C A L I FOR N I A H EALTH C ARE F OU NDATION Health Care in the Express Lane: Retail Clinics Go Mainstream September 2007 Health Care in the Express Lane: Retail Clinics Go Mainstream Prepared for: California HealthCare Foundation Prepared by: Mary Kate Scott, Scott & Company September 2007 About the Author Mary Kate Scott is the principal of Scott & Company, a strategy consulting firm providing services to health care providers, payers, technology firms, and their investors. Ms. Scott is also an adjunct professor at the University of Southern California’s Marshall School of Business, where she lectures on entrepreneurship in life sciences. She can be reached at mks@marykatescott.com. About the Foundation The California HealthCare Foundation, based in Oakland, is an independent philanthropy committed to improving California’s health care delivery and financing systems. Formed in 1996, our goal is to ensure that all Californians have access to affordable, quality health care. For more information about CHCF, visit us online at www.chcf.org. ISBN: 1-933795-38-7 ©2007 California HealthCare Foundation Contents 2 I. Executive Summary 4 II. Overview 6 III. The Clinic Operators: Consolidation, Expansion, and Attrition 1 4 IV. The Retailers: Still in the Testing Phase Retailers’ Strategies for Clinic Operation 1 7 V. The Payers: Moving Towards Coverage Insurance Carriers Large Employers 1 9 VI. The Consumer: Attitudes and Adoption 21 VII. The Health Care System: Concerns, Regulatory Factors, and Integration Quality of Care Regulatory Forces and Changes Clinic Integration into the Wider Health Care System 2 5 VIII. California Update 2 7 IX. Areas and Issues to Watch 31 X. Conclusion 3 2 Endnotes I. Executive Summary Retail clinics—still a small player in the health care industry—are stimulating a debate about the best way to meet consumer demand for convenient, timely, and affordable medical services. This report updates the findings of Health Care in the Express Lane: The Emergence of Retail Clinics: It explores the evolving retail clinic environment and describes the current status of clinic operators, retailer perspectives, emerging business models, consumer reactions, physician responses, and payer relationships. It also probes the legislative forces that are shaping the national supply of clinics, paying special attention to the opportunities and challenges that will determine California’s ability to host retail clinics. Since they came on the scene a few years ago, retail-based health clinics have attracted a great deal of attention from the media, the public, the medical establishment, and investors. The model is straightforward: retail clinics offer a limited menu of medical services on a walk-in basis. They are typically staffed with nurse practitioners (NPs), who provide diagnoses and prescriptions in about fifteen minutes, and are located inside retail stores, including drug and grocery stores, and mass merchandisers. Retail clinics have proliferated rapidly—from 62 clinics in January, 2006, to more than 500 today. They have also evolved from an interesting experiment to what may become an alternative model for providing routine medical services. Consumers across all socioeconomic groups are increasing their use of clinics and reporting high levels of satisfaction. Retailers are expanding the space allotted to clinics, and insurance carriers are offering co- payments at many clinics. Demand is likely to keep growing as consumers accept the model and payers offer incentives to use clinics as a way to reduce costs. This trend may also be driven by large payers (particularly governments) that are seeking affordable ways to increase access to basic services. Health care providers are taking notice, with some entering the market as clinic operators, a few others providing co-branding for clinic operators, and many watching from the sidelines to learn how they might deliver health care in new and more streamlined ways. Physician response has been mixed; while the American Academy of Family Physicians (AAFP) has created a working   |  C alifornia H ealth C are F oundation partnership with retail clinic operators, other provider groups have voiced concerns about quality and the erosion of the “medical home” model of delivering primary care that emphasizes a stable patient-physician relationship. Clinic services are likely to expand as new medical device technologies enable rapid, accurate, binary diagnoses. Communications technologies may also expand the use of clinics by making consumers’ clinic records available to their physicians, allowing for an extended medical home. While the physician community is probing clinics on quality of care issues, clinic operators are pushing the health care industry on other quality issues, including the adoption of electronic medical records, electronic chart review, and protocols grounded in evidence- based medicine. Regulators will play a significant role in enabling or limiting clinics. Each state has a great deal of latitude in deciding how hospitable to be toward retail health clinics. There is health care legislation currently under debate in several states concerning the scope of practice for nurse practitioners, including potential changes to their prescribing authority and physician oversight requirements. Corporate- practice-of-medicine laws also control who can own and operate medical practices, and interpretations of such statutes can foster or inhibit the expansion of clinics in different states. Health Care in the Express Lane: Retail Clinics Go Mainstream   |  II. Overview In the year since the publication of Health Care in the Express Lane: The Emergence of Retail Clinics,1 retail-based clinics have rapidly proliferated across the United States. In the health care sector, where change tends to be gradual and new ideas can take years to mature, retail clinics have quickly gained widespread acceptance in the marketplace. However, critics remain skeptical of the quality of care provided at retail clinics, and wary of their potential to undermine the primary care relationship between patient and physician. It seems clear that retail clinics could become a disruptive innovation in health care, capable of fundamentally challenging long-established models of care, and changing consumer expectations of the cost, quality, and delivery of care. Retail clinics (sometimes referred to as convenient care clinics) are located within a larger retail operation. They offer basic medical diagnoses and treatments for common ailments (strep throat, urinary tract infections), and basic preventive care (such as flu shots and cholesterol checks) on a continual, year-round bases, rather than as a one-time or seasonal service. These clinics differ from urgent care clinics in several ways: a limited service offering (which increases the speed of care delivery), co-location with a pharmacy (which increases convenience for the consumer), and lower cost structure through the use of nurse practitioners and smaller leased space (which reduces the prices they charge). In-store clinics are typically between 200 and 500 square feet, with a setup consisting of a reception desk and one or two exam rooms. Retailers often place them in a space that is generating less income per square foot than the clinics are anticipated to provide, so some clinics occupy former video game arcades, photo development booths, vending machine areas in grocery stores, or waiting areas near pharmacies. The retailer has a one-time cost of about $20,000–$100,000 to make the space “broom-ready,”2 and the clinic companies typically pay for the physical retrofitting. The cost ranges from $25,000 for a basic clinic with one room to $145,000 for a multi-exam-room clinic offering broader services; the average setup cost is about $50,000. The majority of clinics are staffed with nurse practitioners supervised by an off-site physician who is available by phone for consultation, although some clinics employ on-site full-time physicians.3   |  C alifornia H ealth C are F oundation The clinics use proprietary software systems that they describe as delivering evidence-based treatment guidelines. These systems serve as diagnostic tools as well as a checklists to constrain the types of conditions that can be treated at the clinic. Clinics have referral relationships with local physicians or hospitals for customers with conditions that fall outside of their treatment scope and who need a regular source of care. Clinics are open during extended hours and weekends; most visits take about 15 minutes and don’t require an appointment. Prices are clearly posted and typically range from $40–$70 per service. Some clinics accept insurance, while those that don’t provide the documentation needed for consumers to file for reimbursement on their own. Health Care in the Express Lane: Retail Clinics Go Mainstream   |  III. The Clinic Operators: Consolidation, Expansion, and Attrition There are now about 500 retail clinics located in drug, grocery, and mass merchandise retailers in 36 states. In the first six years of operation approximately 60 retail clinics opened. The phenomenon took off in 2006; 220 new clinics opened that year, and 130 more opened before April 2007. While forecasts vary, there is general agreement that there will be approximately 700 clinics open by the end of 2007 and more than 1,500 by the end of 2008. Longer-range forecasts are more varied, with estimates ranging from 2,500 to 6,000 clinics in operation by the end of 2012. There are two primary models of clinic operators today: independent clinic operators4 (MinuteClinic, Redi-Clinic, Take Care, The Little Clinic, QuickHealth, and others); and clinics that are affiliated with a larger network of conventional health care providers (Aurora, AtlantiCare, Sutter, Geisinger, Memorial South Bend Indiana). The independent operators comprise about 85 percent of the market and the affiliated operators about 15 percent. Clinics affiliated with health care providers have only been in operation for a few years, but have recently grown from 12 clinics one year ago to more than 40 as of June, 2007. The business model for retail clinics remains fundamentally the same: offer a limited set of services; minimize cost of care through lower-cost labor and