Work-Site Clinics Gain Favor as Retail Sites Lag

Last fall in New York, as employers sought to inoculate workers against swine flu, employees of Bloomberg, Random House and Sony Corp. who were at risk could simply walk down the hall, roll their sleeves up and get a shot.

While these companies each had a medical clinic in the workplace, they also shared a common health clinic provider: Take Care Health Systems, a subsidiary of Deerfield, Illinois-based Walgreens.

According to records from the New York City Department of Health and Mental Hygiene, nearly 50 employer-based medical clinics received the swine flu vaccine from the city. Take Care operated at least 20 of those clinics at employers that included Morgan Stanley, Goldman Sachs and the state-run Metro North Railroad.

The wide presence of Take Care’s clinics among employers in New York shows how Walgreens has aggressively tapped into the growing market for work-site medical clinics as part of its effort to rebrand itself as a health and wellness company. Analysts say the move makes sense.

Walgreens can steer employers to its mail-order pharmacy while patients can access its chain of 7,000 retail drugstores. More than 350 Walgreens stores contain a Take Care Health retail clinic that offers care for minor medical conditions such as earaches, sinus problems and the flu.

Walgreens further solidified its New York presence by acquiring the city’s largest drugstore chain in a $1.075 billion deal announced February 17. The deal will expand the network of pharmacies available to clients of Take Care clinics. There are 257 Duane Reade pharmacies in the city, compared with 70 Walgreens in the entire metropolitan area.

What is puzzling, says Tom Charland, CEO of Merchant Medicine, a research and consulting firm in Shoreview, Minnesota, is why Walgreens rival CVS Caremark has not followed Walgreens into the work-site medical clinic market.

“That has surprised some people in the financial analysis community given their large [pharmacy benefit manager] business, which caters to large self-insured employers,” Charland says of CVS Caremark, which merged in 2007. “It surprises me that there aren’t more MinuteClinics at work sites.”

After lagging behind its rival, CVS says it plans to change its approach to work-site wellness.

“We are committed to developing clinics in corporate settings and have some new sites we are working on,” wrote Andrew Sussman, president of MinuteClinic and senior vice president of CVS Caremark, in an e-mail. “Our main focus in the past has been on retail, but we are interested in corporate opportunities that are a good fit for our model of providing excellent, convenient and low-cost care. We also think these sites are an appropriate place for us to work with corporations on disease prevention and wellness.”

Several years ago, pharmacies embraced retail clinics over work-site clinics with the thinking that as more employers used high-deductible health plans, more employees would be interested in low-cost alternatives for basic health care such as flu shots.

That belief led pharmacies, in particular CVS and Walgreens, on an acquisition spree of retail-based health clinics at the expense of work-site clinics. CVS acquired MinuteClinic, the largest retail clinic, in 2006. Since being acquired, MinuteClinic has opened only three work-site-based clinics, including one at CVS headquarters in Woonsocket, Rhode Island.

Subsequently, supermarket chain Kroger Co. made a major investment in The Little Clinic. And Rediclinic, which began as a work-site clinic called Interfit and had AOL founder Steve Case as an investor, abandoned that approach for retail.

“Generally across the country, the work-site clinic is of more interest to employers [than retail clinics] as a way to bring costs down,” Charland says.

Retail clinics and work-site medical clinics are thought to be complementary, offering different services for different populations. Retail pharmacies are convenient for parents whose children are sick when doctors’ offices are closed.

But growth in retail clinics has stagnated. MinuteClinic closed 122 clinics last year, according to Charland, who tracks the industry. Wal-Mart, after cutting back, doubled its in-store clinics to 54 in the past year, though they are not owned or operated by the retail giant.

Walgreens, meanwhile, has been quick to focus on work-site clinics. In 2007, Walgreens bought Take Care Health Systems, then a retail-based clinic, and the next year acquired two of the largest work-site clinic companies in the country, CHD Meridian Healthcare and Whole Health Management.

Today, there are more than 375 Take Care Health clinics, though not all are branded as Take Care clinics, says company spokesman Gabriel Weissman.

“Both of those [acquisitions] were part of an overarching strategy to make an entrance into the health and wellness space,” Weissman says.

For now, Take Care remains the largest company in the fast-growing market for work-site medical clinics. The percentage of employers providing on-site health clinics increased tenfold from 1 percent in 2008 to 10 percent in 2009. Other providers include Charlotte, North Carolina-based HealthStat; Carehere in Brentwood, Tennessee; and clinics offered by some health plans.

Clinics make good business sense for diversified health care companies, says Brian Klepper, a health care analyst based in Atlantic Beach, Florida, and an advisor to WeCareTLC, an on-site clinic firm based in Lake Mary, Florida.

“Whoever owns primary care owns the rest of the continuum because you own the referral stream,” he says.

Clinics that own pharmacies or hospitals can translate this referral system into increased revenue. But Klepper says it can also present a conflict of interest. If an employer pays for each service provided, a clinic’s revenue comes at the cost of an employer. Klepper says clinics should simply charge their employer a management fee without marking up the cost of the services they provide.

Walgreens says it provides a $2 to $4 return on every dollar invested by an employer in a work-site clinic, though such numbers are not independently verified.

“The next evolution is going to be measuring the success of these things,” says Marne Bell, senior consultant in Atlanta with Towers Watson. “I think for the most part people have been very happy with their work-site clinics.”

Workforce Management Online, February 2010 — Subscribe!