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If CVS Bets Big on Urgent Care, Hospitals Should Worry

Analysis  |  By Bruce Japsen  
   November 05, 2018

The pharmacy chain could be a threat to hospitals and health systems by entering into the urgent care market.

CVS Health, which already has more than 9,800 locations with space allocated for healthcare services, may soon get into the urgent care business.

And that could be a threat to hospitals and health systems and the growing market share they have been building in the urgent care space.

CVS CEO Larry Merlo has been saying for the last year that the drugstore chain plans to add more healthcare services and is "exploring more ways to collaborate with physicians" in its drugstores and 1,100 MinuteClinic retail clinics staffed by nurse practitioners.

Related: Why Health Systems Should Worry About Walgreens and CVS

With CVS' acquisition of the health insurer Aetna nearing its close, Merlo is expected to update Wall Street analysts Tuesday on the company's strategy during the company's third-quarter earnings report. 

Industry analysts expect it's only a matter of time before these additional services turn into urgent care or at least mimic what such centers have to offer.

"The main question for the on-demand industry boils down to whether CVS will transition from the MinuteClinic model to a full-service primary and urgent care model," says Bernie Kuhn, principal and CFO at Merchant Medicine, a retail healthcare consulting firm. "We believe this transition is a real possibility."

Urgent care is similar to retail health clinics already operated by Walgreens, CVS, and Walmart in that they are open daily, evenings, and on weekends to treat routine maladies. But urgent care centers also generally offer more in the form of x-rays for potential broken bones, have the ability to provide intravenous fluids and phlebotomy services, and have closer ties with physicians.

"If CVS expands the MinuteClinic scope of services into urgent care … by adding x-ray and suturing, this would place a great deal of pressure on the urgent care industry," Kuhn says.

CVS Health's main rival, Walgreens Boots Alliance, is already opening urgent care centers with UnitedHealth Group's MedExpress urgent care unit. There are now 15 locations in six states that have MedExpress urgent care centers connected to Walgreens stores as part of the pilot that Walgreens and UnitedHealth have been evaluating this year on whether to expand. So far, the markets include Las Vegas, Dallas, Minneapolis, Omaha, two cities in West Virginia, and Martinsville, Virginia.

In the Walgreens-MedExpress pilot, the urgent care center and the drugstore have their own entrance along with a door inside that connects each. Walgreens says that is designed for a medical care provider to guide a patient to either facility depending on whether they need a prescription or primary care.

"This is just part of developing an overall higher-performing local health system," UnitedHealth Group CEO David Wichmann said of the MedExpress-Walgreens urgent care partnership earlier this year. "It'd just be one component that may be nested inside a local care delivery market with ambulatory surgical capacities and house calls and things of that nature. This is the future health system that we see delivering considerable value to people."

For hospitals, this not only means competition from well-capitalized players like CVS and Walgreens, it could have an immediate impact on health system revenues particularly given each chain has thousands of locations across the country on what is considered prime real estate.

Related: When Retail Giants Like Walmart and Amazon Invade Healthcare

"Drug stores have great commercial retail locations, ample convenient parking, and consumer trust," Merchant Medicine's Kuhn says. "Depending on how far into primary care the venture goes, the primary care versus urgent care artificial constructs also get deleted from contract terms, and non-aligned health systems or medical groups should get nervous."

The expected entrance of CVS into the urgent care business comes just as hospitals and health systems are opening more such facilities and expanding their market share.

"The urgent care industry's ownership mix has shifted significantly since inception," the Urgent Care Association said in a report earlier this year. What "emerged as a physician or physician group strategy" has since become an integral part of a hospital and health system growth strategy, according to a report earlier this year by the Urgent Care Association.

A decade ago, 54.1% of urgent care centers were physician-owned while hospitals represented 24.8% of the total in 2008, the Urgent Care Association said. "By 2014, physician ownership had dropped to 40% and hospital ownership increased to 37%," the Urgent Care Association said.

There were more than 8,200 urgent care centers in the U.S., according to the Urgent Care Association, citing figures as of June 2018, up from 7,639 in 2017.  "The $18 billion industry is expected to grow 5.8% in 2018, offering services beyond a typical primary care office," the Urgent Care Association said in its report, pointing to the move away from fee-for-service medicine toward population health and value-based payment of medical care providers that emphasizes health outcomes and lower-cost outpatient care.

But Merchant Medicine executives say there could be as many as 12,000 urgent care centers because not all such facilities are members of the urgent care trade group.

Depending on the size of the market where hospitals have opened urgent care centers, the entrance of CVS and Walgreens could hurt the revenue of hospital-owned urgent care centers.

Kuhn compares the trend to the impact Walgreens, CVS, and other national drugstore chains had on smaller independent and mom-and-pop drugstores.

"As Walgreens, CVS, and Rite Aid grew over the past few decades, all of the smaller pharmacy operators were moved out, grocery stores being the exception," Kuhn says. "Provider operations are a different business, but it seems reasonable that the less-sophisticated operators get moved out in a saturated market."

Bruce Japsen is a contributing editor for HealthLeaders.

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