small spaces; maintain quality with technology, physician oversight, and strict protocols; and encourage consumer use through convenience and low prices. Clinics remain committed to a strategy of offering limited-scope and routine care rather than seeking to expand medical services. Clinics make strategic choices about their scope of service; some clinics provide adjacent services in preventive care and wellness (such as weight loss, screenings, physicals, and vaccinations) and others focus solely on acute episodic care. Whereas MinuteClinic emphasizes acute care and using clinics as a complement to primary care physicians, other operators such as RediClinic emphasize a full suite of acute and preventive care. Some clinic operators can offer a wider range of services because they staff on-site physicians. Two examples are Quick Health and Solantic. Both follow essentially the same business model as more limited-scope retail clinics in that they do not require   |  C alifornia H ealth C are F oundation Table 1. Clinic Operators Clinic Headquarters Locations and Retailers The Consumer Notes Website/URL Operator Expansion Plans Pitch AtlantiCare Egg Harbor 4 in NJ ShopRite “Taking You Opened August atlanticare.org HealthRite Township, Well into the 2006; associated 6 additional NJ Future” with AtlantiCare. locations planned Aurora Milwaukee, 20 QuickCare Aurora “No appoint- The only major aurorahealthcare. QuickCare WI clinics in Aurora Pharmacy, ment. clinic operator with org/services/ Pharmacy Piggly Wiggly, No waiting. a not-for-profit quickcare/index.asp locations Wal-Mart No hassle.” parent company. 2 additional Opened March locations planned 2004. Associated with Aurora Health Care. Bellin WI 3 locations in WI ShopKo “Walk in Opened June 2006. bellinfastcare.com Health Fast without an Associatd with Care appointment. Bellin Healthcare. Get help without a wait.” Corner Care IN, OH 14 locations in IL, Medicine “Convenient, Opened November cornercareclinic.com Clinic IN, OH, NY, PA Shoppe, Compass- 2006. Medicap ionate, 100 additional Pharmacy Cost-Effective” locations planned Stores “Walk right in.” Early Taylor, MI 6 in MI Meijer “Where Early Opened January earlysolutionsclinic. Solutions Treatment and 2006. Working with net Clinic Prevention are National Kidney the Cure” Foundation on early detection of hypertension. Clinics are 1,000 square feet in size. FastER Care Sumpter, SC 5 locations in CA Vallarta “Emergency Opening 2007. fastercaresumter. Care without com the Wait.” Geisinger Danville, PA 2 locations in PA Weis Markets “Healthcare Opened April 2006. careworkshealth. CareWorks for People on com 4 planned Associated with Convenient the Go.” Geisinger Health Healthcare System. Healthy TX, MD 7 locations in TX, Wal-Mart “Your Opened October healthyaccess.net Access MD Health…Your 2006. Clinic…” 12 additional locations planned Lindora Costa Mesa, 1 location in CA Rite Aid “The Most 35 independent lindorahealthclinics. Medical CA Convenient locations for com 2 additional Clinics Way to Look supervised weight locations planned and Feel management only. Better.” Opened October 2006. MedBasics Irving, TX 2 in TX Ball’s Food “Convenient, First in-store clinic med-basics.com Stores: Price Affordable, late summer 2007. 15 additional Chopper and Quality locations planned Hen House Healthcare” in Kansas City, Markets MO Health Care in the Express Lane: Retail Clinics Go Mainstream   |  Table 1. Clinic Operators (Continued) Clinic Headquarters Locations and Retailers The Consumer Notes Website/URL Operator Expansion Plans Pitch MediMin Phoenix, AZ 3 locations in AZ Bashas, Food “Convenient Opened March medimin.net City Medical 2006. 20 additional Care.” locations planned in the next 4 years MedPoint South Bend, 3 locations in IN Wal-Mart “Get Well Affiliate of medpointexpress. Express IN Sooner.” Memorial Health com 2 more Wal-Mart System, Inc. clinics planned MinuteClinic Minneapolis, 168 locations in QPC, CVS, “You’re Sick, Formerly known as minuteclinic.com MN AZ, CT, FL, GA, Cub Foods, We’re Quick!” QuickMedx. The IN, KS, MD, MI, U of MN first mover and MN, MO, NC, Campus, current leader in NJ, NV, NY, OH, Shopping national retail clinic TN, TX, WA Centers/Office market share. Space in MN, 300 additional Backed by Bain Eden Prairie locations planned Capital; CEO Center & Michael Howe is Southdale former CEO of Shopping Arby’s. Center, Target Pronto FL At least 4 were “Check in. Summer 2006 prontoclinic.com Clinics promised in Check up. 2006—one Check out.” each in Tampa, St. Petersburg, Bradenton and Sarasota 8–10 additional locations planned Quick Tampa, FL 23 locations in Wal-Mart “Your health Clinics are set checkupsusa.com Quality Care FL, MS, AL, LA is our up for diagnostic [Now called priority.” imaging (includ- Plans to expand CheckUps] ing x-rays) but not to 28 clinics. “Healthcare yet offering these when you tests. need it.” QuickClinic Akron, OH 6 locations in OH Acme Fresh “On the spot 2005 quickclinic.com Market, relief.” 9 additional Ritzman's locations planned Pharmacy QuickHealth San 8 locations in CA, Wal-Mart, “We make 2004 quickhealth.com Francisco, 1 in Idaho operat- Farmacia quality CA ing under their Remedios, medical care license Longs Drugs affordable and (pending) convenient.” 18 additional locations planned 250 by 2010 RediClinic Houston, TX 46 locations in HEB, Wal- “Get well. Division of Interfit rediclinic.com AR, GA, OK, TX, Mart, Duane Stay well … Health (Revolution VA Reade Fast!” Health Group); General Manager Plans to open Sandra Kinsey was 70 more clinics formerly head of in 2006. The marketing for Wal- majority will be in Mart’s pharmacies. Wal-Mart stores. Partnership with Memorial Hermann.   |  C alifornia H ealth C are F oundation Table 1. Clinic Operators (Continued) Clinic Headquarters Locations and Retailers The Consumer Notes Website/URL Operator Expansion Plans Pitch SmartCare CO 15 locations in Wal-Mart; “Convenient 2004 smartcarecenters. Family CO, 4 in GA, Kerr Drug Healthcare com Centers pending in AZ, pending for Everyday NV, WA, NC, SC Needs.” Solantic Jacksonville, 13 locations in FL Wal-Mart and “Great care. Opened 2002. solantic.com FL free-standing Fast and fair.” Plans to open The only major 500 more clinics. clinic operator that staffs with board- certified physicians in all locations. Sutter Sacramento, 6 in CA Rite Aid The Care You Opened January sutterexpresscare. Express CA Need is Just 2007. com Care Around the Associated with Corner Sutter. Take Care Consho- 50 locations in Walgreens, “Professional Just secured $77 takecarehealth.com Health hocken, PA KS, MO, PA, IL Eckerd Care. Always million in financ- Systems There.” ing (led by Beeken Plans to open Petty). Chairman 200 clinics in “We’re here of the Board Hal next 12 mos., to take care of Rosenbluth was the 1,400 clinics by you.” founder of a large the end of 2008. travel company that Contract in place he sold to American with Brooks Express. Eckerd Pharmacy. Walgreens is planning to open more than 20 this summer, and Osco (Albertson’s Inc.) locations are expected to close and staff to move to the new facilities. The Little Louisville, 24 locations in Publix, “Convenient Opened 2003. thelittleclinic.com Clinic KY SE FL, OH, IN, Krogers neighborhood Formerly known as KY, GA medical care.” Fast Care. Trinity IA 1 location in IA Hy-Vee Opened December trinityqc.com MedXPress 2005. Wellness No longer in operation. All clinics Express closed November 16, 2006. Health Care in the Express Lane: Retail Clinics Go Mainstream   |  appointments, have transparent menu-based pricing, similarly broad clientele, but offer the benefit of a occupy retail spaces, and offer common medical higher frequency of visit rate, averaging 2.2 visits by services, but they offer a wider range of treatments shoppers each week, compared to less than one visit (suturing, mild trauma care) and more advanced per week for mass merchandisers and drug stores. diagnostics (such as pelvic exams with STD Drug stores attract the fewest customers but their screening). consumers are likely the most interested in health services. Thus far, clinic operators rarely choose to compete with one another in the same market, opting instead Clinic operators make strategic choices about to position themselves as the best alternative to geography and concentration to gain customer waiting a few hours in a doctor’s office, urgent care awareness and market share. One strategy is for a clinic, or emergency room. As the market becomes clinic operator to open clusters of between eight more crowded and competition emerges between and twelve clinics in an area in which there are no operators, clinics will likely differentiate themselves rival operators. This density strategy is designed to through the experience provided by the care build customer awareness quickly and allow for cost provider, the level of convenience for consumers, the effective marketing across multiple clinic locations; range of services offered, and the prices they charge. also, if a city can reasonably sustain ten clinics and an operator has seven or more locations, it From a strategic perspective, clinic operators discourages a competitor from entering the market. differentiate themselves through the type of retail Most clinic operators have begun to control a few channel in which they are housed, local geography, regional markets in this manner. For instance, and customer service. Some operators have a single- Take Care now has ten clinics in Kansas City, channel focus, such as Minute Clinic and Take Care, and no significant direct competition from other which are located only in drug stores, or The Little clinic operators. Similarly, Don Parker, president Clinic, which operates only within grocery stores. of AtlantiCare, says, “We were the first to open a Others, including RediClinic and Quick Health, retail clinic in New Jersey. Our intention was to pursue a multi-channel strategy with clinics in drug, get started and to create some barriers to entry [for grocery, and mass-merchandise locations. When competitors].” An alternative geographic strategy selecting locations, there is often a tradeoff among is to enter an established retail clinic market as a foot traffic, consumer interest in health services, second mover, taking advantage of the