Rae Woods (00:02): ... from Advisory Board. We are bringing you a Radio Advisory. My name is Rachel Woods, you can call me Rae. Healthcare consumers have more options than ever before, all thanks to disruptors. Everyone who's trying to cultivate more convenient, more consumer focused care models. At Advisory Board, we are constantly tracking new competitors intent on shaking up traditional healthcare. But there are a lot of questions on what kinds of threats are real versus ones that maybe can be ignored. I want to talk about the landscape of disruption on today's episode, with a special focus on retail pharmacy, which we believe is absolutely an area to watch. To do that, I've invited two Advisory Board experts, Colin Gelbaugh, and Gina Lohr. Gina, Colin, welcome back to Radio Advisory. Gina Lohr (00:59): Thanks Rae. Colin Gelbaugh (01:00): Thank you. Rae Woods (01:00): We're going to talk about a topic that... God, I feel like this is so divisive. We're going to talk about disruption. How do you guys feel about this word in general? Is this one of those buzzwords that you can't stand or is this an endearing term in your little healthcare researcher heart? Gina Lohr (01:16): I mean, there are problems with the system as it is right now. So in some ways I want things to be disrupted, but I feel like they put so much onto the word disruptor. It has gotten so buzzy I'm like, "What does it mean anyway?" Colin Gelbaugh (01:31): I think disruptor is a very useful term, fairly intuitive, people know what it means. It helps when you take a disruptive lens to think of all of the potential scenarios that your business could be impacted. Rae Woods (01:45): And the scenarios are important because the word disruptor or the thing that could be disruptive in healthcare can either be good or bad, depending on the context. You both are looking at disruption in healthcare. My big question to kick us off is what actually constitutes a healthcare disruptor? What kind of flavors of disruption are we seeing? Colin Gelbaugh (02:20): 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. Rae Woods (02:43): Is that how health leaders think about disruptors? Colin Gelbaugh (02:47): 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 (03:10): 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. Rae Woods (03:40): 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? Colin Gelbaugh (04:01): 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. Rae Woods (04:41): 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. Colin Gelbaugh (05:03): 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. Gina Lohr (05:27): 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? Rae Woods (05:45): Or Best Buy. Gina Lohr (05:46): 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. Rae Woods (05:57): And new players are always emerging or they're coming together, they're merging together. Colin Gelbaugh (06:04): There's been a lot of activity recently, of course, Amazon acquiring one medical. Rae Woods (06:11): Yep. Colin Gelbaugh (06:11): Walgreens saying that healthcare 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. Rae Woods (06:37): 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. Gina Lohr (06:50): Shouldn't we all? Rae Woods (06:52): 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? Gina Lohr (07:11): 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. Think like... Well 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. Colin Gelbaugh (08:08): 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. Gina Lohr (08:56): 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 roll. 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. Rae Woods (09:36): 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, et cetera? Colin Gelbaugh (09:51): I think it's both. Gina Lohr (09:55): On the pharmacy side, that's where the money is. Rae Woods (09:57): Yeah. Gina Lohr (09:59): 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. Rae Woods (10:14): I feel like this is a story that we hear about in healthcare 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 dispensed 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? Colin Gelbaugh (10:53): 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. Gina Lohr (11:46): 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. Colin Gelbaugh (12:36): 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. Rae Woods (12:54): That's right. Colin Gelbaugh (12:55): 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. Rae Woods (13:57): I want to be careful about the word partnership or collaboration that we're throwing around here. There's the blue sky, very friendly collaboration, sharing data, et cetera. There's also this frenemy dynamic that we see often in a competitive environment. Then there are more draconian measures, if I think about the growth path for a lot of these organizations, it has been big organizations spends millions, if not billions, to acquire someone, invest in someone, get bigger, merge. Think about Amazon going from a retailer to acquiring PillPack, becoming a pharmacy, now acquiring one medical becoming a provider. I could tell the same story for CVS. I could tell the same story for Walgreens and you probably have even more examples. My question is, in all these different kinds of partnerships, what does it actually take for them to work well? What kinds of common goals do they need in order to actually collaborate? Colin Gelbaugh (15:15): Well your point is well taken Rae, about sometimes a disruptor is really just a funder of other disruptors. So when we're talking about the big players like CVS and Walgreens and Walmart and Amazon, they are providing the capital that some smaller entities need to grow and giving them new opportunities to grow as well. Gina Lohr (15:39): I'm maybe feeling a little bit snarky here, my initial response to what you ask is like, "Is it really disruption if you're playing with everybody in the sandbox?" Sometimes I think the disruptors come in and they're going to be really strategic about who they choose to partner with and who they don't choose to partner with. Rae Woods (16:00): Let's be honest, I think the person who's left out of the sandbox is health systems. Gina Lohr (16:04): It seems like it's moving that way. Colin Gelbaugh (16:08): It could be, but it depends as well, the health systems perspective on where they are receiving their revenue today and in the future. What I would say is that retailers want to grow in an industry that is 20% of our GDP. They don't do that in a way that isn't disruptive. They're going to be competing with health systems in some way, and that happens to various extents, but we will live in a world, I think, where health systems are competitors in certain areas, but necessary partners in others. The need to partner with health systems is going to depend, again on their philosophy, on value- based care, access, the consumer experience and other factors. Rae Woods (17:01): So how do you see the health systems, those incumbents, most at risk of being disrupted, responding to this and responding to the fact that the sandbox is getting bigger and oftentimes not including