Skip to main content

CVS-Aetna Forcing Hospitals to Rethink Their Business Models

Analysis  |  By John Commins  
   October 12, 2018

Encroachment into the provider space is happening because traditional providers are failing to meet consumer demands on price, access, choice, and convenience.

The all-but-completed merger of CVS Health and Aetna is a response to the accelerating shift toward consumer-oriented healthcare delivery, says Gurpreet Singh, Health Services Leader at PwC.

Nontraditional companies from the retail and tech sectors will continue to enter the nearly $3 trillion healthcare sector to provide services that were once the exclusive domain of traditional care givers, Singh says. Traditional providers who don't adapt to this shift risk extinction, he warns.

"This is happening because there is an unmet need for the consumer," he says. "The consumer demands choice, access, convenience, and a cost-efficient price for services that, typically for a hospital, are higher-margin businesses," Singh tells HealthLeaders.

Retail newcomers using urgent care centers and in-store clinics are taking lucrative walk-in traffic from hospitals and leaving them with the highest-cost, most-complicated procedures.

That means that hospitals will have to rethink their business model.

"Are they going to be in the business of focusing just on the tertiary, quaternary care?" Singh says. "Or are they going to be in the business of providing experience and convenience and virtualized care to patients?"

Related: Why Health Systems Should Worry About Walgreens and CVS

Singh says hospitals can offset the squeeze from nontraditional competitors by choosing to focus on a particular strength, be it clinical expertise, integrated care, wellness, or customer service.

A product leader, for example, could be an academic medical center with a strong reputation for particular specialties, such as cardiovascular or oncology care. Singh says these product leaders can't simply rely upon their reputation for specific service lines. 

"They're the ones that risk losing a lot of the front-door, higher-margin procedures," Singh says. "They're the ones that typically only have single-digit growth and potentially double-digit costs, where they're kind of upside-down."

These hospitals should also focus on virtual care for chronic conditions. "That allows you to treat more patients than just the patients that come to you as a destination medical center," he says.

The move to wellness

Retail newcomers are also well-positioned to embrace wellness, Singh says. 

"We believe that, especially with a move towards value-based care, where outcomes are really rewarded, that wellness is going to be an important aspect for growth for many healthcare institutions," he says.

"Many of the retail clinics, because they have access to a large population, potentially have the opportunity and the benefit of focusing more on wellness and population health," he says. "They can provide the right behavior modification, the right advice that will make me healthier and as a result, reduce the cost of care longer term."

Winners & Losers

The hospitals that will fail in this competition with retail newcomers are those that can't distinguish themselves for their care, cost, customer service, or willingness to take on outcomes-based payment models, Singh says.

"Many community hospitals that don't have the scale suffer aren't profitable, and that's where, we're seeing hospital closings, mainly in smaller communities because they don't have the right economic profile," he says.

Community hospitals that don't have the resources or reputation to be products leaders could instead focus on being experience leaders, Singh says. 

"They could operate more like a technology company, or a consumer products company where the experience that I get as a consumer is very convenient," he says.

"I can check on the availability of the physician, and I can book my appointment online. I can go into the clinic or the hospital and do my copay right away. I can get sort of referrals and care management right away," he says.

"When you think about consumers, I call it the at-home-health CEO, the person that is between the ages of 35 and 55, who's probably caring for themselves, for a child and a parent. They're making choices for three different generations, so convenience becomes important."

"Those hospitals that can move aggressively towards that convenience and provide services for that at-home-health CEO will be the winners," Singh says. "The ones that can't will be the losers."

“This is happening because there is there's an unmet need for the consumer.”

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


Retail providers will poach walk-ins and patients seeking high-margin procedures.

Hospitals will fail if they can't distinguish themselves on care, cost, customer service, or outcomes-based models.

Convenience, access, and patient experience will also be key metrics for success.

Get the latest on healthcare leadership in your inbox.