Rite Aid, Walgreen, and CVS: Can In-Store Care Push Pharmacy Stocks Forward?
The landscape of health care over the last few years has changed dramatically. Nowhere has that change been as evident as in corner drug stores across the country. A mere decade ago, many of the innovations and services provided by big-box pharmacies including Walgreen Company , CVS Caremark Corporation , and Rite Aid Corporation , including in-store clinics and wellness programs, simply did not exist.
In the mid-2000s, a number of different factors began to emerge that planted the seeds of primary care services in major drug store chains. Drug reimbursements continued to steadily shrink as a result of cost-saving by insurance companies and cheap generic drug pricing programs designed to entice new patients. Pharmacy chains also seized an opportunity to begin delivering primary care services as a means of cross-promoting products and leveraging the high visibility of thousands of drug stores nationally.
With CVS' buyout of Minute Clinic in 2006 and Walgreen's acquisition of Take Care Health clinics in 2007, the retail pharmacy clinic segment experienced a period of rapid growth; the number of stores countrywide nearly doubled in 2006 and again 2007. This growth eventually plateaued at roughly 1,200 retail health clinics across the country in 2009, but came to a grinding halt later that same year over worries about the direction of health care reform.
However, a recent wave of partnerships are beginning to pay off big for pharmacy-based clinics that are quickly becoming front-line assets for big box retailers.
Turning enemies into friends
The increasing role that convenient care is playing in health care is due to the warmer reception that retail health clinics have begun receiving from their colleagues in primary care medicine and hospitals.
In the early success of retail health clinics, many primary care physicians and practitioners were quick to cry foul claiming that pharmacies and pharmacy-based mid-level practitioners were pressing into the "turf" of conventional medicine and disrupting the patient-physician relationship. Accusations of weaker standards of care, counter-productive care philosophies, and inappropriate cross promotion ran rampant. As a result, few if any medical institutions sought to form partnerships with convenient care providers and instead focused on pivots to existing primary care services.
However, the focus on positive outcomes required by health care reform puts pressure on hospital systems and strained primary care practices to find creative ways to keep patients healthy whenever they may need care. The additional 30 million patients expected as a result of the health care reforms from the ACA essentially will have nowhere to go but packed physician clinics if not for use of convenient care clinics.
CVS' MinuteClinic has signed partnerships in the last 18 months with groups including Allina Hospitals, Emory Health, and most recently with Dartmouth-Hitchcock in New Hampshire. Similarly, Walgreens' dramatic overhaul of store layouts to its WellExperience format includes WellTransitions - a new program designed to help patients make the transition from hospital to home via hospital and clinic partnerships. Not to be left behind, Rite Aid's online clinical service partnership with NowClinic has expanded to more than 72 cities alongside its partnered weight loss services with Lindora in Southern California.
Of things to come
The number of health care clinics nationwide and the importance of their contribution to major retailers has already begun to skyrocket. CVS led the pack with 671 clinics in mid-2013 and recently reported that more than 800 active clinics would be operating by year end. Third-quarter estimates for MinuteClinic put growth at 18% over year-over-year.
Similarly, Walgreen's seven-year plan to transition all of its conventional drug stores to WellExperience stores is well on track with more than 500 pharmacies making the big jump to the new format. The program broke into several new states, including a major partnership scored with John Hopkins. In light of these explosive growth trends, the number of pharmacy retail clinics are expected to double by 2015.
The trends for convenient care bodes well for pharmacy chains across the board as regulatory events continue to introduce new patients to the primary care market.
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The article Rite Aid, Walgreen, and CVS: Can In-Store Care Push Pharmacy Stocks Forward? originally appeared on Fool.com.Fool contributor Eric Ho has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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