Either the retail clinic industry has hit a bump in the road or it has gone into a ditch from which nobody knows how it will emerge.  Seldom do you find a business that is talked about in such divergent terms.  Articles continue to roll out about how patients love it for the convenience and cost.  Policy leaders look at the macroeconomics of healthcare (high-deductible health plans, fewer physicians, lack of access, increasing costs, out-of-control chronic illness) and say how could retail clinics not succeed.

But it’s not hard to find current or former retail clinic management who see it as a bust.  These are people who either have already experienced significant losses or who have tried everything to fix some of the underlying structural problems.  And as the major retail clinic conference last month got under way, underwritten by World Research Group and the Convenient Care Association, only 40 people were in the audience, most of whom were vendors seeking to sell into the channel.  Could this industry be on the verge of collapse?  Or is it here to stay and prosper?

To help structure the answer, we turn to a relatively new book by Clayton Christiansen, called The Innovator’s Prescription.  The book, co-authored by the late Jerome Grossman, MD, and Jason Hwang, MD, provides not only a framework with which to look at healthcare in its current state, but offers a path out of the unhealthy situation in which we find ourselves.  Christiansen is clearly on the side of those who see retail clinics as thriving, the very kind of disruptive innovation that’s going to save healthcare.  But he is not naïve to the fact that retail healthcare is dependent upon some of the very things that are taking our healthcare system down.  We’ll summarize some of the points of the book that seem relevant to retail healthcare, and then provide some potential paths forward.

A Quick Summary of The Book
Much of what makes Clayton Christiansen known throughout the business world is his work on disruptive innovation and disruptive business models.  Anyone who is involved or interested in retail clinics should read this book with notepad in hand.  But for the purposes of this article, we’ll highlight six major points of the book.

Point 1 – Disruptive Innovation
Disruptive innovation is what makes a product or service simpler and more affordable, and these simpler, more affordable offerings typically attract new types of customers because they start out at the low end.

In health care the technologies that enable precise diagnosis and predictably effective therapies are those with the most disruptive potential.  Christiansen terms this area of healthcare “precision medicine,” defined as the provision of care for diseases that can be precisely diagnosed, whose causes are understood and can be treated with rules-based therapies that are predictably effective.  He contrasts this with the trial and error guesswork that pervades clinical decision making today because, he says, physicians prefer to practice “intuitive medicine,” which he defines as care for conditions that can be diagnosed only by their symptoms and only treated with therapies whose efficacy is uncertain.

Point 2 Business Models
Christiansen outlines three primary types of businesses that apply to just about any industry:  solution shops, value-added processes and facilitated networks.  Each of these focuses on doing “jobs” that customers need done.

Solution shops sell the required customized expertise to solve unique problems, with compensation not based on any particular outcome but on the time it takes to solve the problem.  Management consulting firms epitomize the solution shop business. 

With technology and innovation, most of these customized problem solving jobs evolve into more rapid, predictable and repeatable approaches, which leads to the next business model:  value-added processes.  These types of companies pull together everything a customer needs to get the job done in one stop.  This could be anything from a milkshake to an automobile, and is characterized by a predictable and guaranteed outcome. 

In many cases, the customers who need jobs done benefit when they can interact or combine resources with other customers who look to do the same job, which is where the facilitated network businesses come into play.  Examples of facilitated network businesses are insurance and banking, as well as clubs and cooperatives.

Point 3 Business Models in Healthcare
Christiansen says that healthcare is dominated by general hospitals and physician practices, both of which cling to the solution shop model of intuitive medicine even when many services should have moved to value-added processes around precision medicine.  He points to retail clinics as an example of disruption of the physician dominated solution shop for illnesses that already have predictable and repeatable solutions.  Retail clinics treat strep throat using a value-added process model because the technology and knowledge to identify strep vs. a common virus has evolved into the realm of precision medicine.  This, he says, is disrupting physician practices who respond by using their clout to protect their intuitive approach to solving that “job” for customers.

But there are other examples in healthcare, where services have moved to value-added processes.  Christiansen often points to National Jewish Medical and Research Center in Denver as an example of a hospital that has moved to a value-added process approach around pulmonary disease.  Other value-added process examples he cites include the Texas Heart Institute for cardiovascular disease, Shouldice Hospital in Toronto for external abdominal wall hernias and the Coxa Hospital in Finland for hip and knee replacement.  Furthermore, there are a growing number of examples of facilitated networks in healthcare, including WebMD and the many recent patient portals around specific diseases.

Point 4 Disruption Hindered by Legacy Business Models
When disruption takes place in a particular industry, the underlying business model must also be disrupted.  He says that if established companies attempt disruption, innovation will be hindered and eventually killed by the underlying infrastructure of that market.  Christiansen argues that such companies must spin off that innovation into a separate business unit with its own sales force, manufacturing and administration.  He cites companies in the mainframe and minicomputer businesses who tried to introduce personal computing devices but failed because they tried to use their existing infrastructure.  IBM, he says, was the only one to succeed because they spun off their personal computer business into an autonomous business unit.

