The CVS-Aetna merger announcement was a watershed moment for the US healthcare market, in addition to Cigna-Express Scripts and Walmart’s talks with Humana, some go so far as to speculate this could signify the beginning of a convergence of the entire system, with traditional healthcare, retail, and technology companies uniting behind the singular goal of survival.

The traditional retail pharmacy proposition involved customers visiting a drugstore, not only for prescriptions and the pharmacist relationship, but also for ready-access to a broad range of health and wellness merchandise with the eventual addition of beauty care products.  This model has come under pressure over time due to the fact grocery stores and mass merchants all have large health & beauty, and cosmetic departments nowadays.  Traditional chain drug retailers have had to come up with new ways, therefore, to merchandise their stores.

Rise of retail clinics

Whilst market share statistics continue to show that consumer behavior still plays a valuable role for the retail pharmacy footprint, the challenge for retailers is to rethink usage of their retail space instead of sole reliance on supplying merchandise to attract the beauty and wellness shopper.  An opportunity lies in the expansion of healthcare offerings in retail locations, at a lower cost than standalone urgent care clinics, physician offices or emergency rooms.  Because healthcare is such a huge part of the economy and affects every human being in the United States, this is part of a strategic longer-term positioning to drive consumers to the lowest cost and most appropriate setting for delivery of their healthcare.

Consumers benefit from this model because they are able to access certain services much more conveniently than the traditional model of calling for a doctor’s appointment and sitting in a waiting room with other sick patients.  One near-future model that supports this claim, foresees that plan members will instead be incentivized to visit a retail clinic through zero copay.  An appointment can be made via the use of a mobile app, and within 25 minutes a patient will have promptly been seen and in receipt of a prescription.

Challengers challenged

Online over-the-counter retailers (for example, Amazon’s ‘Basic Care’ line) may eventually pose a competitive threat to this new model, yet this could prove to be an uphill battle.  In order for upstart retailers to make an impact, they would first have to develop extremely sophisticated capabilities in order to break through what is already a very entrenched way of doing business. 

There would be a need, for example, to develop health and benefit management capabilities such as insurers and pharmacy benefit managers (PBMs), as well as contracts to manage a network of healthcare providers, doctors, hospitals, pharmacists that could serve a national, broad and very diverse population.  Significant hurdles also exist due to state regulations that control medical care and pharmacies.  Online retailers will need to come up with a more compelling model to assuage regulators and convince payors (insurers) to take the risk that the challenges mentioned above could be efficiently dealt with, while still managing to drive costs lower; a scenario that could potentially come to pass one day, although unlikely to occur overnight.

Lower cost of care

The trend towards the massive movement of care delivery out of health systems into lower cost of care settings is something that is seen as inevitable. The likes of CVS, Walgreens, and Walmart are all well placed in terms of distribution of stores to reach a large percentage of the US population.  The moves by CVS to acquire Aetna, and likewise potentially Walmart for Humana, make it clear these retailers are positioning themselves as providers of a large number of convenient care clinics or nurse practitioner clinics. 

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