customer and consumer convenience. Foot traffic—the awareness and education built by the first operator. number of shoppers who physically walk past the clinic each day—is a major determinant of a clinic’s Clinic operators also choose locations based on viability, and mass merchandisers attract a high the attractiveness of the customer base. Wal-Mart volume of shoppers, many of whom visit frequently claims it works with operators to select locations (for instance, Wal-Mart has 75,000 to 100,000 in geographies where they believe there is greatest visitors per week, whereas a busy grocery store has consumer need for access to routine, moderately 25,000–35,000 visitors per week and a typical large priced care by taking into consideration physician drugstore has 8,000–10,000 a week). Superstores shortages and higher uninsured populations. have the highest volume of shoppers, which helps Following this strategy, clinic operators might to generate awareness and usage of clinics, but they place clinics in areas of high demand, including may also have less convenient access with larger, neighborhoods that have younger populations with busier parking lots, and more consumers interested children, a shortage of physicians, higher use of in categories other than health. Grocery stores high-deductible health plans, or higher uninsured generate a medium volume of foot traffic from a populations. One example of an attractive market 10  |  C alifornia H ealth C are F oundation is the fast-growing Tampa/Orlando area of Florida, 18–24 months, though in some cases the process can where there are now several different clinic operators take as little as 12 months or as long as three years.7 operating in all three retail channels vying for Financially, the clinics use a fixed cost model, with business. Demographic strategies allow clinics to over 85 percent of expenses generated by labor, lease customize their services for a particular market and payments, and corporate overhead. Labor rates for customer segment (by say, hiring bilingual staff for a nurse practitioners vary across the country, but the clinic in a predominantly Hispanic neighborhood). majority of clinic operators pay between $65,000 Clinic operators consider customer service a and $80,000, and some offer small bonuses tied to distinctive competitive advantage. Several clinics customer service. The leased spaces for clinics are offer pagers so customers can shop while waiting getting smaller and less expensive. A year ago the to be seen. Other customer service innovations average was 350 to 400 square feet, and now the now being piloted by clinics include online check- average is around 220 square feet. (The notable in, online search for locations with the shortest exceptions are locations within mass merchandisers, wait time, and in-store touch screen kiosks for where clinics still average 450–600 square feet at the registration.5 Several clinics have discussed the front of the store). Most clinics are paying $60–90 potential for a magnetic card system that could per square foot—fair market value—with substantial streamline check-in, access to personal health variation by geography.8 records, and payment. First and foremost, though, Overhead for many of the larger (independent) clinic retail clinics are a “high touch” business—each operators ranges from $2 million–$5 million per customer is seen by a nurse practitioner or physician. year, depending on size and maturity of operation Consumer research indicates consumers judge and the complexity of the consumer offer.9 Costs the quality of the visit by their experience with include infrastructure for medical records systems, the clinician.6 As a consequence, clinic operators technology support for NPs to provide evidence- understand that customer service revolves around the based care, marketing for the brand, and high-caliber clinic staff, particularly nurse practitioners. Stuart talent to manage these fledgling businesses. Many of Lowenthal, founder of The Little Clinic, says, “The the early clinic operators continue to amortize their right NP is critical. She provides the experience for investments in sophisticated IT systems to ensure the consumer and truly differentiates our clinics.” quality care and support decision protocols. Human Retail clinic success will depend on the availability of resources are a major expense; the clinic operators qualified nurse practitioners to staff these operations, require 5–10 people to manage NPs, consumer and their ability to provide a positive and consistent marketing, retail leases, and payer contracts, and all customer experience. employ a Chief Medical Officer who is responsible After a year of trial and error, the fundamental for maintaining protocols and quality of care. While financial assumptions for all clinics remains the individual clinics are beginning to break even at same: a clinic must see 17 to 23 customers per day the store level, the corporate break-even point for to break even (the number varies depending on independent operators is still far away, and hundreds the cost of overhead and average revenue per visit). of clinics may be required to generate a reasonable How long it takes to achieve that depends mainly economic return. “We believe that 400-plus clinics on traffic from stores, so operators at high-traffic will provide the right model for capital efficiency retailers such as Wal-Mart may break even more given the support cost needed,” says Michael Howe, quickly than small pharmacies and other low-traffic CEO of Minute Clinic. stores. Clinic operators confirm that the break-even point (on a clinic basis) is usually reached within Health Care in the Express Lane: Retail Clinics Go Mainstream   |  11 Strategies for Operators Affiliated with physicians. The geographic strategy for affiliated- Conventional Providers and Networks clinic providers is different from that for national Clinic operators that are affiliated with hospitals independent operators. Their expansion plans are or broad health care facilities have service models strictly limited to their existing geographic footprint, similar to those of the independent operators, but and none has announced plans to extend beyond its they are driven by different motives, economics, own marketplace. consumer propositions, and geographic strategies. One unique challenge for affiliated providers has These larger health care operations have revenues of been to secure their own physicians’ support, and $500 million or more, so their primary reason for several operators have acknowledged that their opening an affiliated clinic (which might generate physicians were not in favor of the clinics before they only $700,000–$900,000 in revenues) is not purely opened. Clinic advocates have made two arguments financial. Rather, it is part of a strategy to provide a to physicians: one, if the hospital didn’t offer a complete spectrum of options for delivering care to clinic then a competitor would; and two, clinics are their patients and to retain them in their networks. an opportunity to keep a patient in the hospital’s Clinics raise the visibility of the health care provider’s care network. Several hospital systems discussed brand, since consumers visit retail outlets far more their efforts to inform their physicians, including frequently than hospitals or primary care physicians. their investment to educate them on the model, Integrated health care systems that provide coverage and the rationale for the clinics, only to encounter and care are motivated by cost considerations as strong residual concern. However once the clinics well as a desire to better serve their customers. One were open, physicians were positive, and viewed the such provider is AtlantiCare, a nonprofit health advent of clinics a worthwhile addition to the care care and insurance provider with more than 60 care network. Launching a clinic business has required locations in southeastern New Jersey. AtlantiCare a paradigm shift for hospital providers, who are is now operating several HealthRite clinics housed eager to innovate and extend their knowledge of in ShopRite stores. Its president, Don Parker, new delivery models, but who often know little has commented that he views retail clinics as an about executing consumer-driven health care. “We’re additional avenue for delivering care to patients, learning every day about consumers and the retail and part of a wider network of hospitals, primary world,” says Linda Khachadourian, vice president care physicians, emergency departments, and urgent of strategy and business development at Sutter care clinics. He notes that retail clinics may support Express Care. “This is so consumer-centric, and we better overall health and wellness by connecting don’t have retail experience… We hired a program health care and lifestyle choices, from food decisions director, specifically recruiting someone with a retail to vaccinations. background. We’ve also had to learn to be lean and simplify. As a large organization, making these Affiliated operators have different business models, changes has required a mindset shift.” reflecting their ability to draw upon existing infrastructure (technology, protocols, electronic All retail clinic operators—independent and records) and assets. Several hospital-affiliated clinics affiliated—rely on fundamental consumer marketing believe that connecting their retail clinics to their skills, including targeting the most promising medical records system is a strong differentiator— consumers, creating awareness of the clinics, and enables them to offer greater continuity of care. educating the consumer on how to use clinics, and These clinics can establish retail outlets very cost- keeping their services in the public mind through efficiently; they can apply their existing brand, tap mass advertising, direct mail, and in-store marketing into their pool of medical professionals (including programs. Clinics have all experimented with nurse practitioners), and obtain referrals from their consumer awareness campaigns (including flyers, 12  |  C alifornia H ealth C are F oundation posters, coupons, in-store announcements, and media coverage), but, to date, most have relied more on retail foot traffic to build consumer awareness. A consumer marketing