General hospitals, he says, started out as solution shops but have moved into a quagmire of mixed business models, none of which are done well.  It is only when hospitals break themselves into autonomous business units that they begin to operate efficiently.  He cites the Cleveland Clinic and Mayo Clinic as examples.

Although not aimed at retail clinics directly, Christiansen sums up what many retail clinic operators have found:  “Many disruptive technological enablers are emerging every year . . . and disruptive business models are emerging too . . But our sense is that the entrepreneurs behind these innovative business models typically have tried to plug them into the existing value network – and as a result their disruptive potential has largely been co-opted by the current system.”

Point 5  A Broken Payment System
The U.S. reimbursement system has caused a near freeze on disruptive innovation in healthcare.  This is because instead of true insurance (which should provide a hedge against catastrophic illness or injury and the associated costs), our reimbursement system is dominated by what he calls “health assistance” companies who reimburse for everything from a minor illness to a major hospitalization. And by fixing prices based on an artificial (and often arbitrary) system of relative value units (RVUs), we take away any incentive for the kind of innovation and disruption that takes place in most  industries.

Point 6 – The Way Forward
The paths out of this mess are limited, but Christiansen proposes that only two types of “orchestrators” have the scale and power to vertically integrate in order to create a new value network: employers and “integrated fixed-fee providers.”  He cites Quad Graphics in Milwaukee as the kind of employer that has taken control of employee (plus dependents and retirees) health by creating its own clinic system of family practitioners and specialists.  And he sites Kaiser Permanente and the U.S. Veterans Administration as the kind of health systems that have their own insurance and payment system as well as their own medical staff.

He says we will also see a return to true health insurance through high-deductible health plans, which will eventually introduce the market forces necessary for innovation and disruption. 

Likely Directions for Retail Healthcare
Between the observations of leaders in the retail clinic industry and the models put forth by Christiansen’s book, we present some “what ifs” for our readers to ponder, along with the primary barriers that could come down for retail healthcare.

The Evolution of Primary Care -- Christiansen predicts that primary care physicians will be forced by outcome management, regulations and employer influence to let go of intuitive medicine in areas where precision medicine and value-added processes can be applied.  Instead, primary care physicians will focus on chronic disease, and certain technologies will enable them to move up the food chain to compete with some specialists.  If this happens, retail clinics no longer will be a threat.  Not only will this reduce legislative initiatives to limit retail clinics but may also create more cooperation between retail clinics and physician groups.

One way that retail clinics have “plugged into the existing value network” and lost their disruptive potential is by agreeing to limit the scope of practice predominantly around upper respiratory conditions.  This has created a huge offseason problem from April through September.  But if cooperation begins to emerge between primary care physicians and retail clinics, we could begin to see more low-level chronic disease management tasks move to retail clinics in the areas of diabetes, hypertension, asthma and many others.  These would be done as value-added processes at very reasonable costs with far greater convenience and access for patients.  And many of these “jobs” could be scheduled during the offseason.

Insurance Reimbursement -- Until now, retail clinics have had no choice but to contract with big insurance companies.  Without insurance participation the industry likely would not have survived to this point.   But as Christiansen points out, disruptive innovation that is built upon existing business models almost always fail.  And virtually every retail clinic operator will tell you that insurance participation feels like an anchor around their necks.

Enter the new administration’s promise of universal coverage.  As Christiansen points out, the only affordable universal option will be high-deductible coverage.  If this happens, we predict that those medical providers who specialize in lower-priced tasks, including urgent care centers and retail clinics, will begin to notice that more and more of their patients are paying for services out of pocket.  When that percentage of patients reaches 70 to 80 percent, it will no longer make sense for those providers to contract with insurance.  At that point (and only as a convenience for their patients to get credit against their deductibles) retail clinics and urgent care centers should submit claims as non-network providers and collect cash at the time of service.  Even under high-deductible HSAs, if urgent care centers and retail clinics continue to participate with insurance, they will be subject to the negotiated fee schedules that are at the root of our problem today.

By moving away from insurance, retail clinics will be free of the traditional insurance reimbursement administrative costs, price inflexibility, and restrictions around scope of practice.  This will most assuredly generate new growth and innovation, and retail clinics will show up in cities and towns everywhere.

Direct Contracts with Employers — Christiansen predicts that the unusual case of Quad Graphics setting up a large multi-specialty clinic for employees will become more typical.  And he predicts that employers will hire healthcare companies directly to take care of their employees.  Although the book likely went to press before Walgreens/Take Care announced its acquisition of CHD Meridian and Whole Health, Chapter 6 is a major (albeit indirect) endorsement of the approach.

If this trend develops the way Christiansen predicts, it will not only burst the bubble of traditional health insurance’s noose around healthcare, but it will significantly reduce the ability of traditional medicine to lobby state legislatures for turf protection.  Typically, employers have more clout than doctors, especially in a down economy.  And if employers are seeing progress in cutting healthcare costs by contracting directly with providers, we will begin to see a more market-based regulatory environment in healthcare, which will be great for retail clinics.

