It all seemed so simple.  Open a clinic inside a busy retail store with a pharmacy. Guarantee patients they would be in and out in 15 minutes.  Make a lot of money.  But in the last 12 months 10 operators comprising 136 clinics have closed their doors.  Among their retail partners: Wal-Mart, Meijer, Shopko, Schnucks, Carnival, USA Drug and many other well-known brands.  Virtually all have been backed by otherwise sophisticated and successful private investors and venture capital firms.  Why the disappointing performance?  Several former operators provide some of the lessons they learned.

Know Thy Investor
According to Julie Beckner, former president and CEO of Corner Care Clinic, the closure of her company had less to do with patient traffic than it did with her sole investor changing their strategy mid course.
CornerCare’s exclusive investor was Cardinal Health, which sells medical equipment and supplies to many health care organizations and retail pharmacies across the country.  Cardinal Health also owns the franchisor Medicine Shoppe and pharmacy buying group Leader, the combination of which formed Corner Care Clinic’s retail platform.  Corner Care opened its first clinics in October of 2006; the operation closed in August 2007.

“Cardinal's decision to no longer fund the organization caused the board to have to make the decision to close the operation” says Beckner.  “I’m convinced if it had more time we would have been successful.”

A quick exit is not unique to Corner Care clinic, however.  SmartCare, which is the most recent retail clinic operator to close, saw one of its first investors exit before the company even got rolling.

“Capital intensive.”  That’s the two word answer from Tyler Tysdal of Tivis Capital to the question of why he and his firm exited as SmartCare investors in December of 2006.  Just five months earlier, a ColoradoBiz Magazine profile of Tysdal and SmartCare talked about an intention to open 1,050 clinics in five years and “to grow SmartCare into a $1-billion-plus health-care juggernaut.”  Tysdal declined any further comment other than to say the company exited to a venture firm in Texas.
 

That firm was Argonaut Capital out of Dallas.  SmartCare proceeded to open 15 locations in Denver area Wal-Mart Supercenters.  They also announced intentions of opening clinics in Kroger grocery stores in Atlanta.  SmartCare closed on June 20 leaving Wal-Mart with its third major closure since announcing a 400-clinic initiative in April 2007.

But Wal-Mart isn’t the only retailer to see multiple operators close their doors.  Meijer, a mass merchant similar to Wal-Mart and Target based in Grand Rapids, Mich., also has witnessed three operators close more than 30 clinics in their stores.  Medical Marts, formerly based in Las Vegas, is one of them.  The company opened three locations inside Chicago-area Meijer stores in August and September of 2007.  The company closed shop at the end of the year.

Meijer could not be reached for comment, but Medical Marts also operated seven clinics inside Shopko stores in Utah and briefly opened three clinics with Sears/K-Mart in Virginia.  These were very different retailers in very different geographies.  Additionally, the providers were family practice physicians, not mid-level practitioners, which added to the cost model.  But none of these factors had much to do with the company’s eventual closure, according to two people familiar with the situation.

“Our investors had very little healthcare experience,” says Ken Richmond, MD, former VP and chief medical officer for Medical Marts.  “Most were private investors from Hawaii.  The thought was that if we built it they would come.  Apart from that, there was very little operational oversight.  Their proforma financials weren’t even close.”

The Local Health System Connection
Mike Bettiga, Shopko executive vice president of retail health services, echoes that sentiment.  “Medical Marts didn’t have the marketing funds they really needed,” he says. “Without the marketing funds there wasn’t the patient traffic.  Without the patient traffic there was no money for marketing.  It was a death spiral.”

But Bettiga says the experience provided a more important lesson, one that is good news for hospital systems getting into the business:  “We learned that you have to have a presence in the community and be integrated with an existing health system.  That’s what’s going to separate the winners from the losers in this business.  We didn’t have that in Salt Lake or Chicago.”

Bettiga advocates what is now the new Shopko model of on-site clinics.  “We have partnered under a master agreement with Bellin Health to open clinics under Bellin’s FastCare brand.  Bellin then goes out and finds hospital systems that make sense for us and those systems operate the clinics under a co-branding arrangement.”

Under this model Shopko now has the following five different hospital systems operating 11 clinics in Wisconsin and Minnesota stores:
- OMC FastCare, Rochester MN
- Bellin FastCare. Green Bay, WI
- Aspirus FastCare, Wausau, WI
- ThedaCare FastCare, Appleton, WI
- BDCH FastCare, Beaver Dam, WI

“For us, this has worked out very well,” says Bettiga.  “And we’re seeing much better patient numbers than what I hear is the norm for other operators.”

Julie Beckner from CornerCare clinic agrees that local health system connection is critical.  “What is important is that the clinic vendor work side-by-side with local physicians and health systems to become an adjunct to their practices and to get the 60% of clinic patients without a PCP into a permanent medical home,” she says.

The Importance of the Retail Platform
Meijer also leased space to Early Solutions Clinic and Affordable Basic Care™.  David Silliven is the executive director of Physicians’ Organization of Western Michigan (POWM) and operated the clinics in partnership with Metro Health and Care Clinic, Inc., a subsidiary of Arcadia Resources, Inc. (AMEX: KAD).  Arcadia provided the investment capital along with the staffing, and the clinical oversight was provided by Metro Health and POWM.