approach—understanding the customer base, building awareness, and creating a desire to buy—is familiar to the retail world, but is still largely foreign to health care providers. Failed operators While clinic operators have generally done well, there have been failures. Both Wellness Express in Sacramento, California, and Portland, Oregon; and Smarter Care in Los Angeles, California, closed their doors, largely due to a lack of capital to sustain the business until it could make a profit. According to May Liu, vice president of business development for Smarter Care in Los Angeles, “The business worked…within months, we saw six or seven patients every day, and I think we could have been successful in the longer term. We just didn’t have the capital to market and sustain our clinics for 18–24 months until we broke even.” Health Care in the Express Lane: Retail Clinics Go Mainstream   |  13 IV.The Retailers: Still in the Testing Phase Retailers of all formats—drug, mass merchandise “This is a pilot. We are still and grocery—have significantly increased their participation learning.” in clinics over the past year, and several have made strong —Alicia Ledlie, Senior Director of commitments to continue to develop clinics. Since the original Health Business Development, Wal-Mart CHCF report was released in 2006, CVS purchased Minute Clinic for an estimated $170 million and increased its number of clinics from 83 to more than 200, with a view to opening an additional 300 in 2007 and 2,500 over the longer term.10 Walgreens acquired Take Care Clinics and plans to expand it to 250 clinics in 2007. In the past twelve months, Wal-Mart has opened 76 clinics across 12 states with 8 different operators, and announced plans for clinics in 55 percent of its stores by 2012. Target has increased its commitment to its own brand of clinics. Grocery retailer Publix contracted with The Little Clinic to open 13 clinics, and has announced that it will expand to 30 clinics by the end of 2008. Kroger and other national and regional grocery players continue to announce openings, with Wegmans as the latest entrant. To date there has been no participation in retail clinics by warehouse retailers. Figure 1. Stores Hosting Retail Clinics, by Type Grocery Store 15% Mass Merchandiser 20% Drug Store 65% Despite the growing presence of clinics in stores, retail clinics are in only 1 to 3 percent of most retailers’ stores, and retailers insist that they are still testing the concept. Alicia Ledlie, senior director of health business development at Wal-Mart, says, “This is a pilot. We are still learning.” Similarly, Chris Bodine, executive vice 14  |  C alifornia H ealth C are F oundation president and president of CVS Health Services customers. Grocery stores fall in between, with the states, “this is still an emerging model.” dual desire to build pharmacy and over-the-counter revenues, and to expand their categories to deliver Retailers have indicated that they are creating space their goal of a “one-stop full-service shopping” for clinic operators for three reasons: to assert their approach to attract and retain customers. position in the market for a “health and wellness” consumer offer; to strengthen their pharmacy, Prescriptions are crucial for pharmacy retailers. As prescription, and over-the-counter medication noted in the 2006 report, prescriptions offer higher business; and to attract new customers. “We margins than other items in drug, grocery, and mass think the clinics will be a great opportunity for merchandise stores, and prescription customers our business,” says Lee Scott, CEO, and president of tend to purchase more items. Whether the clinic Wal-Mart, Inc. brings a new customer to the store or simply keeps an existing customer, clinics are expected to boost Each retailer is competing for the dollars that store pharmacies’ bottom line. Tom Ryan, chairman, consumers are able and willing to spend on their president, and CEO of CVS, said his company health care. Given the extent of retail “category acquired Minute Clinic for control of the brand, the blurring” (marketing the same items in different service delivery, and the clinic expansion rate, as well stores and formats—cold medicine in a grocery as the opportunity to attract new customers. “About store, or ice cream in a drugstore), clinics are a 25 percent of the people using Minute Clinic have way to reinforce health and wellness and maintain never been in a CVS pharmacy,” he explained. relevance to a consumer. Retailers all agree that in-store clinics reinforce a consumer message of focus on wellness and health. “The clinics create a halo and a destination for health care.” says Chris Prescription Drugs and Retail Clinics Bodine of CVS. Retailers also acknowledge that Clinics undoubtedly have the potential to be a their customers drove them to place clinics in stores. major driver of prescription drug sales. If half “Research from our consumers pointed us to these of the 2,500 clinics projected to be in operation by the end of the decade break even with 20 clinics…consumers requested them,” says Publix visits a day, and the other half see 40 patients a spokeswoman Maria Brous. day, clinics could see 26 million patients a year. Should early estimates hold that about half of Retailers disagree about the extent to which an in- clinic patients receive a prescription, they would store clinic can increase sales elsewhere in the store, generate 13 million prescriptions by the end of particularly sales of pharmacy goods. Alicia Ledlie 2010. If every clinic operated at full capacity, then of Wal-Mart says, “Driving pharmacy sales and foot in theory there could be 315 million visits in this traffic has never been the main focus for Wal-Mart time frame—and even if only 25 percent resulted in this pilot. Our primary goals are to offer one-stop in a prescription, 79 million annual prescriptions could pass through clinics within three years. shopping convenience; to improve Wal-Mart as a Of course, many of these prescriptions may not health and wellness destination; and to play a role be new, and may not be filled at the in-store in offering affordable health care. Clinics are about pharmacy where the clinic is located. access and affordability—we’d like to play a big role in that.” Pharmacies see the clinics somewhat differently. While drug stores have similar aspirations to provide a full service health destination, prescriptions and over-the-counter medications are core to their economic model, and clinics provide both the service and the opportunity for increased product revenues and a way to attract new Health Care in the Express Lane: Retail Clinics Go Mainstream   |  15 Retailers’ Strategies for Clinic successful of these operators will set the bar for Operation the others in terms of profitability, margins, and Retailers are pursuing several different clinic consumer satisfaction. strategies: owning their own clinics; working with a single operator; working with multiple clinic Snapshot of Wal-Mart’s Clinic Rollout operators; and opening vendor-sponsored clinics.11 Wal-Mart has about 15–18 percent of all the retail clinics, having opened 76 clinics in 12 states, In-house model. CVS, Target, and Walgreens using eight different clinic operators. The majority have their own clinics (CVS and Walgreens of the Wal-Mart clinics are staffed by NPs, with through acquisition and Target through in-house the exception of those operated by Quick Health development). Owning clinics is a higher-cost and Solantic. The mix of people paying with insurance vs. out-of-pocket is about 50/50. Most strategy, yet allows for the most control over the of the clinics accept co-pays. Some operators consumer experience, the brand, expansion plans, are affiliated with a hospital network (Memorial scope of services, and consistency of delivery. These Health and Aurora). Quick Health is Wal-Mart’s retailers stated that clinics are a core element of operator in California. My Healthy Access is a delivering a health and wellness offer to consumers newer operator with a focus on African American and that this investment was appropriate. and Hispanic customers. Revenue from leasing the clinic space varies widely by location; the Exclusive-operator model. Some retailers have chosen leases are at fair market value based on local to partner with a single operator, such as HEB conditions. The amount of clinic space is a crucial element of the equation—Wal-Mart imposes with RediClinic and Publix with The Little Clinic. minimum requirements of 500 square feet, an This single operator model is the easiest to manage. ADA compliant toilet, four walls and a ceiling, and Operators are usually selected on the basis of locates the clinics at the front of supercenters. meeting the needs of the retailer’s specific customer Space availability—along with customer segment. Maria Bours of Publix says, “[Selecting a demographics—determines which Wal-Mart clinic operator] was a strategic decision; we wanted stores will host the clinics. to line up with someone who has the same great customer service skills and philosophy as us… customers still see The Little Clinic as representing the brand of Publix.” Multiple-operator model. Having multiple operators is managerially more complex, yet provides greater flexibility for a retailer to match up local market needs with an operator’s skills and expand the number of clinics quickly. Wal-Mart has chosen to work with eight operators (whom they call tenants), selected based on how well they fit the specific local needs of the community. The company also maintains an arm’s-length relationship with its tenants by keeping their brands clearly separate from Wal-Mart’s. “In addition to giving Wal-Mart flexibility while testing different models and rapid expansion, this strategy essentially turns the clinic operators into competing vendors (a standard way of business for Wal-Mart)—presumably, the most 16  |  C alifornia H ealth C are F oundation V. The Payers: Moving Towards Coverage Insurance Carriers Insurance carriers have made a big—and rapid—turnaround when it comes to covering care at retail clinics. At their inception, clinics were cash-only, and as recently as a year ago there was substantial uncertainty about how insurers would react to them. Today, all