Providers are navigating the uncertain waters of retail disruption's continuing growth in the healthcare space, forcing hospitals to compete or partner.
Editor's note: This article appears in the June 2023 edition of HealthLeaders magazine.
Years ago, if you had asked hospital or health system executives whether retail giants—Amazon, Walmart, CVS Health, Best Buy—would be the next step in the evolution of healthcare providers, they probably would have laughed in your face—but not anymore.
Retailers have been encroaching on the healthcare space, promising to lower costs and give patients a retail-like experience in a way that traditional providers have not. Indeed, the $260 billion primary care market, which is dominated by traditional providers, could see nontraditional organizations own 30% of the market by 2030, according to a Bain & Company analysis cited in the American Hospital Association's Health Care Disruption: 2023 Outlook report. The likelihood of retailers taking over a significant portion of the healthcare market is so great that NYU offers a course on the subject as part of its certificate in healthcare marketing and communications.
The current retail environment is highlighting the need for providers to adapt and evolve with the ever-changing wants and needs of the patient-consumers they serve. If retail giants like CVS and Amazon can provide care with more convenience, traditional providers will need to decide whether to partner with or increase their competitiveness with retailers.
"My immediate reaction [when retail enters healthcare] is that we're not doing a good enough job of meeting the needs of our patients," says Kris Kurtz, chief financial officer for the University of Michigan Health-West, a Wyoming, Michigan–based nonprofit health system with 208 total staffed beds and about $550 million in net patient revenue. "That tells me we have access problems. Patients are looking to get in quicker, and we need to do a better job in healthcare of meeting their needs."
Indeed, patients are no longer willing to wait days to see their doctor; they want quick access, to see their test results right away, and to get answers to their healthcare questions as fast as technologically possible.
A 2022 survey by the healthcare technology consulting and services company Tegria found that 69% of U.S. healthcare consumers would consider changing their provider if the new provider offered modern services. Factors that could drive a person to switch include the availability of same-day appointments for non-routine issues (35%), convenient locations (30%), and self-scheduling (29%). More than three-quarters (79%) want the ability to use technology when managing their healthcare experience.
Yet despite this overwhelming demand, the healthcare industry has been slow to adapt to its patients' technological wants and needs, giving retailers the chance to swoop in and offer healthcare options that include these technologically advanced services.
"Most of us in the healthcare industry are trying to work on access," Kurtz says. "We tend to be one of the last industries to innovate. [Retail's presence in healthcare] will certainly accelerate that and force us to innovate. I don't know why healthcare has always lagged behind when it comes to digital innovation. But I think these retailers will definitely speed up our transition."
If providers can adopt a retail-like approach to their services, they could keep patients from seeking care where they shop.
"If [retailers] offer a 'friendlier' consumer experience in terms of access and hours of operation, that could cause other providers to do this as well and encourage consumers to not miss routine checkups; that would be good for population health," says Stacey Malakoff, executive vice president and chief finance and administrative officer for the Hospital for Special Surgery in New York City, a 215-licensed-bed academic medical center specializing in orthopedic surgery with a $1.15 billion operating expense budget. "Additionally, I think traditional providers will continue to expand into retail spaces to be more accessible. On the other hand, there is reasonable concern that capitation may mean patients don't get necessary but higher-cost testing (e.g., advanced imaging or various blood tests or procedures)."
To survive in a healthcare market that is being swarmed by retail disruptors, providers must improve access to care and concentrate on building relationships—with patients, payers, and even the disruptors themselves.
"Healthcare, I believe, is still a relationship business and will be at least for a while longer. We have patient relationships today for the most part, so it's our business to loosen access, and the ease of use is probably the best strategy we can deploy," Kurtz says. "As an industry, we make it far too difficult for patients to enter and navigate the system. In some instances, we may need to partner with the disruptors rather than compete with them. [Likely it's] probably a combination of both."
Partner or compete?
For some providers, partnering with a large retailer may seem like an easy decision, especially for smaller rural providers who don't have the economic resources and reach of their larger counterparts. But while providers of all sizes are taking disruption more seriously, deciding which path to take—partnership or competition—isn't as clear cut.
To help providers consider whether to compete or partner with retailers, the AHA suggests providers ask themselves four key questions:
- Do we have an omnichannel presence that provides the convenience, access, transparency, pricing, and other information and services that patients want?
- Are there partnership opportunities with any
of the Big 5 companies transforming primary care?
- How can we leverage our strength in establishing trust and rapport with existing patients to use our outpatient, clinic, and virtual services for routine and nonemergent care?
- How can we partner with big tech firms around research, data sharing, etc., to improve care?
Another consideration is that retailers and providers have several differences when it comes to how they do business. One of the most critical differences is that retailers can make decisions that are best for their bottom lines and only view things from a lens of profitability. Providers, on the other hand, have to not only think about profits but also consider the lives of the people using their services.