“The primary reason for closure was not enough patient volume,” says Silliven.  “Contributing was that we could not get included as an in-network provider with the leading managed care plans locally.  It took more than 12 months to get an agreement approved with BCBS Michigan, and the other major HMO in the market is owned by a health system that owns competing immediate care centers.”

Silliven says Arcadia spent too much money on expanding the network before they had payer contracts in place and knew the model was profitable.  “We believed it would take three years.  Arcadia’s investors didn’t want to wait that long,” he says.  “I still believe the concept has merit in certain markets.”
Silliven says Meijer did not include the clinics in their advertising and promotional activities because it was a real estate play in their minds.  “We didn’t ask them to promote the clinics at the start but over time it became clear that we needed it,” he says.  “We came in thinking that other tenants like nail salons and barbershops were busy so why not us.  If we could have attracted even one percent of their weekly customers to our clinics we would have averaged 200 patients a week.”

In retrospect Silliven says their thinking about the retail foot traffic was misguided.  “Despite the foot traffic and success of other retail inside Meijer, people just didn’t think about us as an option.  They thought about their primary care physician or the urgent care center.”

Ken Richmond from Medical Marts had a similar experience with Meijer.  “We were supposed to open first in Chicago with Meijer,” he says.  “But inside it was a battle with Meijer, so it took a long time to sort out what we could and couldn’t do.  Outdoor signage was also not available and not negotiable with Meijer.  Shopko was much more cooperative.”

If foot traffic were all that was needed it would seem the Wal-Mart retail platform would be ideal.  “That’s clearly not true,” says Dan Patterson, who invested in SmartCare along with Argonaut Capital.    “We thought it was early on.  All I know is it didn’t work; foot traffic is no guarantee.”  Indeed, 51 of the 139 closures in the last 12 months have taken place in Wal-Mart stores.  “The retailers need to be a lot more supportive because they’re getting a lot more than rent,” says Patterson.

Changing Behavior
Patterson also says behavior change is another lesson.  “Patients are slow to change their patterns of getting care,” he says.  “You better build two to three years of cash burn into your plan.”  Patterson adds that if you’re the only operator in town, you shoulder more of the burden of changing that behavior.   “We also found that you need to invest more in overhead, and that means you need to scale quickly.”

Beckner of Corner Care believes that overhead boils down to marketing.  “This was a consumer awareness and acceptance issue,” she says.  “Marketing and the cost of marketing was a key factor.  Getting managed care contracts in place is also key part of the behavior change.”

All operators interviewed believe the concept is viable and necessary.  It would appear, however, no one success factor is enough; retailer cooperation, health insurance, a local health system connection, plenty of marketing funds and a committed investor all must be part of the mix.

“Given what is going on in the healthcare industry, the retail clinic model is going to become more and more critical and accepted by the American consumer,” says Becker.  It’s just a matter of time.”

Side Bar: Summary of Lessons Learned
Know Thy Investor – Private investors and venture capital firms are in business to make money.  They don’t have a pharmacy business or a hospital that benefits from downstream business coming from the clinic.  Unless they have some other strategic reason for being in the business, don’t expect them to have much patience.
Healthcare Is Local – Hospital systems and their trusted brands have a huge advantage over new operators opening up shop in town.   But that advantage doesn’t necessarily add up to instant success.
Don’t Be Subservient to a Retail Partner – Many operators were desperate for space inside a busy retail store and accepted poor terms assuming foot traffic was all that was needed to be successful.  A partnership means cooperation on both sides.  Without cooperation you will likely fail, so don’t sign a one-sided agreement.
Behavior Change Takes Time – Most operators who closed found that building patient traffic took longer and was harder than they expected.  Healthcare is personal.  Patients don’t decide to get their healthcare in a retail store the way they decide to buy a new pair of shoes or try a new kind of food.  Build two years of negative cash burn into your business plan.  If you are the only retail clinic operator in town, build three years into the plan because you shoulder 100 percent of the behavior change burden.  That’s right, competition can be a good thing in this case.
Health Insurance – A major part of the behavior change.

In case you missed it, in the last two years the start of the flu shot season has moved up considerably. And the implications for retail clinics are mostly positive. In fact, this could be the best news retail clinics have seen in a long time.

We are all familiar with the predictions of a booming retail clinic industry. But if you think those predictions have ceased, think again.  Merchant Medicine estimates 2,050 retail clinics by the end of 2014.

Of any company we have followed in the retail healthcare space, Solantic seems to hit all the strategic buttons:  stand-alone urgent care centers in high-traffic shopping centers, clinics in Wal-Mart, joint ventures with area health systems, a clinic in the Orlando airport, franchises for physicians, outstanding consumer marketing and a relentless pursuit of customer satisfaction.

Over the long term, it could be that seasonality is the least of a retail clinic operator’s worries. As we noted last month in an article about the long road to breakeven for retail clinic operators, traditional medical practices are taking a page out of the retail clinic playbook and focusing more than ever on patient convenience and consumer marketing. The result is a trend that we call “ConvUrgentCare™,” the merging of convenient care, urgent care and any type of walk-in medicine that involves non-emergent acute medical care.  Today you can see retail clinic techniques crossing over not only to urgent care and emergency care, but also pediatrics, family medicine and work-site clinics.   And these techniques appear to be working to change the game in walk-in medicine.

He has lived in the world of corporate travel management and now the world of healthcare.  Oddly enough, the corporate travel world seems to know a lot more about Hal Rosenbluth than the healthcare world.  But that may be about to change.