Retail Clinics a Factor in CVS-Aetna Merger

Retail Clinics a Factor in CVS-Aetna Merger

Kalorama has covered retail clinics for 10 years. We've watched them grow and decline. They never reached the kind of numbers in box stores and grocery stores that many predicted, but they thrived in other areas.. We've seen them struggle in the recession of 2008 and recover as a key part of drugstore strategy. Thus the news of CVS's purchase of Aetna, which has made news for its potential influence on employee healthcare insurance and pharmacy benefit industries, is only one possible effect of the significant deal announced this week. CVS’s Aetna could also increase utilization of retail clinics, and it probably will.  Retail Clinics are in-store healthcare locations which offer basic services at convenient times, usually staffed by a nurse practitioner. CVS is the largest retail clinic provider, according to the firm's report, Retail Clinics: The Game-Changer in Healthcare.

The deal is for $69 billion. This will be one of the largest healthcare deals. Media reports suggest it is unlikely that regulators will intervene, and the deal will go forward, as the firms largely do not overlap. The stronger impetus for the deal was taking pharmacy benefits in-house, and this deal will allow Aetna to benefit from CVS Caremark services. But with any deal there are many components, and retail clinics are a secondary benefit of the deal. CVS has indicated they want to make their stores a ‘front door’ of healthcare.

Information on Retail Clinics from Kalorama's Latest Report:

There are 2,225 retail clinics in the U.S. And the clinics are popular - (93% report satisfaction with their visit, according to a 2017 Kalorama survey). In 2016, total U.S. retail clinic sales are estimated at more than $1.4 billion, an increase of 20.3% per year from $518 million in 2010. Strong historic growth has been driven by aggressive expansion, particularly by MinuteClinic, which is now owned by CVS. Now these retail clinics in effect become in-house healthcare providers for Aetna.

CVS has become, over the past decade, a large healthcare organization with many parts. The firm runs nearly 10,000 drugstores, which is what it is known for. It also runs a specialty pharmacy for high-priced drugs, retail clinics, including clinics in Target stores. And the drugstore chain owns Caremark which is a pharmacy management business. And it has over 1100 clinics. We can speculate that Aetna will look to encourage members to use clinics, and that will drive retail clinic business, indirect sales to stores from clinic visitors.

Exploring the Deal's Impact on Walk-In Clinics

Only a portion of CVS stores have a clinic, so there is room to grow. Driving growth is waiting times at physician offices, increased healthcare coverage and the desire of payors to avoid ER visits for non-emergencies. These growth drivers are also drivers for other companies like Walgreens and The Little Clinic, they are drivers for urgent care centers and for telemedicine.

I was interviewed in Fast Company this week about the CVS – Aetna merger.   In the article, I discussed the importance of indirect income to the retail clinic concept.  CVS wants these clinics in stores because people who are in the store tend to stay and purchase products.  Not just prescriptions but OTC drugs, cosmetics, magazines and sundries.  They also have a branding effect of reinforcing that the drug store is a trusted place providing both pharmaceuticals and care.  

There can be more utilization of retail clinics as a result of the merger and there also could be referrals.  Clinics provide acute care but do not provide primary care for patients.  They may get a repeat visit of course, but usually retail clinic patients have a physician.  If they do not, it is not uncommon for retail clinics to refer to a primary physician.  This is an opportunity for the front door of the CVS clinic to lead to the inside of the healthcare delivery system Aetna brings.   Furthermore, retail clinics cannot provide specialist care, so a condition that requires more intensive examination can be referred to a specialist.  So there are a number of ways this deal helps both organizations and may help consumers and healthcare costs as well.