Care quality must be a provider's primary focus, and that is where adopting a retail approach to healthcare can be tricky.
"The cultures of retail and healthcare are not necessarily compatible," Malakoff says. "Are the retailers in this for the short haul or the long haul? If they're in it for a shorter while, then they're in for the quick dollar and how much they can make. But [the impact] for hospitals and health systems will depend on whether or not retailers are cherry-picking patients and taking the patients that are easier to treat."
If retailers take a "cherry-picking" approach to the way they offer healthcare, there could be a significant impact on the financial viability of healthcare providers.
"Hospitals are operating at razor-thin margins and expenses are outgrowing revenues. If the sicker, less affluent patients are [flooding] health systems, financial viability will become an issue," Malakoff says.
The pros and cons of retail partnerships and competition
One healthcare system's strategy to deal with the issue of retail disruption was to partner, and it is confident that bringing together the expertise of its hospital care with the best retail tech expertise will create success.
Advocate Health, a large nonprofit system headquartered in Charlotte, North Carolina, serves six states with an additional presence in Chicago and Milwaukee, and was recently formed by a merger between Advocate Aurora Health and Atrium Health in December 2022, making Advocate Health's net operating revenue $27 billion. Atrium Health, now part of the Advocate Health family, operates a hospital-at-home unit, which recently partnered with electronics retail giant Best Buy to expand its telehealth segment.
"We've seen the need for us to bring a very strong technology partner that has a strong network," Dr. Rasu Shrestha, executive vice president and chief innovation and commercialization officer for Advocate Health, said in a release when the partnership was announced. "Best Buy Health has a national network that's able to bring in complementary capabilities—really enhance the clinical services delivered by Atrium Health, as well as the offerings that we're going to be creating together."
Atrium now has access to Best Buy's Geek Squad agents—technology setup and service providers—who will equip Atrium patients with wearable tech that will allow the provider's care teams to remotely monitor vital signs on a 24/7 basis. Best Buy isn't getting into the healthcare treatment business, but it has figured out a way to enter the industry and make itself a valuable part of how providers offer care.
"They won't be necessarily the same team that's doing your home theater," Deborah Di Sanzo, president of Best Buy Health, said in the announcement. "They will be Geek Squad agents specially trained in health to deliver specific services in the home. When we talk about helping people with technology in their homes, that's what Best Buy has done for years. We're never going to provide healthcare but, with Atrium Health, we want to help enable healthcare at home for everyone. It's getting the devices to the home when Atrium Health and the patient need them."
Because this provider-retailer partnership just started in February, it's too early to report on outcomes. But one thing is for certain: Some providers are finding creative and synergetic ways to exist among retail disruption in healthcare instead of fighting it.
On the other side, it seems that retailers will also best succeed in the healthcare industry when partnering with healthcare providers, especially considering that even some of the biggest retail players have failed when attempting to shake up the healthcare space on their own.
In 2021, just three short years after Amazon, Berkshire Hathaway, and JPMorgan Chase teamed up to create Haven—a venture that aimed to tackle the persistent problem of rising costs for employee healthcare—the group announced they would be shuttering the company. At the time, the news shocked Wall Street, sending healthcare stocks plummeting after the announcement over renewed fears regarding healthcare costs, according to a CNBC.com report.
Questions abounded over how a company led by some of the biggest names in retail, finance, and tech could fail in such a way. The answer, according to an analysis in the January 6, 2021, Harvard Business Review, was "insufficient market power." The three companies didn't have enough power in the market to wring lower prices from providers, with the consolidation of health systems over the last 10–15 years being the main reason, according to the analysis.
"Unless an employer group has a big chunk of the local market (more than 50% of eligible employees), providers don't budge on their prices," Harvard Business Review wrote. "Since the employees of the three companies in Haven were scattered all over the country, they couldn't dominate even one market."
Yet retailers seem to have a better understanding of how to meet individual consumer needs and preferences than providers and can capitalize on that in their healthcare offerings. For providers, realizing that different segments of the patient population have vast and unique needs is going to be a major contributing factor in how they deal with retail disruption.
"People who work during the day feel that the hours of current primary care practices are incredibly inconvenient, so alternative providers that offer evening hours, weekend hours, etc. (whether that is an urgent care clinic, a telehealth company, or a retail store) will be more attractive," says Harold Miller, president and CEO of the Center for Healthcare Quality and Payment Reform. "Most primary care practices couldn't possibly compete with a retail store in terms of the kinds of hours that could be offered, because the retail store is already paying for the utilities, security, etc., to be open all of those hours. There are primary care practices that have entered into partnerships with urgent care clinics as a way of addressing the need for expanded hours."