major national private insurers and many smaller regional insurance companies provide clinic coverage with co-payments, and most clinic operators actively work with insurance carriers to secure coverage. As a result, according to the Harris Survey published in April 2007, 42 percent of all retail clinic visits were covered by insurance companies, with co-pays ranging from $15 to $35. The Harris survey also showed that clinics are being used by both insured and uninsured households; 78 percent of people who visited a clinic had insurance, and of those, 54 percent indicated their insurance covered some or the entire cost of the visit. Although payers have been willing to experiment with co-payment relationships with clinic operators, they continue to closely monitor quality of care and test for any potential increase in demand for services. Early on, there was concern that retail clinic operators could not easily or cost effectively conform to existing payment mechanisms, and that payers’ systems would be too difficult, expensive, and time consuming to change. In fact, there were difficulties, including some initial confusion when payers erroneously applied urgent care or emergency care coding rates— which typically have consumer co-payments of $50 or more—to retail clinic visits. Clinic operators now report a strong relationship with most payers, including relatively prompt payments and limited claims denial. Billing has not proven overly complicated, with few CPT (billing) codes required for the limited set of treatments. Nevertheless, all carriers require connectivity to their networks, and have lagging payments adding in new costs for clinic operators. Larger clinic operators have added up to five full time staff to negotiate insurance carrier agreements and manage billing departments. To date, public insurance carriers (through the federal Centers for Medicare and Medicaid Services) have not included retail clinics in their coverage. However, recently Minute Clinic and RediClinic announced they are accepting Medicare and Medicaid patients. Health Care in the Express Lane: Retail Clinics Go Mainstream   |  17 Not all clinics pursue relationships with insurance providers. QuickHealth does not work with insurers to cover treatment, arguing that most of their customers don’t have insurance anyway. QuickHealth CEO Dave Mandelkern explains, “We don’t think that the few people who want to use their health insurance at our clinics should burden the majority of our customers who don’t have health insurance. We think it’s better to offer a reasonably priced service and charge the consumer 100 percent of the services payable in cash.” Large Employers Employers can influence the adoption of new health services in many ways. They can put pressure on their insurance carriers, or they can create incentives for employees to use lower-cost services. There have been examples of both these approaches with regard to retail clinics. A few employers, including Black & Decker and Best Buy, offer lower co-pays for retail clinics than for visits to family physicians, urgent care clinics, or hospital emergency departments. However, such examples remain rare and can’t be regarded as a trend. Given that both large private employers (which are often self-insured) and the public purchasers in city, state, and federal governments have a large stake in reducing health care costs, it is possible that they might someday participate more widely in retail clinic care. Smaller and mid-sized employers may also drive this trend as they seek to provide cost-effective health care coverage by combining consumer-driven health plans with retail clinic services. 18  |  C alifornia H ealth C are F oundation VI. The Consumer: Attitudes and Adoption Retail clinics have now been in operation long enough to generate real data on consumer satisfaction. MinuteClinic, RediClinic, TakeCare, and The Little Clinic all reported customer satisfaction scores of 95 percent or higher, with similar responses for how many would return for a second visit or recommend the clinic to friends or family. In the early days of retail clinics, consumers fell into two categories based mainly on socioeconomics: those who valued convenience at any price, and those who had no other way to obtain low-cost health care.12 As recently as mid-2006, more than 90 percent of retail clinic patients paid the full fee ($39-69) in cash, with few opportunities for a co-pay or reimbursement. For consumers accustomed to a co-pay of $10–$30 at their doctor’s office, the clinic price represented a significant premium. One year later, these lines have been blurred. Clinic consumers are coming from all layers of society, and only 22 percent of visits are from the uninsured, according to a Harris poll. Many clinics have secured payer coverage through almost all major health insurance plans, bringing down the out-of-pocket cost for consumers. The Harris poll also found that only 5 percent of respondents had used a retail clinic. However, of this group, the vast majority indicated they are very or somewhat satisfied with the quality of care they received (90 percent), with having qualified staff to provide care (85 percent), with the cost (80 percent), and with the convenience the clinic offered (83 percent). Compared to two years ago, fewer respondents are concerned about the qualifications of the staff (71 percent in 2005 vs. 64 percent in 2007) or their ability to accurately diagnose serious medical problems (75 percent in 2005 vs. 68 percent in 2007). Usage of in-store health clinics was for routine simple care including: vaccination (44 percent), treatment for a common medical condition such as an ear infection, cold, strep throat, skin rash, or sinus infection (33 percent), and preventative screening tests (19 percent). Trends in health insurance will continue to encourage consumers to seek out less expensive care. As of 2006, 4.5 million Americans now have high-deductible, high-premium (HDHP) insurance, up from 3 million in January, 2006, and 1 million in 2005.13 Formerly used primarily by low-income Americans in need of Health Care in the Express Lane: Retail Clinics Go Mainstream   |  19 affordable health coverage, high-deductible plans are now being purchased by all sorts of people, including high earners who participate in tax-advantaged spending accounts that make the economics of these plans favorable. In general, consumers with high deductibles are personally invested in managing their out-of-pocket costs and select providers using their own criteria (price, convenience, quality), rather than the mandates of an insurance company. Finally, for all insurance plans, co-pays are expected to rise, which may favor retail clinics in a competition with similarly priced services at a doctor’s office. For people with no health insurance, retail clinics offer substantial cost savings over other alternatives. For simple diagnoses such as strep throat or urinary tract infection, clinics represent a savings of $240 or more over an emergency room visit.14 20  |  C alifornia H ealth C are F oundation VII. The Health Care System: Concerns, Regulatory Factors, and Integration Quality of Care Critics of retail clinics have repeatedly raised concerns about quality of care. Clinics respond to these concerns by claiming that they consistently practice high-quality evidence-based medicine. According to a recent study conducted by RAND, Americans receive evidence-based care only 55 percent of the time at other kinds of health providers.15 By contrast, Minute Clinic’s internal recent analysis of 58,000 sore throat cases seen at their clinic indicated that 99.15 percent of the time, the diagnosis and treatment conformed to evidence-based guidelines.16 MN Community Measurement, an independent agency, determined that Minute Clinic was the best-performing provider in the state in the treatment of strep throat, with a guideline compliance rate of 100 percent.17 In 2006, Take Care reported that its performance in delivering appropriate antibiotic treatment for adults with acute bronchitis is approximately 50 percent better than national standards. Critics contend that the proliferation of retail clinics may lead to overprescribing, particularly when it comes to antibiotics. Some insurance companies have been able to track pharmacy claims that originate at in-store clinics. According to Ken Patric, M.D., chief medical officer at BlueCross BlueShield of Tennessee, which has contracted with MinuteClinic, “One might think, ‘If these clinics are in a pharmacy, they might write more prescriptions,’” he says. “That actually isn’t what we’ve seen. We’ve tended to see—it’s only been six months so far—fewer prescriptions.” Clinics explain the reduction of prescriptions by noting that they adhere to evidence- based guidelines. To date there have been no independent studies of this issue of quality of care. The California HealthCare Foundation has commissioned RAND to collect information from retail clinics across the country on patient demographics and the reason for their visit. In addition they are interviewing patients at the California retail clinics of Quick Health, WellnessExpress (now defunct), and Sutter Express to provide a qualitative view of why patients chose the retail clinic as a site of care. Lastly, they are using claims data from a large health plan to compare the quality and costs of care at retail clinics versus primary care offices or urgent care centers. Health Care in the Express Lane: Retail Clinics Go Mainstream   |  21 Regulatory Forces and Changes has proposed a health plan that, among other Clinics are regulated by the states, and each state things, calls for insurer reimbursement of Certified has wide leeway through legislation and regulation Registered Nurse Practitioner services for primary to encourage or discourage the growth of retail care, confirms their prescribing authority for health clinics.18 Licensure requirements for retail medications and durable medical equipment, and clinics and the clinicians who practice within them enables them to “practice to the fullest extent of vary. In many states, clinics are licensed as physician their education, skills, and training to provide care,” practices, and are regulated by the state’s Medical says Barbara