A recent study by the Rand Corporation and the California Healthcare Foundation predicts that the number of retail clinics in the United States could reach 6,000 by 2011.   Indeed, despite the brief slide last June, the number of retail clinics in the United States is back in growth mode.  But as we mentioned briefly last month, reaching 6,000 clinics by 2011 is all but impossible. 

There are three primary reasons.  First, the current growth curve of new clinics is not even close to what it needs to be to reach that number of clinics.  Second, many would-be operators have realized retail clinics are just not for them.  And finally, traditional medical clinics are implementing techniques to increase patient access and convenience, thus creating a kind of counter-competition.

The three factors above should be major considerations for any health system looking at entering the retail clinic market.  In this article, we’ll take a look at each of the three factors.

Current Growth Curve
Clinic growth since November 1 was 31.  Growth since September has averaged 38 net new clinics per month.  That means we’ll end 2008 with approximately 1,170 retail clinics.  If that average slows to 15 clinics per month during April through August and then picks up again with 35 clinics per month the remainder of the year, as we expect it will, the industry will add roughly 320 new clinics in 2009 to end the year with around 1,500.  That’s an average of 26 clinics per month.  If growth remains the same in 2010 and 2011 we’ll end 2011 at 2,140 clinics.

On the other hand, to reach 6,000 clinics by the end of 2011, as forecasted by the California Healthcare Foundation and the Rand Corporation, we would need to net an additional 134 clinics per month consistently through 2009, 2010 and 2011.

That kind of growth would have to come from three primary sources:  the major retail pharmacies, hospital systems and privately backed ventures.  We can rule out privately backed ventures based on the much longer runway to breakeven these clinics are seeing.  Private investors have already shown they don’t have that kind of patience, since virtually all of the more than 140 clinics that have closed in the last 24 months were privately backed.

When we talk about retail pharmacies, we’re really talking about CVS and Walgreens.  CVS/MinuteClinic is now adding about 10 clinics per month during the busy season.  We expect after March that will slow to a handful each month.  Furthermore, CVS has not shown much interest in metropolitan statistical areas outside of the top 50 markets.  If that approach remains in place, we may be reaching the end of CVS/MinuteClinic growth.

Walgreens/Take Care is adding 20-30 clinics per month during the busy season.  We expect that to slow to around 10 per month in the off season. 

The remaining growth will come from hospital systems.  Could we really see upwards of 100 new clinics per month from this group of operators?  There are already 32 hospital system operators, many of them entering the market this year.  They’re getting into the market for a number of reasons:

• Neutralize the competitive threat from players like MinuteClinic or Take Care.

• Achieve greater market share by creating a new and more convenient gateway for patients to enter their system.

• Boost visibility of their system brand in the community by having prominent access points in high-traffic retail stores.

• Support their physician practices in achieving higher disease management pay-for-performance percentiles by taking care of non-complicated, low-level services.

• Drive health care services to the most efficient point of delivery, with high acuity services going to high-cost points of care and low-acuity services going to low-cost points of care.

• Boost the system’s occupational and onsite employer clinic business by integrating both businesses into one employer offering, as illustrated by the Walgreens strategy with Take Care.

• Attempt to reach positive cash-flow within two to three years and achieve moderate profit contribution beyond that time frame.

There is no question that hospital systems will be entering the market.  And much of that will come through partnerships with local grocery chains and Walmart.  In fact, it would appear that the initiative with hospital systems that Walmart announced last February is just beginning to bear fruit.  But will these initiatives be enough to produce 100+ new clinics per month?  The current trend lines would point to an average of 10-15 new clinics per month.

So if you add up where all the clinics are will come from, we estimate ending 2011 at between 2,000 and 3000 retail clinics.  Further, we estimate the market will top out at around 4,000 clinics by the end of 2015. 

And the trends behind these estimates were in place prior to the downturn in the economy this fall.  So history may show even these estimates to be significantly high.

