Miniclinics: trend, threat, or opportunity? Are you ready to compete with Wal-Mart? How about CVS? Walgreens? Or is there an opportunity to be their partner?

Retailers are entering what I'll call "entry level" primary care in what surely will be one of the more closely watched phenomena in health care. In many markets, major drugstore and grocery chains are establishing miniclinics inside retail pharmacies. The model most are adapting uses a nurse

The move follows earlier strategies of adding more and more convenience aspects to stores through minibanks, dry cleaners, and Starbucks--and now health care. Admittedly, urgent care programs are not new even at retail outlets, but they seem to be attracting renewed interest at the retail chain levels for a variety of reasons.

Let's check out this flanking activity by looking at the "who," the "how," and the "so what?" of this emerging trend.

So far, the familiar retail faces have been joining the fray: Target, CVS, Walgreens, and perennial favorite Wal-Mart. And their plans are fairly aggressive: CVS, for example, is looking to launch 60 sites soon. Walgreens says its goal is 1,300 sites by 2007 (Medpage Today, Oct. 14, 2005).

The motivation: Same-store sales for most chain drugstores are flat or experiencing small increases. The highest-margin products in the stores have been and continue to be pharmacy. So retailers want to get more people in for prescriptions--and, while they are at it, to buy other goods as well.

The miniclinic fills the bill nicely. It fits with the convenience positioning that retailers enjoy: There is little to no wait for a diagnosis of a "routine" medical problem, it's easy to get a prescription filled without going to another destination, and customers can get their film developed (or whatever other convenience item they need).

Many retailers are turning to national miniclinic providers, who essentially become tenants in the retail space. The national models are appealing to retailers for a host of reasons, including an ability to build their own national brand, outsourcing of a unique skill set, and--what appears to be growing in importance--a reliable infrastructure to capture data.

Hospitals would be wise to look at these venues for both short-term revenue and downstream referrals.

The Basic Business Model

The economics of a miniclinic are like those of most retail analyses: pretty straightforward. Jeff Routledge, a Hartford, Conn.-based healthcare consultant on miniclinics, summarizes the model in this table:

Revenue per visit                $50-$60
Number of visits to break even   15-20/day
Mature visit rate                30 patients/day

Startup costs are estimated to range from $25,000 to $45,000 plus operating capital. Those costs include the buildout (usually a kiosk-type structure), IT infrastructure, and some marketing communications. The space is a sublease from the retailer, and it appears that the clinics are paying the going rate depending on the market. A typical miniclinic requires 125-150 square feet for its operations.

Based on Routledge's metrics, a typical miniclinic could generate around 10,950 visits and revenue of around $602,250 (based on $55 per visit). Profitability obviously would be influenced by lease costs and staffing, which vary by market.

Market Acceptance: So Far, OK

So far, everybody seems to like the miniclinic concept. Consumers like it, for sure. Payers like it, too, because miniclinics are less expensive than physician offices or the emergency department. Blue Cross of Minnesota has waived copays for its members who use MinuteClinics. Even employers like them for the savings of both time and money.

However, it's not too surprising that some physicians are skeptical. It's the standard argument about improper or incorrect diagnosis that screams the loudest. Miniclinics insist that they are not there to treat chronic conditions, and most have protocols to refer the more seriously ill to physicians. On the flip side, some physicians see the miniclinics as a way to have more time to focus on the seriously ill in their practices.

The Benefit to Hospitals

Hospitals could benefit from sponsoring or cobranding a miniclinic--not strictly for the revenue, but for the downstream activity. Ken Mack, FACHE, president of Cleveland-based DMI Transitions, estimates the referral rate from miniclinics at around 10 percent. Applying that conversion rate to Routledge's metrics would create about 1,100 referrals a year per site. The payback then becomes more on the downstream than on the initial transaction.

So, what are we seeing here?

Trend (versus fad)? Will we see more and more of these popping up at retail outlets on a continuing basis, or will they go away in a year or two?