Holland, legal counsel to the Office of Board. In some states (for example, Arizona), Health Care Reform in the Office of the Governor each site must be licensed, and in others the clinic of Pennsylvania.20 Texas is considering lowering its is licensed at the corporate level and the license requirement for on-site physician oversight of nurse covers multiple sites. Some states require an in- practitioners from 20 percent of the time to 10 state supervising physician, while others permit percent, using a combination of remote and on-site out-of-state oversight through a corporate office. supervision. Clinics who accept Medicare or Medicaid patients Other states have debated legislation to limit the also require a license from the federal or state use of NPs and other “mid-level” providers. Florida government. enacted a bill (Florida HB 669, June, 2006) that Regulations on the scope of services, non-physician could restrict clinics’ growth by limiting the number licensing, nurse practitioner oversight, and physician- of clinic sites that a primary-care physician may ownership requirements are major considerations for supervise to four. Missouri debated but failed to the future of retail clinics in any given state. Spurred pass a similar measure that would have restricted by consumer demand, concern over the need to the number of physician assistants that a physician reduce health care costs and increase access to care, could supervise to three, and Georgia considered and a shortage of physicians, some states are writing legislation that would have barred NPs from legislation to encourage retail clinics by addressing writing prescriptions at clinics located within retail regulatory barriers.19 establishments that house a pharmacy.21 In March, Illinois introduced a bill that would require retail To keep labor costs low, most clinics depend on health clinics to have more physician supervision employing nurse practitioners rather than physicians. (doctors could supervise no more than two advance According to the American College of Nurse practice nurses) and limit their ability to advertise. Practitioners, 22 states and the District of Columbia allow NPs to treat patients without physician Physician-ownership requirements—referred to as involvement, while 28 require documented physician “the corporate practice of medicine”—regulate who involvement in the form of a doctor’s presence some can own health provider facilities. States vary in their or all of the time, availability for consultations by requirements for physician versus non-physician phone, or written protocol agreements. States vary in ownership as well as in-state residency. Expanding whether they require supervising physicians to reside or contracting ownership opportunities—as dictated within the same state as the clinic they oversee. by corporate practice regulations—will either enable or inhibit retail clinic openings within each state. The NP’s scope of practice is under scrutiny in every Several clinic operators commented that the laws state. Some, such as Pennsylvania and California, make it fundamentally untenable to do business, as are trying to increase the use of these clinicians by they can’t employ the NP directly and thus control expanding their scope of services and prescribing their ability to provide consistent high-quality authority. Pennsylvania Governor Edward Rendell standardized care, and they can’t own equity in 22  |  C alifornia H ealth C are F oundation these operations—significant detractors given the Clinics are adamant that they do not wish to play— investment required. Many operators observed that nor can they perform—the role of the primary states without these ownership laws are much higher care physician. In 2006, the American Academy priorities for clinic expansion. of Family Physicians (AAFP) published guidelines for retail clinics,23 and in February, 2007, the three Clinic Integration into the Wider Health largest clinic operators signed an agreement in Care System support of the Academy’s list of desired attributes. Retail clinics got their start by positioning themselves The AAFP investigated the impact of clinics on their as separate and distinct from the traditional health members and concluded that the longer the clinics care world, and by resisting partnerships with were in a city and the more active their connections insurance carriers, hospitals, and local physicians. with local physicians, the more supportive members With their slick storefronts, catchy slogans, and cash- were likely to be. Rick Kellerman, M.D., president and-carry approach to health, the clinics seemed of the board of directors of the AAFP echoes the more like an extension of the retail world than sentiments of many physicians, saying, “Clinics are like a part of the long-established order of doctors, one more attack on primary care physicians, but pharmacists, and insurance companies. For its part, we do appreciate that they keep patients out of the the wider health care community initially distanced ED—that is the worst place for primary care. We itself from the clinics and their operators, raising advocate that retail clinics accept our guidelines for concerns about quality of care rather than evaluating clinics and we encourage our members—especially them either as potential partners, or as an alternative those who don’t like the retail clinics—to look at model that might offer valuable lessons about low- the convenience they are providing and consider cost care delivery. how they might incorporate (the lessons from retail In the past twelve months, however, clinics have clinics) into their own practices.” begun to find a place within the traditional health As noted in CHCF’s 2006 report, the market will care delivery system. Clinic operators have invested dictate the clinics’ survival—the market being in creating close relationships with all players consumers, operators, insurers, retailers, and in the health care community, including local regulators. Some will thrive by reaping the benefits physicians, hospitals, payers, and health advocacy of appropriate capitalization, business models, groups. In turn, health care leaders have engaged locations, and management. Others will not. In with clinics, worked to create referral networks for some ways, retail clinics challenge consumers, clinic customers who don’t have a family doctor, clinicians, governments, employers, and carriers encouraged physicians to refer patients to retail to address the shortcomings of the traditional clinics for after-hours service, and created co- health care system by investing in primary care and branding relationships. For example, RediClinic’s integrating the lessons they offer for providing better, 50/50 partnership with Memorial Hermann faster, easier, and cheaper care. Houston calls for the hospital to provide physician oversight, clinical quality initiatives, and co- Meanwhile, the clinic industry has formed the marketing—one of several innovative arrangements Convenient Care Association to create and that illustrates how this new relationship with disseminate policies and guidelines to ensure traditional health care providers is evolving. In appropriate, high-quality health care through fact, Take Care claims that up to 20 percent of retail clinics. Their agenda appears focused on its Chicago-area patients have been referred to a quality-of-care issues and legislative reform to primary care physician or specialist for follow-up enable the proliferation of retail clinics, with some care.22 debate among the members as to the role of the association in ensuring the supply of qualified nurse practitioners and consumer education efforts. Health Care in the Express Lane: Retail Clinics Go Mainstream   |  23 On a technological level, clinic operators have been working with the established players in the health care system to coordinate patient medical records. Clinics all use electronic medical records, and many operators envision a day when patients can automatically have their clinic visit record and results sent to their primary care physicians. Consumer surveys confirm that 78 percent of clinic customers would like a record of their clinic visit sent to their doctors. 24  |  C alifornia H ealth C are F oundation VIII. California Update As this report has noted, regulatory constraints continue to affect the proliferation of retail clinics in many states, including California. Regulatory hurdles are primarily about ownership of clinics and the scope of services provided by nurse practitioner. (Other regulations concern advertising and licensing arrangements.) The corporate-practice-of-medicine laws in California require ownership by local physicians who operate the health care facility.24 Out-of-state physicians, or non-physician retail clinic operators, cannot own clinics. Clinic operators confirm that the California Corporate Practice of Medicine laws make it challenging to establish retail clinics in the state. Notes Web Golinkin of RediClinic, “It’s very difficult to justify the investment in California when you can’t own equity in the clinics or employ nurse practitioners directly, particularly when there are 47 other states that don’t present these obstacles.” In California, a nurse practitioner’s scope of practice is covered by the Nursing Practice Act in the Business and Professions Code. There are three aspects to this regulation: what services can be provided, what is the scope of prescribing authority, and what are the arrangement for supervision of the nurse practitioner. Broadly, standardized procedures must be developed and approved by the NP, the supervising MD, and the facility administrator before an NP can perform anything that might be considered “practice of medicine,” including diagnosis of mental or physical conditions, use of drugs, or severing or penetrating tissue.25 Prescribing authority is set by the state and dictates the types of prescriptions that can be written. Oversight regulations include issues such as the amount of supervision, location of supervision (remote or on- site), the type of chart review conducted, and the number of NPs a physician can supervise. As of now there are very few clinic operators or clinics in California. Quick Health, with its physician-based model, was an early