Many Not Entering the Market
But forecasting the number of retail clinics goes beyond just looking at trend lines.  There is another factor that is influencing the slower than anticipated growth:  retail clinics are not for everybody.  For every advantage to operating a retail clinic, there is at least one disadvantage, such as lower fee schedules with insurance payers, legal complexities, physician resistance, practitioner scarcity, technology incompatibilities, capital shortages, and the burden of large system allocations on a retail clinic P&L.

There is also much more experience and history to draw from in making decisions around whether or not to enter the market.  Consequently there is less emotion and frenzy as compared to a couple of years ago.  And there is also the complication of clinic saturation.  Take Atlanta, for example, where there are no hospital system operators of retail clinics.  For a hospital system to enter that market, they would be entering a space where MinuteClinic, TakeCare, The Little Clinic, and RediClinic already combine for a total of 62 clinics.  A similar situation exists in Phoenix, Dallas, Houston, much of Florida and several other markets. 

Alternatives to Retail Clinics
So it is no surprise that many hospital systems and physician groups are looking at alternative ways to improve convenience and access without the up-front capital and ongoing operating headaches of a new retail clinic venture.  And this has led to something many operators of retail clinics didn’t expect: counter competition.

The techniques leverage the fact that many, if not most, patients would prefer to go to their own doctor or clinic.  After all, health care is personal, so familiar surroundings are important.  Traditional physician offices and urgent care centers have figured out that if they can accommodate urgent situations without significant wait times, they can compete with retail clinics. 

And one of the best places to look for these techniques is Minneapolis/St. Paul, where there are 58 retail clinics under four operators.  For pediatric or family practices, and even multispecialty clinics, there is big competition for simple illness visits.

Park Nicollet, one of the largest health systems in the metro area, owns one hospital and a large multispecialty clinic operation with 26 offices throughout the Minneapolis/St. Paul metro.   Among those offices are six conveniently located urgent care centers that compete directly with retail clinics in the area.   Park Nicollet knows busy people have one question when considering a visit to urgent care:  How long is the wait?  The answer can be found on the home page of their web site in what is called the Urgent Care Quick Check.  Next to each urgent care location is a color-coded light  showing the wait time in minutes.  Green means 0-60; yellow means 60-90; red means 90-120.

For patients who prefer an urgent care center, this helps a lot in deciding where to go for care.  But Park Nicollet has also worked hard at making it easier to access their PCPs with same-day notice.  Large multispecialty clinics are one thing.  But smaller pediatric practices are an entirely different story. 

Pediatric practices are probably the most impacted by retail clinics.  Some of these practices in Minneapolis/St. Paul have gone out of business or been forced to consolidate.  But others have adapted.  Central Pediatrics, which opened for business in 1936 and today has two Minneapolis/St. Paul locations, is one such practice.  Both locations are open from 7:45 a.m. to 5 p.m. Monday through Friday.  You can make an appointment or just walk in.  But Central Pediatrics didn’t stop with implementing a walk-in policy.  They went quite a bit further with a solution that is part branding and part revenue enhancement.  It’s called Priority Pediatrics.  When Central Pediatrics closes its doors at 5 p.m., Priority Pediatrics opens its doors until 10 p.m.  Weekend hours are from 9 a.m. to 5 p.m. on Saturday and noon to 8 p.m. on Sunday. 

The twist is that Priority Pediatrics operates out of the same facilities as Central Pediatrics, but each has a different entrance.  Why?  First, a different brand calls attention to parents who would prefer that their sick kids be seen by a pediatrician.  Second,  with a separate entrance and a different tax ID, there is a different (and more favorable) urgent care fee schedule with insurance.

These approaches probably explain why Minneapolis/St. Paul leveled off this year at 58 clinics.  The more a market adapts, the more competitive it becomes, slowing the growth of new entrants.  Given its maturity in this industry and the fact that it has probably seen its peak of retail clinics, Minneapolis/St. Paul  is also a good guide for a population-to-clinic saturation ratio.  The metro population is 3 million, putting the saturation ratio at about one clinic per 52,000 people.

