On Oct. 10, Walgreens announced that it will partner with LabCorp to open 600 blood draw centers in its stores over the next four years. Stefano Pessina, CEO of Walgreens, said, “This reflects our commitment to transform our stores into neighborhood health destinations.”
The same day, the Justice Department approved the merger of CVS Health and Aetna. Larry Merlo, CEO of CVS, said, “Our focus will be at the local and community level, taking advantage of our thousands of locations and touchpoints throughout the country."
These two events are just the latest evidence of the common goal of emerging healthcare competitors: to dislodge the outpatient business from traditional hospitals and health systems.
CVS and Walgreens are well positioned to battle for outpatients on the ground, each having about 10,000 stores. To put that in perspective, three-quarters of Americans live within five miles of a Walgreens, and 80 percent of Americans live within 10 miles of a CVS.
Both companies are also well equipped to fight this battle via the Internet. Walgreens and CVS have 88 million and 62 million loyalty program members respectively, providing not only a trove of data, but also a digital relationship.
Of course, CVS and Walgreens are not the only companies with their eyes on the hospital outpatient business. UnitedHealth/Optum has amassed more than 47,000 physicians in 35 of the company’s 75 target markets, all without owning a single hospital. Private equity firms invested more than $42 billion in healthcare services in 2017, with $12 billion and 75 deals devoted to nonhospital providers. At the same time, the global digital health market reached more than $182 billion in 2017, focusing largely on wearable devices for tasks like remote monitoring.
And if Amazon decides to direct its 100 million Prime members toward an Amazon healthcare platform, the presence would dwarf that of any other competitor.
These forces are after a piece of the $3 trillion healthcare business. And why not? It’s a market too big for many innovators to resist. However, these companies don’t want just any part of healthcare. They are after the parts that are as close as possible to consumers in their daily lives. They have no interest in the high-cost, campus-oriented, complex, low-margin hospital business.
At the moment, hospitals have total ownership of inpatient care, with robust, and generally profitable, outpatient services bolted on. Now, aggressive and well-funded companies are actively trying to loosen the bolts connecting hospitals with their outpatient services.
For hospitals, this is a first-order problem: While they compete with one another for their inpatient business, they will increasingly need to fend off well-funded and innovative new entrants angling for their outpatient business.
In Alfred Hitchcock’s The Birds, there is a scene in a restaurant in which the two main characters are describing a recent bird attack. A local ornithologist is skeptical. “I have never known birds of different species to flock together,” she said. “Why, if that happened, we wouldn't stand a chance.”
In healthcare, many different species are flocking together. They don’t want to attack hospitals; they just want to insert themselves between hospitals and their outpatients. As in The Birds, the first step to survival is to recognize the threat.