By Tom Charland and Bernie Kuhn
Every year after our annual on-demand strategy symposium, we reflect on what transpired in the previous year and what appear to be the dominant trends in the year to come. This year’s 11th Annual Strategy Symposium was perhaps the most compelling evidence that we are entering some dynamic, if not transformative times in the on-demand world of healthcare.
Speakers from Walmart, Anthem, Zoom+Care, Microsoft, Advocate, Houlihan Lokey, and many other leading organizations brought new thinking on what is on the near-term horizon. Thank you again to our attendees, speakers, and sponsors for what was our best meeting yet.
2018 in Review
We start by looking at data from 2018. Urgent care growth during the year continued at a strong pace. Growth by private urgent care operators with six or more clinics averaged 26 percent, while growth by hospital urgent care operators with six or more clinics averaged 19 percent. Among those who grew the most were CareNow/HCA on the hospital operator side with 113 percent growth; GoHealth on the private/hospital JV operator side with 128 percent growth; and FastPace on the pure-play private operator side with 113 percent growth. MedExpress, the largest pure-play private operator added 16 clinics in 2018, while American Family Care, the second largest with both a corporate-owned and franchise model, added 13 new centers.
The retail clinic industry had a repeat of the last several years, with little to no growth. MinuteClinic, which received a great deal of attention during the CVS Health acquisition of Aetna (more on that below), actually had a net decline of 12 clinics in 2018. Walgreens continued to move from a self-operating retail clinic model to a leased model, moving from 271 to 184 clinics under self-operation. There was no change in the number of clinics open in their stores; they have merely transitioned roughly 87 of those to local health system branding and operation. As a result, the number of health systems getting involved in retail clinics is on the increase, albeit as a new “primary care lite” approach. Through that process of Walgreens turning clinics over to new operators, The Little Clinic has now taken over as the second-largest retail clinic operator in terms of clinics under self-operation. Walgreens moves to third place.
Merchant Medicine's complete urgent care and retail clinic rankings at year-end 2018 are now available in the UCA 2019 Benchmark Report. We'll be providing updates through our blog during the course of 2019. We encourage each of our subscribers to take a look at this year's UCA Benchmark study, as it includes a significantly expanded number of health-system affiliated urgent care centers included in the research. To order a copy, go to https://www.ucaoa.org/Resources/Industry-Reports/Benchmarking. Operators who contributed to the research get a copy of the report at no charge.
Optum and CVS Health
Beyond the clinic growth numbers, we believe there were two significant developments in the on-demand sector during 2018 that are worth covering. In December 2017 CVS Health announced that it was acquiring Aetna, an acquisition that became reality on November 28, 2018. This put in motion CVS Health’s plans to convert a significant portion of its retail store footprint to healthcare services. The first evidence of those plans became realty as pilots by CVS Health in Houston earlier this year. The pilot stores, called HealthHubs, included expanded MinuteClinic services, something that had been speculated on for months. The pilot stores also have space for counselling services around chronic conditions such as diabetes, hypertension and asthma, as well as weight loss.
In addition, we continued to see UnitedHealth Group’s Optum division build out its ambulatory care service platform, which includes several on-demand elements. What is most interesting about this isn’t the fact that UHG, traditionally thought of as one of the largest payers in the United States, is rapidly becoming one of the largest brick-and-mortar healthcare services providers in the country. It is that the largest of their medical group acquisitions come from California, where capitated healthcare delivery and actuarial expertise is deeply rooted. If you want some hints of what payer models will look like down the road, pay attention to these. And given that Optum has been acquiring medical groups around the country and has a national urgent care footprint in the form of MedExpress, we believe we eventually will see something similar to Zoom+Care coming out of the OptumCare organization.
On the surface, it might seem like there are few strategic similarities between CVS Health and Optum. CVS Health has one of the largest retail footprints in the United States, putting healthcare services in highly visible and highly convenient retail locations. But Optum’s lack of a retail footprint is probably the only real difference.
Like Optum, CVS Health now is linked to one of the largest health insurance companies in the country, and has license to drive the sickest of those members to CVS drug stores for ongoing care, all based on increasingly sophisticated population health expertise and technology. CVS Health also is parent to the largest pharmacy benefit management (PBM) company in the U.S.
It should be no surprise that in parallel with getting the Justice Department to approve its acquisition of Aetna during 2018, CVS Health also rolled out a national telemedicine service called MinuteClinic Video Visits, an impressive network based on Teladoc’s platform that is now running in most states.
Optum acquired MedExpress in April 2015, and put that business unit right in the middle of its rapidly growing, full-service ambulatory care platform. That platform also has robust telemedicine capabilities, something Optum has been testing and improving for nearly a decade. Optum also has a large PBM business. And some would argue that Optum has more expertise and technology in support of population health than CVS Health, but we would put both at the same level in terms of readiness for the next generation of healthcare delivery.