them? Colin Gelbaugh (17:14): I think there are a lot of ways to respond. Again, being an indispensable partner to these entities and being the means by which these retailers grow themselves, that is an area where you can derive mutual benefit and there are opportunities for partnerships. Assuming partnerships are not an option, I think you have to, at the very core, focus on your physicians. If they're trying to acquire physicians, you can be a better operator of the medical group and attract those physicians to your organization instead. Then I think the second no brainer is to focus on the consumer, how are they entering the delivery system? What are they asking for for providers, if that is access and convenience of which retailers are out competing you, then you have to find ways to match those standards in your market. Rae Woods (18:19): If they do that, Gina, do you think the retail pharmacies are going to want to partner with health systems? Gina Lohr (18:25): I think there's a question in the pharmacy space, whether retail pharmacies are going to partner with health systems and help reduce some of the gaps, getting care local for patients. We've certainly seen retail pharmacies partnering with providers and with physician groups at a local level. But I think the more likely partner for retail pharmacies are the payers, because the payers are looking for that really close to home footprint for patients and looking for who is interacting with patients on a regular basis. There's got to be a lot of conversation around that, negotiation around that though, because pharmacies are facing a little bit of a chicken and an egg. They struggle to build out the capabilities to fill these care gaps, to have detailed medication conversations with patients without a reliable, dedicated source of funding coming in from payers. Rae Woods (19:24): That's right. Gina Lohr (19:25): So they're having a lot of conversations right now behind the scenes. "How can we get this reliable source of funding so that we can bulk up our staffing, so that we can do the great things that we know that retail pharmacies can do?" I wonder if that is part of the value that, say a Walgreens gets from building out that Village MD, you get more patients coming through, you get a larger dedicated funding stream reimbursement for the patient visits and then you're able to beef up your pharmacy services as well and build on those synergies. Rae Woods (20:00): But that's a good point because in order for this kind of disruption to be successful, in order for it to be disruptive for a pharmacist to do care management at say a Walgreens, you need a health plan that's going to reimburse that. Maybe that's the missing piece of the puzzle. Gina Lohr (20:17): Yeah, exactly. Colin Gelbaugh (20:19): Then I would just add another missing piece, being retailers having data showing that they can lower costs, improve quality, or meet the payers own motivations in some other way. Rae Woods (20:35): Is this the big disruption that you think that health systems should be worried about? The fact that retail pharmacy is growing and vertically integrating or partnering with other entities in healthcare that seem to want to pull care away from health systems? Is that big disruption you're worried about, or are there others we haven't talked about yet? Colin Gelbaugh (20:55): Retailers are a significant source of disruption, maybe not today, but in the future, if they do what they say they're going to do and take risk based payments, acquire physicians, that is disruptive to established players. In the context of how disruptive are they compared to other players, I think our survey was probably right. Right now for at least the health system perspective, something like surgery centers and outpatient shift of procedures are much more significant of a disruption from a revenue impact perspective and from a here and now perspective. Gina Lohr (21:42): So one reason why I think we definitely don't want to dismiss retailers and why I think they are a very real disruptor, even though it feels like they are different coming in, they're not historically healthcare is because they are so savvy at looking at consumer data and figuring out what motivates consumers to make purchases or to even choose one brand over another. I think retailers have shown that they're really good at moving to meet the consumer needs, and I think that's a huge need and will be really interesting to watch how that plays out in healthcare. That's why, even though it feels like a big leap, I think there's rightfully a lot of buzz around the retail space moving forward, and it's going to take a while to play out. Rae Woods (22:31): But Gina, who is going to disrupt the retailers that are so disruptive to traditional incumbents today? Gina Lohr (22:39): Probably more retailers. I think that's what we're seeing in the retail pharmacy space, now is the question about all the digital pharmacies and how are we breaking pharmacy down into its component parts and making it hyper accessible for patients. Think about Mark Cuban and that digital pharmacy. We see a lot of different digital pharmacy models out there though, so I think that's where retailers are pushing retailers further into the healthcare space driving to meet consumer demands. Rae Woods (23:15): There's clearly a lot happening with disruption at large and a lot of movement when we look at retail pharmacy specifically, with all that in mind, what is the one thing that you want our listeners to take away from this conversation? Colin Gelbaugh (23:29): Understanding what the business impacts could be, even if the disruptor is a partner today is very important for strategists is to scenario plan for different moves that these groups could make in the future. Gina Lohr (23:49): Don't discount retail pharmacy. They bring both the strong consumer focus, which is much needed in healthcare. They also bring this incredible pharmacist skill set for optimizing patient medication needs, helping them have better outcomes in the end and that's going to prove powerful. Rae Woods (24:10): Well, Colin, Gina, thanks for coming on Radio Advisory. Colin Gelbaugh (24:15): Thanks. Gina Lohr (24:15): Thanks Rae. Rae Woods (24:20): Look, the word might feel just buzzy, but the truth is disruption is absolutely happening in healthcare. What's different for me today than when we talked about disruption 10 years ago is that it's no longer single companies or single startups that are picking off individual parts of healthcare. Disruptors are getting bigger and they're becoming much different things than what they started out with, and they've got their eyes set on value- based care. So if that's not part of your strategy, it's time to get on board. If you enjoyed this conversation about disruptors, you'll want to make sure to catch our next episode of Radio Advisory. I sit down with Dr. Sashi Moodley, the Chief Clinical Officer at Walgreens Health, and you'll get an inside look at their strategy and their goal of becoming an equal player in the value- based care industry. So stay tuned for more from Radio Advisory, and remember, as always we're here to help.