pioneer, and recent entrants Sutter—a large hospital system in Northern California—and Faster Care Clinics (also a physician- based model in grocery stores) are the primary players. These clinic operators have been able to work around the regulatory issues because they have local physicians, already own health care Health Care in the Express Lane: Retail Clinics Go Mainstream   |  25 facilities, and have opened up a few clinics in the state. The largest national clinic operators have yet to establish a foothold in California despite its obvious appeal as a consumer market, but that may be changing. Minute Clinic has announced expansion plans for 50 new clinics in Southern California starting September, 2007, and confirmed they are creating a management-company relationship with a physician-owner in the state. Several clinics are now under construction. Improving the health care system in California has emerged as one of state lawmakers’ top priorities. In such an atmosphere, the focus on finding ways to reduce costs, expand access to care, and improve the health care safety net offer clinic advocates the chance to push for relaxing the requirements of ownership and physician oversight, and expanding the scope of service for nurse practitioners—all of which would make it possible for clinic operators to enter the potentially vast, relatively untapped California market. Several health reform proposals introduced this year included some reference to making the California regulatory environment more welcoming to the clinics. The Assembly Republican proposal included a section entitled “Ensuring More Convenient Care at Neighborhood Health Clinics,” and advocated “eliminating the barriers in state law that prohibit establishing additional walk-in, neighborhood health clinics will enable California families to access more convenient health clinics at pharmacies, grocery stores, and shopping malls in their communities.” The Senate Republican proposal SB236 included the language, “Allow nurse practitioners to establish and run primary care clinics.” And the Governor’s Health Care Reform proposal looked to “remove statutory and regulatory barriers to expansion of lower-cost models of health care delivery such as retail-based medical clinics by making scope of practice changes for ‘physician extenders’ such as nurse practitioners and physician assistants.” 26  |  C alifornia H ealth C are F oundation IX. Areas and Issues to Watch The year since the release of CHCF’s 2006 retail clinics report has seen rapid growth in both the number of clinics in operation and media attention. Consumers across the country have become familiar with the concept and are curious about and largely receptive to using clinics for some conditions or ailments. Clinic proponents have projected continued rapid growth, and interest in additional regulation and oversight has increased, driven by concerns from medical organizations and associations. New players are getting into the business of operating clinics, and government payers, many of which are struggling to expand access to care, are beginning to explore the role that clinics might play. In short, the retail clinic has begun to enter the mainstream, and the convenience clinic model, with its positive attributes and its limitations, is drawing predictable attention and scrutiny from the medical and regulatory communities. Many of the issues raised in Health Care in the Express Lane: The Emergence of Retail Clinics are now key focal points for the industry. Consumer experience, profitability, and the relationship of clinics to the rest of the health care system are fundamental to how the clinic landscape has taken shape. With more than 500 clinics now up and running, here are some areas to watch as the next phase unfolds: Will the expansion of retail clinics proceed at the ambitious pace projected by their operators? Clinic operators project that they will open more than 700 sites by the end of the year. An analysis of the pace of expansion, customer demand, density of available locations, and other market factors suggests that the total number of retail clinics will reach 6,000 by 2012. The influx of capital into the industry is continuing at a level sufficient to support rapid growth. But to hit their targets, clinic operators will need to aggressively recruit providers—primarily nurse practitioners and physicians’ assistants. These provider groups are already in high demand in the broader health care system, so competition will likely be fierce, with potential ramifications for salaries. Operators will also need to meet extremely aggressive construction schedules. The influx of capital into the industry is continuing at a level sufficient to support rapid growth. Health Care in the Express Lane: Retail Clinics Go Mainstream   |  27 American Medical Association (AMA) followed the Other Resources AAFP, calling for retail health clinics to: Convenient Care Association n Offer a well-defined and limited scope of www.convenientcareassociation.org practice; This group represents retail clinic operators and is n Follow protocols derived from evidence-based involved in sharing resources, developing quality guidelines to ensure quality of care; standards, and forging ties with the mainstream medical practitioners. n Ensure supervision by a physician; n Establish a formal connection with community Merchant Medicine physicians to ensure continuity of care and www.merchantmedicine.com encourage use of medical homes; This organization, which specializes in tracking n Use electronic health records that can gather trends in retail medicine, maintains a continuously updated database of retail clinics in the United and communicate a patient’s information with States. his or her medical home; n Inform patients, in advance, of the qualifications of the practitioners providing How will the business model evolve? care; and The original CHCF report asked how clinic n Establish appropriate sanitation and hygiene operators would develop their businesses—which services, partners, and consumer segments they guidelines. would target and how they would expand, contract, or consolidate their businesses. Fundamentally, the In June of 2007, the AMA membership voted to business model has not changed—clinics are still a adopt the following directive: fixed cost model that requires at least three years to n Ask the appropriate state and federal agencies reach the break even point and produce a reasonable to investigate ventures between retail clinics return on investment. What is not known is whether and pharmacy chains with an emphasis investors (and most investors in clinics are not on inherent conflicts of interest in such traditional health care investors) have the patience relationships, patients’ welfare and risk, and to remain in the game as stand-alone clinics, or if professional liability concerns. they will seek shorter-term lucrative alternatives such n Continue to work with interested state and as merging with larger retail or health care entities. specialty medical societies in developing Clinics have not yet experienced real competition, guidelines for model legislation that regulates and have not come close to finishing their expansion the operation of store-based health clinics. phase. Clinics have also not solved the challenge n Oppose waiving any state or federal regulations of finding an adequate supply of talented nurse practitioners. for store-based health clinics that do not comply with existing standards of medical How will organized medicine respond to practice facilities. clinics? Several organizations representing physicians have The most vocal group on the topic of convenient come out with opinions on retail clinics. The care clinics has been the American Academy of American Academy of Family Physicians (AAFP) Pediatrics (AAP). The organization states that issued their “desired attributes of retail clinics” in it “opposes retail-based clinics (RBCs) as an June of 2006. After significant internal debate, the appropriate source of medical care for infants, children, and adolescents and strongly discourages 28  |  C alifornia H ealth C are F oundation their use, because the AAP is committed to the encouraging preventive, primary, and basic acute care medical home model.” They further state that “The in settings other than the emergency department. AAP acknowledges that the shifting economic Only a few other systems across the country are and organizational dynamics of the current health currently taking this approach, but many predict that care system will likely support the continued we will see additional system-branded convenient existence and expansion of RBCs. However, the care or express clinics. Centene, a multi-line health aforementioned concerns and the overall effects plan based in St. Louis with a significant Medicaid these clinics will have on pediatric practice have population is slated to open its first two convenient led the AAP to respond with principles related to care pilot clinics with Federally Qualified Health communication, the medical home model, evidence Center partners by 2008. based medicine, contagious diseases, and financial incentives.” What role will technology play? Affordable, compact, rapid diagnostic devices How are state regulators responding to retail and evidence based clinical software are keys clinics? to the viability of retail clinics. Medical device As of this publication of this report, New York, New manufacturers continue to develop devices with Jersey, Rhode Island, Massachusetts, Illinois, and CLIA wavers26 that expand the potential services California are all considering additional regulation and productivity of retail clinics. For example, new of retail clinics. In New York the primary area of optical devices could deliver faster, less-invasive focus is the relationship between clinics and the testing of blood pressure and glucose with data pharmacies in which they operate. Other states are feeds directly into electronic records. Digital considering or have considered whether the space, otoscopes, audiology testing devices and other digital facilities, and hygiene regulations for physician’s equipment that capture and transmit data have offices should apply to clinics and whether the similar potential. Swabs with