Imagine trying to run a successful business when employers, competitors, and other service providers have launched focused campaigns that encourage consumers to avoid you. If you run a restaurant or an auto-repair shop, this scenario is far-fetched. If you run a hospital, it’s reality.
Hospitals are facing a powerful and multi-layered attack targeting their low-intensity business. Traditionally, hospitals provide low-intensity care in three basic settings that involve three levels of intensity, resources, and cost: emergency departments, outpatient centers, and physician offices. Today, fast-growing competing organizations—primarily urgent care centers, physician e-visit companies, and convenience clinics—have positioned themselves at lower levels of intensity, resources, and cost than each of these hospital settings.
Completing the attack, employers, health plans, and price transparency companies are providing the financial incentives, messages, and tools to drive patients from hospitals to these lower-intensity options.
Competitors
Urgent care clinics are staffed by physicians, physician assistants, nurses, and technicians, and frequently offer radiology and laboratory services. They provide less intensive care at a lower cost than hospital EDs and most hospital outpatient centers. Urgent care centers are sprouting up on busy corners and in strip malls throughout the country. They treat injuries and illnesses from minor fractures to back pain. A typical urgent care clinic stays open seven days per week, 12 hours per day. An average visit is 30 minutes, and the average price per visit is about $155.
The business model for urgent care chains is familiar in the fast-food world: Develop a replicable blueprint that allows for rapid expansion, efficient operations, and economies of scale. In the words of one urgent care clinic customer, “This place is clean, it’s quick, and it’s about five minutes away from my house. What more could you want?” Currently, there are approximately 10,000 urgent care centers in the country, with 160 million annual visits and $16 billion in revenue. Some franchise-model chains have been doubling and tripling their number of clinics in recent years. The investment community has taken note: Since 2008, private equity firms have invested $2.3 billion in urgent care clinics.
Physician e-visits are positioned as a more convenient and less costly alternative to hospital ED, outpatient center, or physician visits. Companies such as Teladoc, MDLIVE, Stat Doctors, and American Well offer consumers prompt video consultation with physicians for non-emergency conditions and for short-term prescriptions. These companies market to individuals as well as to employers and health plans. In a sign of their broadening use, WellPoint recently began to offer coverage for e-visits to 4 million enrollees, with Aetna poised to more than double enrollee access next year.
Convenience clinics—housed in retail outlets with pharmacies and staffed by nurse practitioners and physician assistants—provide a lower intensity of service than any setting in the traditional hospital model. Convenience clinics traditionally have served minor complaints like sore throats, but they are expanding into management of chronic conditions. The average price of a visit is $60. Like urgent care centers, these clinics are on a steep growth curve. The number of convenience clinics, now 1,600, is expected to double by 2016.
It is hard to overestimate the brand strength and potential accessibility of convenience clinics. The major players are CVS and Walgreens, and most Americans live within only a few miles of one of those pharmacies. Currently, CVS has more than 800 clinics and Walgreens has more than 400 ; both plan to expand. Target, Wal-Mart, and Kroger also host clinics.
Yet another competitor is lab-testing pioneer Theranos. Founded in 2003 by a 19-year-old Stanford student, Theranos introduced a technology allowing up to 70 tests to be run within hours from just a few drops of blood at a price as low as a tenth of what a hospital lab would charge. Theranos has recently established a presence in Walgreens, only one step in Theranos’ plan to be “within five miles of almost every American and within one mile of every city dweller.”
Traffic drivers
Employers and health plans across the country are seeing these lower-cost, lower-intensity providers as a critical weapon against high healthcare costs, and are taking steps to aggressively drive patients to them through plan design and communications campaigns.
For example, a new video from a large corporation takes employees through a step-by-step analysis of the difference in purpose, convenience, and price of hospital ED visits compared with primary care, urgent care, and convenience care visits. “With the average cost of an ER visit reaching close to $800,” says the narrator, “one visit to the ER could use your entire health reimbursement account balance.”
In addition, well-funded companies are providing employers, health plans, and consumers with tools designed to direct patients to low-price providers. Castlight is perhaps the best-known company in this space, having recently been valued at $3 billion on the first day of its IPO, but is hardly alone. Healthcare Bluebook, HealthSparq, and others provide near-instant access online and via smartphone to comparative cost and quality information on available providers.
Getting prepared
For years, hospitals have faced competition from freestanding surgery and imaging centers for low-intensity patients. However, this competition has not prepared hospitals for an attack from forces that can offer prices that are 80 to 90 percent lower than hospital prices, that have facilities located within a few minutes of each person in the community, or that within seconds can direct patients to a low-price provider.
In the face of this array of forces, hospitals need to move rapidly to quantify their vulnerability, understand their market’s competitive makeup, and develop a strategy for maintaining a viable presence in the increasingly retail low-intensity market. Competitive forces are fully engaged in reaching this market; hospitals need to be as well.
NOTES
1. Creswell, J.: “Race Is On to Profit from Rise of Urgent Care.” The New York Times, July 9, 2014. http://www.nytimes.com/2014/07/10/business/race-is-on-to-profit-from-ris...
2. Creswell, J. (July 9, 2014)
3. Solomon, B.: “Drive-Thru Health Care: How McDonald’s Inspired an Urgent Care Gold Rush.” Forbes, July 2, 2014. http://www.forbes.com/sites/briansolomon/2014/07/02/drive-thru-health-ca...
4. Solomon, B. (July 2, 2014)
5. Creswell, J. (July 9, 2014)
6. French, M.: “The Doctor Will Click on You Now, but Can She Feel Your Pain in an E-Visit?” Bloomberg, July 14, 2014. http://www.bloomberg.com/news/2014-07-14/the-doctor-will-click-on-you-no...
7. Convenient Care Association: Convenient Care Clinics: Reducing Costs for Consumers and Third-Party Payers. Fact Sheet. http://ccaclinics.org/images/stories/downloads/factsheets/ccafactsheet_a...
8. Convenient Care Association: Convenient Care Clinics: Increasing Access. Fact Sheet. http://ccaclinics.org/images/stories/downloads/factsheets/ccafactsheet_i...
9. CVS Caremark website: “MinuteClinic.” http://info.cvscaremark.com/better-health-care/minuteclinic
10. Walgreens website: “More Patients Turning to Retail Clinics for Chronic Care and Preventive Services, New Walgreens Study Shows.” July 17, 2014. http://news.walgreens.com/article_display.cfm?article_id=5882
11. Parloff, R.: “This CEO Is Out for Blood.” Fortune, June 12, 2014. http://fortune.com/2014/06/12/theranos-blood-holmes/
12. Parloff, R. (June 12, 2014)