Retail Newcomers Are Great For Healthcare, But Bad For Health Systems

By Pamela J. Gallagher, Founder/CEO, Gallaghers Resulting, LLC
Twitter: @GResulting

Patients have been begging for affordability for decades, and the healthcare industry’s reluctance to innovate and adapt to patient demands has left a door open for retailers to move into the healthcare business. I believe this will be great for healthcare, but potentially disastrous for health systems.

As retailers like Walmart, Amazon, and Best Buy have forayed into the healthcare space, they have done so with a focus on inexpensive, reliable products with a strong emphasis on well care and prevention.

In line with their corporate mission to “save people money so they can live better,” Walmart has created a “healthcare supercenter” that offers the basic needs for patient health: primary care, dental, behavioral health, x-rays, optometry, audiology and pharmacy. Their pricing model seeks to reduce overall healthcare costs for the consumer, made possible in part by their low administrative costs due to customers paying cash without having to negotiate with insurance companies.

Tech retail giant Best Buy created a “laser-focused strategy on digital health initiatives, moving from selling devices to adding analytics and services to help seniors age in place offering healthcare services in the home,” according to a recent Forbes article.

Retailers entering into the healthcare space having a different business focus than hospitals and health systems. They make money, not from illness or sick care, but only if their employees and customers are healthy. This is creating the right incentives for patients and retailers alike, and will continue to reduce their customers’ healthcare costs in the future, putting hospitals on notice.

“Business” is often considered a dirty word in healthcare, but if health systems are going to have a role in shaping the industry as it continues to evolve, it’s time to evaluate our work through a business lens.

When hospitals look to increase revenue, they too easily gravitate toward adding more beds or expanding their services. Some hospitals focus on bettering their patient experience. According to Gurpreet Singh, a partner with PricewaterhouseCoopers and the leader of its health services segment, “five years ago about 25% to 30% of health systems had chief patient experience officers. Now, that number is 60%.”

But an industry focused on sick care has not produced the desired health outcomes for our patients or our bottom line. Communities will always need hospitals, but I believe it’s time for hospitals and health systems to consider what they can uniquely and specifically offer. Over-extending ourselves to remain competitive will not result in responding to the demands of our consumers to reduce overall healthcare costs.

COVID-19 has shown the adaptability of the healthcare industry, collaborating with government and flexing up services quickly where needed. Health systems need to continue in that innovation mindset as they consider their role in the future of the industry.

A few things for health systems and hospitals to consider:

  • Take a hard look at your business model. Remaining as you are means going head-to-head with Walmart and Amazon. Hospitals cannot maintain the status quo and expect to stay afloat. Hospitals focus on illness, but retailers breaking into the industry are shifting the focus onto health and keeping patients out of hospitals. Hospitals need to find a business model that allows them to focus on high-quality care at a low cost.
  • Focus on what you do best. Rather than offering heart or knee surgeries simply because they are major money-makers, ask yourself what your hospital does best and focus on that.
  • Removing payer negotiations from the equation saves Walmart and the like time and money, and allows them to bring lower-cost services with straightforward pricing to their customers. The relationship between provider and payer is increasingly complex, but it hasn’t done many favors for patients. What can be learned from Walmart’s approach, and how can your health system have a more creative approach to payer negotiations and the cost of the care you provide?

This article was originally published on Gallaghers Resulting blog and is republished here with permission.