Miller agrees that access is another critical issue that can help providers navigate retail disruptors, which they'll have to do more of in areas with large populations.
"Regardless of the hours of operation, if someone has to wait for an appointment or has to wait to be seen, they will find that provider less convenient and less attractive," Miller says. "Wait times are a function of how many physicians or other healthcare providers there are relative to the number of patients who potentially want to see them. Having providers sit around waiting for patients is expensive because they only get paid when they actually see someone. The retail firms are going to face the same challenge a traditional provider faces—the greater the convenience and access they offer, the less profitable the service will be because they will have to have more slack built into the system. It is likely that retailers will focus on large urban areas simply because there are more patients."
Providers looking to reduce costs and remain competitive can take a page from the playbook retailers seem to be working from, Miller says, and hire nurse practitioners and physician assistants who can offer specialized care, rather than more expensive MDs.
"This strategy means that retailers will be unable to compete head-to-head with traditional primary care practices since they won't be able to treat or manage patients with more complex conditions who need care from a physician," Miller says. "So rather than just 'competition' per se, the result of all this could also be a more explicit segmentation of the population. The retailers 'win' in attracting the patients for whom non-standard hours are paramount and patients who are basically healthy and just need the basics. The traditional providers 'win' in attracting patients who need care from a physician and who want a physician they can have an ongoing relationship with."
Where providers can fall short is on the technological side of things, lacking the speed to provide services as fast as retailers.
Karen Hanlon, executive vice president and chief operating officer at Highmark Health, spoke on a panel at ViVE 2023, saying that health systems need to make significant technological improvements if they want to keep up with the competition. She also noted, according to reporting by HealthLeaders innovation and technology editor Eric Wicklund, that providers should highlight the fact that they know how to do healthcare, whereas retailers are in it for the money.
Hospitals and health systems can capitalize on this consumer demand for quick digital service by partnering with vendors,or even the retailers themselves, and offer apps and digital services that meet the needs of their patient base.
Malakoff says that partnering with a retailer can offer providers cost-cutting measures that won't impact patient care quality.
"Retailers can partner with health systems and just be an easier way to care for the patient, due to the easy access they have and doing the basic tests and then farm them out quickly to the specialist," she says. "It could cut emergency room costs—hospitals lose money in emergency rooms—but they have to be able to take all comers, including the uninsured. They must be able to do what hospitals do in providing sometimes free care to the uninsured and underprivileged. And so, if they run under the same methodologies of an ER, it could really cut the cost as well."
A provider advantage
Providers have another ace up their sleeve when it comes to offering high-quality, in-demand services—the value-based care model. Utilizing a value-based care model would give providers a competitive advantage over retailers because it rewards providers for saving without scrimping on care quality.
"The value-based care model turns that upside down. It rewards providers for savings," Kevin Murphy, chief financial officer for Vytalize Health, told HealthLeaders. "Being at risk for the care of those patients makes you consider their care very differently and much more proactively and have ongoing involvement. The notion of giving anyone less care doesn't work because they'll get sicker and go to the hospital. So, if you look at the economics, the drivers are crystal clear.
"There is an increasing push from CMS for the adoption of value-based care, and the incentives are quite clear and cannot be separated from the economic side of the equation. Care quality always comes first—ask any doctor why they chose their profession, and they'll say that providing the best care is why they became doctors. Through value-based care, we can increase doctors' income by 10%, 20%, and in many cases north of 30%. So, it is a meaningful shift in their practices' profitability and their personal income to participate in value-based care."
Other providers that have embraced the value-based care model agree that this is the direction healthcare needs to go.
"Finding ways to reduce costs while increasing quality and outcomes for the patient is a passion of ours. And along with that, recognizing that fee-for-service is not the future and honestly, cost-based reimbursement is not the future," says Matt Minor, chief financial officer for Columbia County Health System, a 25-bed rural hospital in Dayton, Washington. "[Those things are] here now and it helps for now, but value-based care is the future and disparate revenue streams are the future. So, looking to where we can find revenue streams to match specific community needs is important."
As long as retailers believe there is money to be made and they can offer convenience and access, they'll keep encroaching on the healthcare space, forcing providers to find ways to adapt to survive in this type of environment. It's up to providers to decide how to handle this disruption. Whether partnering or competing, providers must become innovative disruptors to improve healthcare and lower costs for patients.
Amanda Schiavo is the Finance Editor for HealthLeaders.
Improving access to care, shortening wait times, and improving care quality can help providers survive in a retail-dominated healthcare environment.
If providers adopt a retail-like approach to their services, they could potentially keep patients from seeking care where they shop.
Using a value-based care model gives providers a competitive advantage over retailers because it rewards providers for saving without scrimping on care quality.