nanosensors are being licensure restrictions of a pharmacy should apply developed to provide rapid detection of influenza A to a clinic operating within it. Some states are (H5N1) and E. coli. Imaging devices may one day considering restrictions on advertising, limiting the be small, quick, cost effective, and simple enough to number of visits consumers can use within a year, use in retail clinics. and requiring annual licensing including site specific, versus corporate licenses. To date, the response from The addition of digital devices and high-speed data retail clinic operators has indicated some concern transmission may also enable retail clinics to become about the impact of these discussions on the viability part of the telemedicine delivery network to better of the model for states where restrictions become manage chronic conditions. The retail clinic might cost prohibitive. create a digital data stream of critical vital signs to a patient’s primary care physician. While retail clinics Will integrated health systems and others are not structured to manage chronic disease, there continue to develop convenient care options may be an option to use clinics as one of several of their own? monitors of patient health. Primary care physicians Several health systems, including Sutter in will continue to provide a holistic health care California, have developed “express care” sites to management perspective for a person which may also extend the convenience of the retail clinic model include aggregating the patient’s information, using to their customers under their own brands. Public additional data points, trend analysis, and pattern systems and community clinics in California recognition to provide more comprehensive health have expressed an interest in considering how care. Retail clinics may be used as an extension of opening their own express care options might help the primary doctor to provide more capacity into them more effectively meet patients needs while the health care system. A key to this scenario is the Health Care in the Express Lane: Retail Clinics Go Mainstream   |  29 clinics’ capacity (and reimbursement) for receiving, primary care. Several clinics are expanding their integrating, and interpreting data. This would wellness offers including school physicals, diabetes require a standard electronic medical record system screening programs, nutrition counseling, hearing and the ability for multiple integrated data feeds. tests, and asthma medication therapy programs. New The clinics may then becomes one of many points technologies that allow for rapid screening of chronic of data in a robust, detailed, multi-component conditions are being tested by clinic operators. picture of a patient’s health using several health care And new therapies, such as an osteoporosis drug providers linked through telemedicine. administered annually through a 15-minute infusion, are being considered by several clinic chains. Will clinics working with insurers be able to keep administrative costs down? Many of the clinic companies are now accepting insurance from multiple carriers, and insurers have responded quite favorably to the clinics. To provide this service, the clinic corporations have incurred additional overhead in the form of staff to process claims. Though they indicate that they are able to simplify the claims process with insurers, it remains to be seen how much additional cost this will add to the model. Several clinic operators report positive experiences with insurers who are testing new systems and procedures to streamline the payment process with clinic operators. Will retail-based clinics move into chronic disease management, diagnostic testing, wellness, and other consumer health services, and how will this affect other providers? While some clinic companies—notably Minute Clinic—have indicated that they intend to keep a narrow, tightly focused array of services, others have begun to introduce or have plans for broader service menus, including disease management and “wellness” services. In the “disruptive innovation” paradigm, innovators often move upstream, taking on more functions and capabilities from established players. The growth of the clinic sector and the moves of some players into activities beyond the initial narrow scope of services pioneered by Minute Clinic has begun to spark a debate about the role clinics should play—or should not play—in delivering 30  |  C alifornia H ealth C are F oundation X. Conclusion The 2006 Health Care in the Express Lane posed several questions about how consumers, providers, payers, and policymakers would respond to the emergence of retail clinics. The last year has seen a rapid response from each of these groups, and the pace of expansion is such that a forecast of 6,000 clinics by 2012 seems a reasonable projection. If retailers’ plans prove out, within five years it will be the norm to have a local retail clinic in the neighborhood drug, grocery, or mass merchandise store. Furthermore, if 6,000 clinics were to operate at 50 percent of their capacity, they would draw 10,000 patient visits per clinic per year—or 60 million visits in total. Given the volume of patients that may go through the doors of these clinics, it will be vital to monitor quality of care, prescribing habits, and consumer use in order to understand the overall health impact of clinics as consumers receive care from multiple providers and multiple points of care. Will electronic medical records be rapidly diffused to ensure a coordinated medical home? Will the wider health care system integrate with these clinics? Will the clinics extend their services to become a data collection point for the primary care physician? Will clinics be a driving force for greater cost transparency to the consumer and put further pressure on primary care physicians? It seems clear that clinics have an opportunity to change the game for each of the stakeholders. They are likely to provide consumers with greater convenience and lower prices, challenge primary care physicians to reinvent their practices for more complex care, enable payers to reduce the cost of routine care, and allow retailers to enhance their positions as health and wellness destinations. Health Care in the Express Lane: Retail Clinics Go Mainstream   |  31 Endnotes 1. Scott, Mary Kate. Health Care in the Express Lane: 17.www.MNhealthcare.org. The Emergence of Retail Clinics. Oakland, CA: 2006 18.Joint Commission on Accreditation of Healthcare (www.chcf.org/topics/view.cfm?itemID=123218). Organizations (JCAHO) accreditation is not required; 2. “Broom-ready” refers to clearing and cleaning the space we note Minute Clinic pursued and was granted this and potentially installing HVAC, electrical, and plumbing accreditation; much debate exists among clinic operators as upgrades, depending on the clinic concept and the contract to the appropriateness of this accreditation for clinics and between retailer and clinic company. other ambulatory services. 3. Solantic is a major provider in Florida, with clinics in two 19.Some experts believe the retail clinic expansion is a response Super Wal-Marts and ten other locations. All Solantic clinics to the shortage of family physicians. Within the next 15 to are staffed with on-site physicians. QuickHealth of California 20 years, the deficit is expected to reach as many as 200,000 is a physician-based model in Farmacia Remedios (drug physicians—20 percent of the needed workforce, according stores) and Wal-Mart. to Dr. Richard Cooper, a professor of medicine at the 4. Independent from the traditional health care providers, University of Pennsylvania. including hospital systems, but not necessarily retailers. 20.www.rxforpa.com. 5. For example, Take Care uses touch screen technology, and 21.Burton, Rachel. “Rapid Expansion of In-Store Clinics Has about 90 percent of their patients rate the sign-in process as Lawmakers Watching.” State News of National Conference of either very good or excellent State Legislatures. (August 7, 2006). 6. Scott & Company, 2006 22.Doug Trapp. “Illinois bill proposes stricter requirements for 7. Interviews conducted by Scott & Co. retail clinics” AMNews. (March 26, 2007). 8. According to Alicia Ledlie of Wal-Mart, “we lease our space 23.See Health Care in the Express Lane: The Emergence of Retail at fair market value as determined by local independent Clinics, 26. appraisers.” 24.Medical Board of California, Corporate Practice of Medicine 9. For example, including a broad range of insurance carriers, Guidelines, www.medbd.ca.gov/corporate_practice.htm. offering a wider scope of services, or utilizing complex 25.See Health Care in the Express Lane: The Emergence of Retail technology to support electronic records or consumer Clinics, 13. convenience. 26.Congress passed the Clinical Laboratory Improvement 10.CVS Conference Call Transcript Q4 2006 Feb 1, 2007. Amendments (CLIA) in 1988 to establish quality standards 11.Over-the-counter, pharmaceutical, and device companies like for laboratory testing, and in 1992 published guidelines Johnson and Johnson have long supported the in-store clinic for waived tests: simple laboratory examinations and model, and are eager to find a way to connect their brands procedures that are cleared by the FDA for home use; with clinic services. For the most part, sponsorship has been employ technologies that are simple and accurate and render limited to special events (flu shot clinics) or single-product the likelihood of erroneous results negligible, or pose no promotions (giveaways in conjunction with healthy heart reasonable risk of harm to the patient if the test is performed screenings), but we may see growth in this phenomenon. incorrectly. 12.Waiting for medical attention during working hours is particularly expensive for lower income consumers, who may not have paid time off. 13.AHIP Annual Report; see www.ahipresearch.org. 14.HealthPartners, 2005. 15.McGlynn, E.A., S.M. Asch, J. Adams, and others. “The quality of health care delivered to adults in the United States.” New England Journal of Medicine 2003;348:2635-45. 16.Minute Clinic submitted this study to the American Journal of Medical Quality for peer review; publication has been confirmed for Fall 2007. 32  |  C alifornia H ealth C are F oundation