Profits Lag for Health Clinics

CHRISTINE BLANK

ORLANDO, Fla. — While no one is ready to throw in the towel, two of the nation's most prominent retailers reported this month that their much-publicized health clinics do not yet make very much money.

In presentations at the Healthcare Retail '07 Conference here, executives from Wal-Mart Stores, Bentonville, Ark., and Minute Clinic, which is owned by CVS/pharmacy, Woonsocket, R.I., said profits and other sales expected to result from in-store health clinics are lagging.

“CVS has looked at the retail impact and, honestly, it is quite small,” said Michael Howe, chief executive officer of Minute Clinic. “Probably less than half [of Minute Clinic patients] will walk out with prescriptions [because] OTC can handle much of that.”

The in-store medical clinics, typically staffed by nurse practitioners, are not yet profit centers for Wal-Mart, said Alicia Ledlie, senior director of its professional services division.

“We haven't been able to discern a noticeable sales impact” following a comparison of sales in the Wal-Mart Supercenters with in-store clinics vs. other stores in the same markets, and vs. the same store the prior year, Ledlie said.

At the same time, however, Wal-Mart makes money off the landlord-tenant relationship with its clinic providers, which include hospitals and dedicated in-store clinic companies.

Critics of the way retailers are using in-store clinics are not surprised.

Most retailers that have in-store clinics “are not learning how to market these clinics, and no one is doing things to integrate them with the rest of the store,” said consultant Jim Wisner, president of Wisner Marketing Group, Libertyville, Ill.

Market Strategies, Livonia, Mich., recently surveyed in-store clinic patients and found that 37% purchased prescriptions at a different location than the clinic hosts. While retailers are putting in clinics for the sake of shopper convenience, this study indicates that they are not being used that way, said John Thomas, vice president of Market Strategies. “Is the lure of one-stop shopping overrated?” he asked.

In addition, the shortage of nurse practitioners and physician's assistants has prevented CVS from opening some planned Minute Clinic locations, Howe said.

However, he said there is a big profit potential for in-store clinics because one-third of consumers don't have a “medical home,” or a primary care provider that they visit when they have a health problem.

In addition, Minute Clinic's business has built up so rapidly over the last few years — it now has more than 170 locations — that it has not expanded beyond CVS.

“CVS doesn't restrict us. The only reason we haven't gone further is the bandwidth of the organization. We want to complete the acquisition and grow the organization,” Howe said.

Minute Clinic still has a handful of units in Cub Foods, stores in Minnesota, and Quality Food Centers stores in Seattle that were installed when the company started in 2000, prior to its acquisition last year by CVS.

To be successful with in-store clinics, Howe said, retailers and clinic partners must build scalability, or flexibility, into their operations to meet the challenges of growth. They also need to work with local health care providers and partner with employers.

“Scalability [is needed] to be financially successful, based on the systemic synergies created behind the scenes,” Howe said. While Minute Clinic treats nearly 7 million people a year, it only has a staff of four billing individuals because of the company's electronic system that eliminates paperwork.

MEDICAL PARTNERS

Retail clinics must also partner with hospitals and other local medical providers for referrals to and from clinics, Howe said.

In addition, partnering with employers and health insurance companies on “strategic delivery of health services” is the philosophy followed by CVS Chairman and Chief Executive Officer Tom Ryan, Howe said.

“The end user is seldom the payer. We're working with employers around the country [that are] looking for productivity and how to get people back to work faster,” Howe said.

For example, Black & Decker Corp., Towson, Md., an employer that works with CVS and Minute Clinic, found that it saved 30% to 50% in health care costs by having some of its employees use Minute Clinic locations vs. traditional clinics or doctors' offices.