In terms of on-demand assets, Optum has MedExpress and CVS Health has MinuteClinic. It seems that the future of MinuteClinic in the new CVS Health is clear: a widening scope of service and a critical role in population health. What is less clear about Optum is what their plans are for MedExpress. Optum is a high-performing, highly sophisticated group of companies with a great deal of tech savvy. The company has high expectations from its senior leaders. MedExpress is one of the original multi-site, multi-state urgent care operators. In many ways it is old-school urgent care. And in all likelihood there are some culture clashes with their new parent company. But in the end, we believe MedExpress, like MinuteClinic, will become involved in an expanded scope of services that invades the primary care domain.
As we said at the outset, we see the overall on-demand healthcare sector entering some exiting times. Whether you are reflecting on the most recent past or are projecting out several months, one word captures what’s happening: convergence.
It comes up over and over, but there is no denying that we are seeing more and more intersections that connect multiple healthcare services, all with on-demand characteristics. Between what we heard from our speakers and participants at the symposium in January, and some of the events that unfolded in 2018, here are a few takeaways. We’ll explore several of these in more detail in upcoming posts on the Merchant Medicine Blog.
First, we believe the large, multistate operators will move into primary care and population health just like Optum and CVS Health. Demographic trends point to this; weak primary care delivery models point to this; technology points to this; and operating economics point to this.
One of our keynote speakers was David Sanders, M.D., founder and former CEO of Zoom+Care. Zoom was launched as an urgent care chain that incorporated retail characteristics to a degree not seen before. It then added primary care services and then some specialty care, all still within the on-demand model. Zoom eventually became the basis of Aetna’s ACO in the Pacific Northwest. And most recently Peace Health, a large local health system, acquired it. It is the perfect case study through which we can see the future of on-demand medicine and a great example of convergence between urgent care, primary care, specialty care and value-based care. Or said another way, it is the on-demand model moving horizontally into other specialties.
Second, reimbursement is changing; value-based care is becoming reality. That point was driven home at the symposium by Mai Pham, M.D., Anthem’s vice president of provider innovation. The implication for traditional urgent care, according to Tammy Mallow, another of our speakers, is that fee-for-service reimbursement has flattened out; in some markets it is in decline. Yet with labor costs continuing to escalate along with the complexity of recruiting and retaining staff, something has to change.
Third, employers are looking for solutions directly from provider organizations, i.e. direct-bill arrangements for healthcare services. Adam Stavisky from Walmart outlined how that company’s efforts in this area have accelerated, predicting the trend will continue to grow. The implications go far beyond large national providers such as Cleveland Clinic, Geisinger, Mayo or Johns Hopkins. This trend will start to show up locally with direct primary care arrangements.
Fourth, telemedicine is here to stay. Though patient volumes in the acute episodic space still disappoint, reimbursement has risen and the financial and operational incentives are too hard to ignore. Participants in our telemedicine workshop agreed that the time is now to build a lasting telemedicine infrastructure.
And finally, organizational development, team development and leadership development are going to be critical as this market becomes more competitive, with larger, more sophisticated companies like Optum and CVS Health entering the market. This is a purposeful act, as Dr. Charlie Ireland and Dr. Dave Sanders demonstrated in their keynote presentations, and was reinforced by participants in our organizational development workshop.
Implications for Urgent Care
The economy is good for now and a lot of operators are getting by with average performance. We believe many, both private and hospital-owned operators, are in denial about their operating weaknesses. On-demand operators will have to ask continually, “What does "great" look like?” And it begins with an honest diagnostic, comparing current financial and operational performance with industry benchmarks. Our clients are often shocked at what they are leaving on the table.
Despite a strong economy, the urgent care industry is at a crossroads. We are entering an intensely competitive market and 2019 will represent the year we begin to see a natural fallout from unsophisticated urgent care operators. These changes will look a lot like what the hospitality industry went through in the 1970s and 1980s.
The survivors in the hospitality industry were those who identified trends before their competitors. They developed strong leaders and built a strong culture. They aggressively employed technology. And they came up with new approaches in their real estate development that preserved capital and shortened the doors-open cycle. We believe the survivors in the urgent care industry will employ similar techniques.
More specifically, those who move up the food chain by engaging with employers and expanding their scope of services to include primary care will protect their value. They will have plowed new ground, erected barriers to entry and protected their market share. Primary care is not easy, but many urgent care operators already employ board certified family practice providers. Some of these operators are already engaging with self-insured employers by offering primary care services on a direct contracting basis. They are employing telehealth, workflow and queue management algorithms, and customer relationship management (CRM) tools. Going forward, not only will these moves protect urgent care operators from the whims of payers, but will distinguish them with payers in the face of primary care shortages.
The start of a new decade is a few months away. Could this be the start of the new generation of urgent care medicine?