Retailers are great at identifying trends and dropping them as soon as they are out of vogue. Urgent care centers came, peaked, and now are here and there.

Given the breadth of retailers adapting these sites, it appears to be a sustainable trend. Add to that fact the growing list of venture capitalists that appear to be cuing up their checkbooks, and the trend soon morphs into mainstream activity.

Threat? No doubt this will take business away from the primary care base, but a cynic could argue that many people will use these sites for such minor concerns that they would not have gone to the doctor anyway. There's good reason to be concerned that once people in need of medical services leave your care stream, they will not come back to it.

Add to that the use of screenings by the clinics as customer acquisition strategies. These have been proven to build high traffic as well as to find people at risk. The question of the hour: What's the clinic's motivation to make a referral?

Opportunity? It looks like the major retail chains are going with national providers of these services, such as MinuteClinic, Inc. (Minneapolis) and Take Care Health Systems, LLC (West Conshohocken, Pa.).

Signing on with a chain makes sense for national players because they can bring a consistent level of service to all stores across the country. Retailers like consistency; so do consumers.

Also, cobranding with a strong local healthcare provider could increase consumer confidence in the care they would receive. Wal-Mart, while not cobranding, has leased space to Memorial Health Services (South Bend, Ind.) for a miniclinic.

If miniclinics are true to their public statement of not wanting to "keep" the patients, the entire model begs for a link with a local provider. It would be an excellent feeder system for the simple reason that the expense of finding patients has been incurred by others.

My vote?

It's a triple play. Clearly it's a trend that will endure as major retailers essentially have endorsed the concept. And unless you can find a way to tie your organization in, it's a threat which is, of course, the opportunity. Regional chains like Rite Aid are probably more inclined to work with regional providers. The Targets and CVSs of the world are probably looking for a national partner like MinuteClinic, but there are exceptions.

And the exceptions may well provide you with the best opportunities.

LEARN MORE ABOUT MANAGING YOUR MARGIN!

Learn more about the growing popularity of nurse practitioner clinics--and ways that your organization can capitalize on this opportunity--in the November 2005 issue of Managing the Margin. This monthly HFMA newsletter presents strategies to strengthen your organization's bottom line. John Whitman's article, "Nurse Practitioner Clinics: A Real Opportunity," offers practical tips on steps hospitals should take when considering this new venture.

To subscribe, go to www.hfma.org/mtm.

IS A MINICLINIC PARTNERSHIP RIGHT FOR YOU?

Adapting any strategy is greatly influenced by local market conditions. Here are some issues to consider when evaluating a miniclinic partnership:

* Geographic distribution. Would partnering with a retailer "extend" your hospital into new market areas that are important to you? A miniclinic could be a great strategy for creating a beachhead in a new market at relatively low cost and low risk.

* Physician acceptance. Miniclinics appear to fall into the "half empty, half full" category of discussions. Check with your medical staff to see if they would view these operations as an aid to helping them focus on the chronically ill or as a threat to their mainstream revenue. What protocols, if any, would be necessary to make this more acceptable to them?

* IT infrastructure. Is your patient records system extendable to a retail environment? Can you easily process the financial transactions, including insurance reimbursement?

* Strategic fit. Would a miniclinic fit your overall strategic plan, or is it something that sounds like a good idea at the time? If it's the latter, then it's a distraction from your more critical efforts. Skip it.

* Competitive opportunity. Is this a first-to-market strategy that would give you considerable leverage over time at the expense of your competition? If done correctly, a provider could dominate those geographies that are strategically critical. This strategy would appear to have strong benefit in markets with two or three providers where market share is difficult to move; a miniclinic strategy could help break that logjam.

The important point to remember is that miniclinics are more than just a new convenience product for the consumer. They represent an important opportunity to reach new customers and begin to move them through your care stream. If that's critical to your strategy, then a trip to the drugstore may be in order for your organization.

Arthur C. Sturm, Jr., is president and CEO, SRK, Chicago (asturrn@sturmads.corn).