THE OUTLOOK FOR HEALTH CARE IN 2023:

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September 22, 2022

Don't overlook these emerging health care disruptors

Daily Briefing

    It seems like we're always hearing about new disruptors and competitors aiming to shake up the way health care is designed, delivered, and paid for. Perhaps the most notable are the retail disruptors, like Walgreens Health or CVS Health. But how do you know if something is a potential threat that could have a real impact on your business?

    Radio Advisory's Rachel Woods sat down with health care strategy and planning experts Colin Gelbaugh and Gina Lohr to discuss retail disruptors and growing competition in the health care industry, and what leaders should be looking for in the future.

    Read a lightly edited excerpt from the interview below, and download the episode for the full conversation.

    Rachel Woods: You both are looking at disruption in health care. My big question to kick us off is what actually constitutes a health care disruptor? What kind of flavors of disruption are we seeing?

    Colin Gelbaugh: So I think of a disruptor as an entity that requires existing players to respond in some way to avoid negative business impacts. They could be competing for the same services, influencing referral patterns and using an innovative approach or novel solution to shake up the standards of competition in your market.

    Woods: Is that how health leaders think about disruptors?

    Gelbaugh: We actually did a survey earlier this year to find out the top disruptors that the health system is planning for, and the top ones they listed for ambulatory surgery centers, physician aggregators, both health plan and private equity owned, home and virtual care providers, tech and automation innovations, and retailers.

    Gina Lohr: I think it's interesting thinking about the list though, because I would want to flag that right now we're looking at this mainly from the health system perspective. So this is the list of the top disruptors for health systems, but these entities are not only disrupting health systems. They could be disrupting each other. I really focus on the retail space and I know that retail pharmacies, for example, are bracing for disruption while they're also disrupting others.

    Woods: That's a long list, Colin and there's probably some others that are not on that list that we think should be. In a sea of competition, and what feels like constant threats at disruption, how can leaders actually determine the threats that are real and the things that are just hyped, the things that they can easily ignore?

    Gelbaugh: I think part of it has to do with understanding the source of disruption and the competitive impact that could be observed, whether that is market share loss or a change in referral patterns or change in demand, but ultimately a disruptor's only going to be successful if they have some advantage over the incumbent, they're bringing a product innovation, a different way of incentivizing or their providers are being paid or other partnership that is lower in costs and improving the experience.

    Woods: And from my perspective, what makes us really challenging is individual players in those categories can still make different moves. We talk about physician aggregators a lot on this podcast, and even though that is a disruptive category, the individual moves that some of those players make will look different and I have to believe that's true across disruptors in general.

    Gelbaugh: Right, it's going to be very depending on your market position. For example, retailers could acquire physicians in one market, but partner with your existing physicians in another. So you have to evaluate what the motivations and the strategies are for each entity in isolation.

    Lohr: Yeah, and I think retail is a great example here of a category that is huge. Are we talking about pharmacies like CVS or Walgreens? Are we talking about huge retailers like Amazon or Walmart or grocery stores?

    Woods: Or Best Buy.

    Lohr: Yeah, or Best Buy. We're lumping so much together here under retailers and each has different strengths that they might want to play to when they make their play for disruption.

    Woods: And new players are always emerging or they're coming together, they're merging together.

    Gelbaugh: There's been a lot of activity recently, of course, Amazon acquiring One Medical, Walgreens saying that health care is going to fuel the next period of their growth and investing over a billion dollars in Village MD.

    Then CVS of course, reportedly looking to acquire different physician practices and double down on their integration with Aetna to take on risk-based payments in a greater way.

    Woods: I actually think that retail and retail pharmacy specifically, is a really interesting case study for us to watch. That's not just because we have Gina here who focuses on pharmacy every day in her research.

    I think it's interesting because retail pharmacy sits in the middle of this ultra-competitive landscape, right? They are disrupting incumbent health systems, but to your point, Gina, they are also being threatened by disruption themselves. Gina, what are you seeing the retail pharmacies do in the market right now?

    Lohr: Retail pharmacies have found how much money they're able to make just by dispensing prescriptions has been decreasing, and people aren't showing up at CVS or Walgreens to buy their daily goods as much anymore either. So they're trying to figure out, "How can we look different?"

    I think the space of value-based care, primary care is really attractive to them right now. They've been dabbling for years in that low acuity episodic care. We call it retail care, urgent care light, that has been so-so profitability wise, but primary care and especially chronic condition management seems like the wave of the future, and there are a lot of retail entities that are going all in on that.

    Gelbaugh: So I'm going to piggyback on Gina and just say that the retail model of the past hasn't been very profitable. It requires cross sale and prescription volume to be profitable. So these retailers are looking for ways to grow revenue, which includes expanding chronic care services, things like diabetes management, medication reconciliation, behavioral health services, potentially.

    All of these services that are considered care gaps along the chronic disease pathway that they think they can fill and have a share of the risk-based payments that might be involved in doing so.

    Lohr: If it's okay for me to pull us back into what that looks like then in the retail pharmacy space, I think that's where pharmacists are really excited, because they have seen their job changing more and more into this, "Must get pills out the door," kind of role.

    But pharmacists are trained in counseling patients, in identifying problems with the more comprehensive medication regimen and optimizing that for patients. So pharmacists are really excited about the opportunity to get involved again, deeper involved in chronic condition management.

    Woods: But from a business perspective, is this a defensive posture, defending against this sea of disruption and competition? Or is this more of an opportunity to grow evolve services, etc.?

    Gelbaugh: I think it's both.

    Lohr: On the pharmacy side, that's where the money is. The money is in how can you save money, how can you better manage patients so they have better outcomes with lower costs? If you can show that you're doing that, the theory goes that there is revenue to take home in the savings.

    Woods: I feel like this is a story that we hear about in health care again and again, we hear about physician aggregators that want to do more, so they're partnering up together in order to move towards value-based care. We see this in the health plan landscape trying to position themselves as something that's much more than a risk aggregator.

    Now you're telling me that retail pharmacies are also saying, "We do more than dispense pills. We have our place in the value-based care journey." My question is, if this is the growth opportunity that everyone is looking for, why have so many settled on value-based care, and can they do it alone or do they actually need to partner up together?

    Gelbaugh: As with many value-based payment models, much of the benefit comes from a few sources. One, keeping patients out of the hospital; two, reducing emergency department visits; three, lowering post-acute care costs; four, increasing preventive care strategies and patient engagement.

    Those are all core capabilities where a pharmacy, affiliated organization, whether it's a retail clinic or an acquired physician group, those are capabilities that they have a case for making. As well as the fact that they have geographic proximity to most Americans, the access and convenience that is required and high patient satisfaction rates to get patients in the door.

    Lohr: I feel like we're in the midst of a giant experiment right now as to whether you can do it alone or need to partner, because you're comparing pharmacies, whether they be chains or whether they actually be those smaller, independent retail pharmacies who are looking to partner with payers, perhaps partner with local providers to fill this gap for patients, as Colin said at that hyper local level.

    Or are these gaps going to be filled by the huge vertically integrated entities that have pharmacies, employee pharmacists, propose that they can do it all and ultimately provide just as good or better outcomes for their patients because of the integration.

    Gelbaugh: I would just add to that, on the partnership front, that from a health system perspective, you can't hope to manage risk without the health system as a partner. There are definitely opportunities for collaboration, whether that is information integration.

    Sharing results and different notes across settings of care, accessing specialists in a way that patients find efficient and at the right place and right time. That's definitely another benefit that health system partner can provide.

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