How MinuteClinic is remaking the primary care model
|Apr 20||Public post|
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Today we’re poring over primary care. But first some things that happened since we last spoke…
It was reported this week that, actually, Amazon won’t try to sell pharmaceuticals to hospitals right now. Hospital purchasing, at least on the scale that Amazon would need, is a well-developed process. These hospitals have tight relationships with the very few large scale suppliers, so while Amazon certainly has the resources and muscle to compete on price and convenience, they might not have the clout to overcome institutional purchasing inertia.
Amazon still has plenty of other healthcare activity, including their EHR efforts through Amazon Web Services (and a long-rumored partnership with Cerner), as well as hardware solutions and possibly Alexa healthcare skills. Amazon is going to be in healthcare in one way or another.
Generic drugmakers aren’t doing well, according to Bloomberg. Citing increasing pressure from middlemen, generic manufacturers are threatening to stop production of unprofitable drugs. I’d argue that it’s not that generic drugs can’t be profitable, but rather that generics companies have grown assuming certain larger profit margins that are being squeezed by market forces. Expect to see new market entrants coming in with streamlined operations to take advantage of an opportunity to thrive on thinner margins. Also, this is exactly the phenomena that will feed into the success of the Intermountain Healthcare-led generic drug manufacturing consortium, which I wrote about.
There has been a lot of vertical integration going on in the world of healthcare. CVS + Aetna, Express Scripts + Cigna, and UnitedHealth Group + whoever they acquired this week. Add to the list the rumored Humana + Walmart deal and you’ve got a bevy of vertically integrated nascent health systems. It looks kind of like this:
(chart via Revive Health)
Each of these companies, except Cigna, has some kind of primary care presence. MinuteClinic has been stealing patients from traditional primary care for years, as has Walmart Care Clinics (on a much smaller scale), and MedExpress is well entrenched as a urgent care provider. UnitedHealth Group’s recent DaVita acquisition includes scores of more traditional primary care practices throughout the country (acquisition activity that looks like the classic definition of a roll up).
Primary care is defined not by medical specialty, but instead by its proximity to patients. Primary care doctors, typically internists, osteopaths, pediatricians, and family doctors by specialty, deliver a wide variety of services like preventive medicine (regular checkups and physicals, vaccinations, etc.) non-urgent care like scraped knees and sore throats, and also act as chronic care managers, helping patients with chronic conditions lead healthy lifestyles and live with their conditions. They are the initial and primary interaction point for patients interacting with the system.
If the healthcare system was a New England house, primary care would the mud room. It’s the first place you enter, and you typically have to go through it to get to any of the other rooms in the house. (Also it would smell of cedar and fresh bread baking in the oven.)
Thus primary care is valuable for an integrated system. It’s a patient acquisition point, and the apparatus with which the system can regularly interact with patients to manage their chronic conditions and overall health.
While these companies are buying and building primary care service lines, they’re taking different approaches. UnitedHealth, through DaVita, is simply adding traidional primary care to the system, while CVS and their MinuteClinic (and Walmart’s Care Clinics) are creating a much more consumer focused approach to what primary care can be.
The traditional primary care model is well understood, but what’s important is the financial motivators in running a practice. These practices operate on a high fixed-cost basis with very low marginal cost per patient. Salary for physicians, nurses, and medical staff comprise the bulk of the costs side of the income statement, with rent, administrative staff, technology, and other expenses rounding out the sheet. That means that when providers see more patients, the revenue benefit of seeing a patient isn’t matched by a corresponding increase in associated costs.
When practices need to earn more money, the quickest path to profits is to increase the number of patient visits in a given day. This is evident in the way that many primary care practices have begun to operate in the face of declining per-visit reimbursements from payers. Visits are shorter, resulting in less face-time with the doctor. Visits are also scheduled closer together and even double-booked to anticipate cancellations, resulting in longer waiting times for patients. Physicians feel forced into this sort of activity, and patients grow dissatisfied.
By spending nearly $5 billion to bring DaVita’s practices into the OptumCare family, UnitedHealth Group isn’t so much trying to rock the primary care boat, as they are just trying to ensure they have a complete vertical offering.
On the other side of the street, you have MinuteClinic. The biggest difference here is that everything is different. There are no physicians on staff - only nurse practitioners and physicians assistants. There are no appointments, although at some locations with longer lines you can reserve a place in line before you arrive. Overall, these clinics are intent on providing care services as efficiently as possible, and on a much lower cost basis.
Evaluating the MinuteClinic on the same financial model as the traditional primary care practice, we can pretty quickly see why it’s beneficial. First, you’ve stripped out your largest cost: the physician salary. Additionally from a workflow perspective, patients are going straight to the nurse practitioner rather than seeing a nurse and then the doctor. This increases overall rate of throughput, which means more visits in a day. So that’s a higher revenue potential with a lower cost basis. Makes perfect sense.
But MinuteClinics and their other urgent and retail clinic counterparts are hitting on something much bigger than an improved financial model: they’re inventing the future of primary care.
(via The Advisory Board)
By my count, 6 of the above top ten preferred primary care clinic attributes relate directly to convenience factors - locations, hours of operation, ease of getting an appointment, etc. Patients care far more about the convenience of the appointment than they do about seeing the same doctor or nurse each time.
Unlike traditional primary care practices, MinuteClinics were built for convenience. It’s literally in the name.
Why didn’t traditional primary care adapt to this patient demand? Until 2016, more than 50% of physician practices had physician ownership. Despite the evidence that MinuteClinics have a better model, the primary care doctor operating his solo practice down the street would much rather sell the whole shop to the local hospital group rather than reorganize to deemphasize his own role. To make this kind of tectonic shift in primary care delivery it was almost entirely necessary to have a new entrant in the space.
It seems that these new entrants, who are hell bent on patient convenience and bending the cost curve, are going to do very well in primary care. Assuming this deal with Aetna goes through, CVS will soon have a much wider view of the patient, meaning they’ll reap even bigger rewards for providing better primary care. Better primary care leads to healthier patients, and healthier patients cost less to take care of. Simple as that.
Finally, this teaches us an important point about how disruptive forces apply in healthcare. Disruption usually happens on price or quality terms - new firms can afford to undercut established firms because they have a lower overall cost basis, and can afford to service a smaller customer base that wouldn’t satisfy the margin requirements of an established firm. But, as we know, price is not a driving force in healthcare.
CVS, Walmart, and the urgent care industry are disrupting primary care with convenience as their driving force. While patients don’t care about price - because they don’t pay it directly and often don’t know what it’ll be up-front - they care about the next part of the equation: how easy and painless will this be? While healthcare often doesn’t play by traditional free market rules, there are still levers to pull, and markets to disrupt.