Soapbox: How healthcare disruption can be sidetracked

click to enlargeRon Hammerle’s comment on Disruptive innovation in healthcare hasn’t begun yet: Christensen (TTA 31 Mar), posted on LinkedIn’s Healthcare Innovation by Design group, made the excellent point that a potentially disruptive and decentralizing healthcare service–retail clinics–has been sidetracked, at least in the US, leaving an open question on their reason for being. This Editor thought it was worthy of a Soapbox. Mr. Hammerle knows of what he speaks because his Tampa, Florida-based company, Health Resources Ltd., works with retail and employer-based clinics to connect them via telemedicine/telehealth systems with medical centers.

When Clayton Christensen first anticipated that retail clinics would be disruptive to the established healthcare industry, their business model was potentially disruptive. What has subsequently happened, however, is a prime example of how potentially disruptive movements can be sidetracked.

After acquiring MinuteClinic and laying the foundation for taking retail clinics national, CVS Caremark chose to make deals with hospitals, which could easily afford to rent, open and operate such clinics without making money on the front end or facing real disruption. Retail clinics were a loss leader to hospitals in exchange for large, downstream revenues, and slightly-enhanced market share for the retailer’s pharmacy.

After CVS shocked Walgreens with one-two punches involving MinuteClinic and Caremark acquisitions, Walgreens came back with three counter-punches of its own:

1. They doubled the number of their clinics (to 700) in less than two years, thwarted AMA opposition, leapfrogged ahead of CVS in clinic count and totally changed the retail clinic model by setting up politically-invisible, broader service, make-your-profit-up-front, employer-based clinics.

2. They began upgrading the design, product mix and customer experience in their stores, becoming more professional and moving closer to becoming a regular consumer destination, although still lacking what supermarket-based clinics could offer—if they chose.

3. Walgreens went global with the Alliance Boots acquisition, laying the groundwork– and beating Walmart–in developing a potential, global supply and service chain.

In the US, however, Walgreens made peace with hospitals, in exchange for permission to pick up medication management before inpatients ever left the hospital.

Walmart, Target, Kroger and Safeway have all stumbled with retail clinics, despite having a core business (with food) that sits at the fulcrum of managing, preventing and treating the three biggest chronic diseases in the world.

So, who is left as potential disruptors? “StealthCare” companies, like Google, Amazon, Apple and less than a handful of telehealth players.

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Comments

  1. I wonder if this is cyclical — specifically in the health care space? New
    ideas tried, crushed by big guys, consolidation happens to avoid
    competition, and the status quo remains unchanged — insurers, hospitals
    (big systems) have power and tell little systems (retail clinics delivering
    service) what they can and can’t do. Advice to startups — align with big
    systems.

    Certainly if you look at the twisty turny passages of the ACA and big
    insurance, big pharma, big hospital…that seems to be what has happened.

  2. Laurie, a very apt parallel.

    What has not yet happened in healthcare is the kind of industry deregulation that led to greater access and lower costs for airline customers. That lasted for several decades.

    In the United States, big, well-established, healthcare players still love government-protected monopolies and will do everything possible to protect those.

    Now, following several major court decisions, such as Citizens United, they can throw virtually unlimited amounts of money at politicians to help defend and protect their turf.

    One of few options open for real change in healthcare is for “Stealthcare” companies with the size and market cloud of Walmart, Amazon and Google, to challenge big, status quo, players with technologies, market-based purchasing and global sourcing.

    It remains to be seen if “disruptive innovation” can come from giants instead of ants.

    Ron Hammerle
    Health Resources, Ltd.
    Tampa, Florida

    Ron

  3. Donna Cusano

    Laurie got me thinking about the pattern of devolution and consolidation in airline deregulation, and I find that Ron picked up on it as well. It’s not in the bio, but a chunk of my misspent childhood was spent as an ‘ant on the wall’ during the early and exciting part of airline deregulation: in early days watching the start of it as the CAB started to deregulate the US system one batch of routes at a time (I was way down the ranks at Scandinavian Airlines’ ad agency, but the agency also had one of the instigators of deregulation, Texas International); ad manager at New York Air in the deregulation ‘let a thousand flowers bloom’ heyday, then working for Eastern Airlines’ ad agency in its last year. The destruction of EA was not unexpected but sad all around. We are now in the last part–the consolidation which has, with security requirements, made airline travel both expensive and generally unpleasant.

    Healthcare is not going to track neatly like airlines because of the number of players, layers and the multiple ways that government (state, local, Federal) regulates and interferes. It may be more like the former and probably future Soviet Union that there is adequate, average mass healthcare that is essentially single payer, but the best quality healthcare is concierge/private pay/offshore and out of the system. That upper income, better educated people and their doctors/nurses use technology systems (self-monitoring, self-education) to avoid mass care; that mass care uses monitoring and tracking on their patients as mandatory to lower chronic care costs. Does it lower costs, improve outcomes and improve general health? Perhaps, but I just painted a picture which sounds like a dystopian scifi scenario.

    And to follow up on Ron’s portrait of Walgreen’s above, today brings us news of shareholders urging the company to domicile in Europe to avoid the high US corporate taxes we foolishly continue to impose. Walgreen’s owns 45 percent of Alliance Boots. The shareholders may only own 5 percent, but their names as reported by the Financial Times are Goldman Sachs Investment Partners and hedge funds Jana Partners, Corvex and Och-Ziff. So when they speak, Walgreen’s is likely to listen. Interestingly, they sold their corporate headquarters near Chicago last year. http://www.chicagotribune.com/business/breaking/chi-walgreens-headquarters-to-europe-20140414,0,4477149.story

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