NP/PA Availability -- It is ironic that the very core of the service delivery, nurse practitioners and physician assistants, may represent the biggest threat to the retail clinic model.  Mid-level practitioners are now expensive, with salaries and benefits adding up to $100,000 or more.  Most operators require their practitioners to work alone, with help coming only when they reach an average of three patients an hour (33-36 per day).  They are required to enter demographics, take vitals, register chief complaints, conduct exams, provide patient education, collect money, maintain inventory, and be their own on-site IT support.  And if they get sick, there is immense pressure to show up for work because without them the doors remain closed.  This is a high-pressure job that requires delivering compassionate care without the social support of coworkers.  It’s no wonder that turnover is high.

Certainly if the “integrated fixed-fee providers” that Christiansen talks about create retail healthcare divisions, there may be ways for these practitioners to rotate between jobs.  And if the scope of practice begins to broaden and volume grows beyond three patients per hour consistently, retail clinics could have two or three providers on staff covering a broad range of healthcare.

But more likely will be the emergence of telemedicine solutions to this problem.  In fact, it has already begun.   Walmart recently attempted telemedicine retail clinics in some Houston stores.  United Healthcare’s Ingenix group is rumored to be test marketing a telemedicine clinic in partnership with Cisco.  And Mayo Clinic is rumored to be testing the waters with a telemedicine clinic as well.   Market acceptance of these approaches will likely be slow, just as market acceptance of getting healthcare in a retail store has taken some time.  But telemedicine certainly fits the pattern of disruptive technology applied to precision medicine using a value-added process approach.

Is There Enough Time?
Granted, the above scenarios are very optimistic.  The forces working against retail clinics are large and complex, which means they won’t go away quickly.  Perhaps the biggest barrier to retail clinic success is time.  Christiansen predicts that HSAs and similar high-deductible products will hit 50% penetration by 2013 and 90% penetration by 2016.  He also says the movement to more employer and integrated health network dominance will happen slowly on a region by region basis.  Four or five more years of cash burn is a long time.

The two biggest players, CVS/Caremark and Walgreens, are sophisticated retailers where floor/shelf space is measured by the operating profit they generate.  These two players are also public companies who measure return on invested capital very carefully.  In both cases, it is only a matter of time before the retail clinic initiative is viewed as a well-intentioned error in strategic judgment vs. a forward looking initiative.  

Adding to the uneasy feelings is the fact that these two companies, who have driven the bulk of retail clinic growth over the past five years, have slowed or stopped opening new clinics.  Since January 1, 2009, CVS/Caremark has decreased the number of MinuteClinics in its stores by 89; Take Care has opened 24 new clinics (compared to 40 in the same period last year) and will likely fall significantly short of its goal of 400 Take Care retail clinics by the end of its fiscal year.

MinuteClinic did initiate a partnership with the Cleveland Clinic recently.  Could this be the beginning of more cooperation between retail clinics and more traditional healthcare institutions?  The greatest measure of success for that partnership would be smoothed out seasonality if chronic disease management tasks were to be referred into MinuteClinic’s Cleveland-area locations.

Christiansen mentions the Department of Veterans Affairs as one potential “orchestrator” of change.  We spoke with Steven Gentling, former director of the VA Medical Center in Oklahoma City about primary care directions at the VA.

“One of the major initiatives at the VA is increased access for primary care,” he said.  “And there bas been funding to establish more clinics/access points of care to achieve that goal, although mostly aimed at rural areas.  Theoretically, working with retail clinics could improve that access for veterans.”  However, he went on to say, “But I know of no discussions with retail clinic operators, nor have I heard anyone talk about the prospect of the VA using retail clinics for some of its tasks.  For that partnering to work, the retail clinics would have to use the VA’s electronic medical record system, and that presents another challenge.”

Along those lines, another short-term fix for the industry would be if at the Federal policy level we were to see a major groundswell of support for retail clinics being used to improve quality and reduce cost.  Susan Foote is a Professor of Health Policy and Management at the University of Minnesota, and is considered well-versed in policy directions within the Obama administration. 

“I have not found any discussion of retail clinics in any of the health reform proposals or discussions I have been privy to,” she said.  “There is a fair amount of discussion on the issues of prevention and chronic disease management, but nothing I’ve heard ties it to retail clinics as solutions.”

We also asked Dick Cauchi, Health Program Director at the National Conference of State Legislatures, if he’s seen any policy activity to promote retail clinics as solutions to chronic disease management, cost reduction or quality improvement.  He too said he has not seen anything. 

So at least for the time being, the more likely near-term scenario is that we’ll see this holding pattern in retail clinic growth for a couple of years as operators find ways to incrementally offset seasonality and do their best to manage through their relationships with health insurance and traditional medicine.  But we don’t see this lasting long.  If after two or three years there isn’t blue sky on the horizon, this industry will likely shrink and fizzle.

Additional Information: (click on each to go to the on-line resource)
Part I—The Innovator’s Prescription by Clayton Christiansen
Web site dedicated to the book
Clayton Christiansen’s web site

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.