers can’t stop these trends, but they can take steps to anticipate and address them, thus remaining relevant and competitive in the new healthcare world.

1 New York Times, August 7, 2014, and Walmart.com 2 Health Insurance Coverage: Early Release of Estimates From the National Health Interview Survey, January-March 2013; Cohen and Martinez, National Center for Health Statistics, CDC, September 2013 3 What retail clinic growth can teach physicians about patient demand, Lisa Zamosky, Medical Economics, Jan 8,2014 4 http://www.urgentcarecenter.org/about.html, Urgent Care Association of America, as of May 2014

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