Is Obamacare Shutting Down Free Clinics?

Free clinics in some states are shutting down. Is Obamacare the hero or villain?

May 24, 2014 at 8:00AM

The doors have been closed and the windows shuttered at some free medical clinics across the U.S. thanks to Obamacare. Bad news? Not necessarily. Actually, some proponents of the Affordable Care Act say this is a promising trend. On the other hand, others say there really isn't much of a trend to be found. What's the real story -- and can investors benefit one way or the other? 

Shutting the doors
Theoretically, the operation of free medical clinics should be disrupted by the impact of health reform. Obamacare called for the expansion of Medicaid to allow more people with higher income levels to be covered by the hybrid federal-state program. For those not covered by Medicaid, many are eligible for federal subsidies to help pay for health insurance. As individuals gain health insurance, they shouldn't need access to free clinics.

That's exactly what happened in at least two states. RotaCare Tacoma free clinic in Tacoma, Washington closed in January. Volunteers had actively pushed for the patients the clinic served to sign up for health insurance with Obamacare taking effect. And the patients complied -- to the extent that the clinic wasn't needed anymore.

A similar story took place in Mena, Arkansas. The free clinic in the small town shut its doors last month. Stacey Bowser, director of the 9th Street Ministries Clinic in Mena said that the number of patients served steadily dropped in the early months of this year as more and more people gained coverage through Obamacare. 

The phenomena isn't exactly sweeping the nation yet, though. For example, The Miami Herald reported earlier this year that free clinics in south Florida had not seen noticeable drops in patient loads. One clinic in Fort Lauderdale even experienced a big increase in patients.

Part of the reason behind this counterintuitive trend stems from Florida's decision to not expand Medicaid. Some patients fall into a coverage gap where they make too much to receive Medicaid but make too little to receive subsidies for helath insurance.

Some free clinics could be closing in the future due to Obamacare -- but not because their patients have gained coverage through the health reform's impact. Directors of these clinics express concern that their donors will quit contributing because of the expectation that patients will pick up coverage under Obamacare and won't need free services any longer. At one clinic in Tavernier, Florida, this scenario appears to be already playing out.  

Opening doors
What we have is the classic "good news, bad news" situation. Obamacare is helping many individuals obtain coverage. But many will also remain uncovered for one reason or another. The Congressional Budget Office pegs that number of uninsured at 30 million. Free medical clinics aren't likely to go the way of the dinosaur anytime soon.

More clinics will likely close, though, particularly if additional states opt to expand Medicaid in the future. While these closures don't present investing opportunities, the impetus behind them could.

Cvs Store

Source: FoolEditorial on Flickr 

Pharmacy retailers appear especially poised to benefit as previously uninsured individuals gain coverage. CVS Caremark (NYSE:CVS) is rapidly growing its MinuteClinics. The company operates 828 clinics in 28 states plus the District of Columbia and plans to add at least another 150 clinics by the end of the year. Walgreen (NASDAQ:WBA) runs 400 medical clinics in its stores, with around 100 new locations planned for 2014.

Both CVS and Walgreen are also busy lining up affiliation agreements with health systems. These agreements support close clinical collaboration between the pharmacy chains' clinics and hospitals. CVS has signed deals with 36 major health systems, while Walgreen has forged relationships with at least 20 health systems.

Eyeing its larger rivals' success in this arena, Rite Aid (NYSE:RAD) bought RediClinic in April. RediClinic operates 30 clinics in Texas. Rite Aid plans to ramp that number up quite a bit, with a goal to add 70 new clinics over the next couple of years. 

CVS, Walgreen, and Rite Aid seem to be making smart moves. A report from consulting firm Accenture suggests that retail clinics could help alleviate issues related to the growing shortage of primary care physicians. Accenture projects the number of these clinics will double in the next three years and save $800 million annually in overall health-care costs. 

Obamacare probably won't cause the doors to be closed for huge numbers of free clinics in the near future. However, the health reform act looks to be part of several factors that should help drive demand for retail clinics -- the kind people pay for -- good news for the big pharmacy chains. This is the type of trend that opens the door for investors to profit.   

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