So if that is what a mature market looks like, let’s go to the other end of the spectrum where no retail clinics have opened.  In an outer-ring suburb of Baton Rouge, LA, called St. Francisville, the Daniel clinic is a small family practice with three MDs and three FNPs.

About three years ago, Chaillie Daniel, MD, experienced patient loads that were more than he could handle himself.  So he began expanding with additional practi-tioners.  The problem was that patients, as mentioned before, are creatures of habit and comfort when it comes to healthcare.  They all wanted to see Dr. Daniel.  But Dr. Daniel realized that some patients presented with relatively simple illnesses that could be dealt with quickly.  So he came up with a convenient option.

“The front desk would give the patient a choice,” says Dr. Daniel.  “You can see the first available provider, which will be 15 minutes, or you can wait to see Dr. Daniel, which could be more than an hour.”

Since then, the practice has grown and the original concept has turned into a more formal fast track policy.
Says Dr. Daniel, “When the patient checks in or phones in, we register the chief complaint.  If it’s a simple or self-limited upper respiratory condition, a female UTI or simple dermatological symptom, we consider them a fast-track patient.   They get a green chart and the next available provider.”

In other words, these simple illnesses get moved ahead in queue and as soon as one of the MDs or NPs frees up, they go directly to the green chart. 

But the Daniel Clinic has taken their fast track a step further.  The clinic is now open from 7 a.m. to 7 p.m. Monday through Friday.  Patients can call for an appointment or walk in.  In essence, the added access costs nothing.  Each of the six providers rotates on taking a late shift.  On that day, the late-shift provider comes in at 10 a.m. and closes up at 7 p.m.

“By rotating one of us to the late shift, we’re really not adding any headcount,” says Dr. Daniel.  “But we’ve calculated that we’re averaging another 5-10 patients per day.  That adds up to six figures of additional revenue each year at the same time that we’re providing a great service to the community.”

Dr. Daniel says his biggest limiting factor right now is space.  “We have an overflow room so that even if we’ve filled all of our exam rooms and someone comes in as a fast track, we move them to an overflow room where we can do a quick strep test or other things while they are sitting .”

In markets where retail clinics have yet to emerge, this kind of early adaptation will make it more difficult for retail clinic operators to take market share away from traditional clinics.  That will make them think twice before coming to town and will no doubt have an impact on retail clinic growth over the long term.

In case you missed it, in the last two years the start of the flu shot season has moved up considerably. And the implications for retail clinics are mostly positive. In fact, this could be the best news retail clinics have seen in a long time.

We are all familiar with the predictions of a booming retail clinic industry. But if you think those predictions have ceased, think again.  Merchant Medicine estimates 2,050 retail clinics by the end of 2014.

Of any company we have followed in the retail healthcare space, Solantic seems to hit all the strategic buttons:  stand-alone urgent care centers in high-traffic shopping centers, clinics in Wal-Mart, joint ventures with area health systems, a clinic in the Orlando airport, franchises for physicians, outstanding consumer marketing and a relentless pursuit of customer satisfaction.

Over the long term, it could be that seasonality is the least of a retail clinic operator’s worries. As we noted last month in an article about the long road to breakeven for retail clinic operators, traditional medical practices are taking a page out of the retail clinic playbook and focusing more than ever on patient convenience and consumer marketing. The result is a trend that we call “ConvUrgentCare™,” the merging of convenient care, urgent care and any type of walk-in medicine that involves non-emergent acute medical care.  Today you can see retail clinic techniques crossing over not only to urgent care and emergency care, but also pediatrics, family medicine and work-site clinics.   And these techniques appear to be working to change the game in walk-in medicine.

He has lived in the world of corporate travel management and now the world of healthcare.  Oddly enough, the corporate travel world seems to know a lot more about Hal Rosenbluth than the healthcare world.  But that may be about to change.