Wal-Mart Clinics Trail CVS Reaping 39% Growth: RetailRenee Dudley
In 2007, Lee Scott, then Wal-Mart Stores Inc.’s chief executive officer, trumpeted plans to open as many as 2,000 in-house medical clinics by mid-2012. He called the strategy “a great opportunity for our business.”
Today Wal-Mart has fewer than 130 clinics and is closing locations faster than it’s opening them. Meanwhile, CVS Caremark Corp., which already has about 630 MinuteClinics, is opening about three a week, and aims to have 1,500 within four years. It’s promoting the clinics heavily on TV and the Web. While industry figures are hard to come by, CVS says its clinic business has grown at a compound annual rate of 39 percent in the last six years.
Wal-Mart, which farmed out the operation of the clinics to third-party operators, hasn’t adequately promoted its clinics to shoppers or made it easy for them to pick up their prescriptions. Thomas Charland, who runs Merchant Medicine, a research and consulting firm specializing in walk-in health care, has heard “lots of complaints” from operators that they get little support from Wal-Mart, and he characterized the company’s efforts as “trial and failure.”
It’s not as though Scott’s “great opportunity” no longer exists. As key parts of the Patient Protection and Affordable Care Act start phasing in next year, some 30 million newly insured Americans will be looking for care amid a doctor shortage. Clinics, generally open after-hours and on weekends, minister to patients with minor illnesses and injuries as well as provide vaccinations, physicals and chronic disease monitoring. The clinics are usually staffed by nurse practitioners or physician assistants and typically charge $60 for an exam, which most insurers cover.
CVS, which has the fourth-highest average analyst recommendation in the Standard & Poor’s 500 Index, is trading at a 7.4 percent premium to Wal-Mart on a price-to-earnings basis, according to data compiled by Bloomberg. Wal-Mart was little changed at $71.39 at 10:52 a.m. in New York today.
Wal-Mart is “always looking for new ways to provide affordable health services and products to our customers,” including a program that offers prescription drugs for $4, Danit Marquardt, a Wal-Mart spokeswoman, said in an e-mail. She didn’t answer questions about the clinic strategy.
Scott, who still sits on the Wal-Mart board, was onto something back in 2007 when he told the 1,600 business and government leaders assembled at the World Health Care Congress in Washington that “we know that customers like and want these clinics.” They generate sales because patients typically fill their prescriptions at the in-store pharmacy and then may buy other merchandise. At the same time, Americans are programmed to demand convenience. Health care is no different.
Last week, Nicky Creamer, a 42-year-old stay-at-home mother of two, dropped by a CVS MinuteClinic in Chicago because she thought she might have strep throat.
“It’s just so fast and easy instead of a doctor,” said Creamer, who lives around the corner from the CVS, which charges $27 for a strep throat test.
CVS Chief Executive Officer Larry Merlo said in the company’s Feb. 6 earnings call that comparable MinuteClinic sales surged more than 38 percent compared with the fourth quarter of last year and that patient visits had reached unprecedented daily levels.
“You can see why they’re investing,” said Charland, whose research firm is based in Shoreview, Minnesota. “It’s becoming a no-brainer for them. You start to ask yourself: Why are other major players sitting on the sidelines?”
Unlike CVS which runs its own clinics, Bentonville, Arkansas-based Wal-Mart leased space to independent operators. Bellin Health System, a health-care provider based in Green Bay, Wisconsin, opened and operated them in at least six stores in Idaho, Illinois and Texas between 2010 and 2012, according to Kenneth Berndt, who was then Bellin’s director of business development. Since then four have closed, he said.
The world’s largest retailer didn’t advertise the clinics or allow outdoor signs for them, said Berndt, who is now chief executive officer of Danville, Pennsylvania-based Geisinger Careworks, the retail clinic division of Geisinger Health System. Wal-Mart’s pharmacies also kept clinic patients waiting for their prescriptions, he said.
“People would come back to the clinic complaining they’d been waiting an hour,” Berndt said. “When you’re sick, you just want to go home and get in bed. Next time, they’ll say, ’where can I get this done the quickest?’”
In-store pharmacies at Berndt’s other clients, which include grocery chains, “fill them right away and people are out of there in five minutes,” he said.
Wal-Mart has reversed course on the opening of some new clinics and has 26 fewer today than it had a year ago, according to Merchant Medicine. That leaves Berndt and Charland wondering what the company’s strategy will be going forward.
“It didn’t seem to be what the administration of Wal-Mart wanted,” Berndt said. “They were a landlord, not a partner.”
Charland said Wal-Mart is accustomed to “figuring something out, repeating it and perfecting it.” With more than 60 individual operators handling care in states that have their own health regulations, widespread standardization is not easily attainable, said Charland.
Meanwhile, CVS is doubling down. About 85 percent of MinuteClinic patients use some type of insurance, and demand for clinics will grow as more Americans gain coverage, Dr. Andrew Sussman, the president of MinuteClinic, said in a telephone interview.
Clinics will serve as an overflow outlet as a limited number of primary-care doctors struggle to treat an aging U.S. population suffering various chronic diseases, Sussman said. The Association of American Medical Colleges expects the U.S. to be short about 45,000 primary care physicians by 2020.
Faye Yang, a 34-year-old pharmacist at a CVS in Chicago, said she already has noticed the crunch.
“Here you can pop in at your leisure,” Yang said as she waited for her annual physical at a MinuteClinic in Chicago. “Doctors’ offices are inundated with requests.”
While CVS has surged ahead in its clinic growth, Target Corp. and Walgreen Co., have maintained steady progress. Both retailers are poised for more aggressive approaches.
Dr. Kevin Ronneberg, associate medical director for Target, said the company has “plans for continued expansion at a more rapid pace than you have seen.”
“We’re at a point where continued investment and expansion makes a lot of sense,” Ronneberg said.
The Minneapolis-based retailer, with more than 1,700 stores nationally, has opened 53 clinics in six states since 2006. It plans to open 14 this year and is taking its time to better understand the business and the markets, Ronneberg said.
“It gives us better chances of being successful,” he said. “We have not backed out of anywhere yet.”
Walgreen exploded from about 40 clinics in the beginning of 2007 to 355 by the end of 2009, according to Merchant Medicine. Its growth halted in the years that followed amid the recession, and the Deerfield, Illinois-based company now has 364 clinics in its more than 8,500 stores nationally.
Peter Hotz, vice president of the chain’s Take Care Health Systems, said Walgreen is gearing up for the number of clinics to “grow significantly.” He declined to give specific numbers.
“Everyone who plays in this space is expecting a big bump on January 1, 2014,” Hotz said, referring to the date when the Americans will be required to hold health insurance under the federal health-care law. “With President Obama being re-elected, it’s full-steam ahead.”