Wal-Mart Takes Aim at CVS

Wal-Mart (NYSE: WMT  ) has never been shy about moving into new retail markets. It didn't invent the department store concept, but it became the industry's biggest player. It wasn't the first supermarket, but it has become the nation's largest food store. And it wasn't the first to operate pharmacies, but it established its stores as the fourth-largest source of prescriptions in the United States.

Given its history, investors shouldn't ignore Wal-Mart's latest move to open in-store healthcare clinics. The megaretailer's toe-dip into this business takes a page straight out of the CVS Caremark's  (NYSE: CVS  )  strategy book and positions Wal-Mart to potentially disrupt how America consumes healthcare services.

Source: QuadMed.

First, a bit of background
Back in 2000, CVS began opening in-store clinics -- then called QuickMedx, since rebranded as MinuteClinics -- in a bid to offer customers immunizations, along with chronic care and cold and flu diagnosis and treatment. The company's clinics opened early and closed late, providing patients with a cheaper alternative to pricey emergency room visits and a more convenient option than primary care waiting rooms.

CVS Caremark's decision was savvy. Aging baby boomers and the launch of the Affordable Care Act have made MinuteClinics a go-to option for cash- and time-strapped patients. Those patients have turned MinuteClinics into a new source of revenue for CVS, along with a natural referral source for filling prescriptions and selling over-the-counter medicine.

CVS  today operates more than 800 MinuteClinics and plans to have more than 1,500 by 2017.

That has gotten the attention of hospital operators, who worry the rising prevalence of such clinics will slow admissions in profit-friendly emergency rooms. Some, like Tenet Healthcare, have responded by opening hundreds of urgent care and outpatient treatment facilities.

This development also captured Wal-Mart's attention, as the company is desperately looking for new ways to spark growth amid faltering same-store sales.

Source: QuadMed.

Innovating treatment
Wal-Mart thinks it can do a better job than in-store pharmacy clinics and hospital urgent care facilities.

The retailer has linked up with privately held clinic-operator QuadMed to open clinics in Texas and South Carolina and reportedly plans to roll out the concept in Indiana by 2016.

While CVS MinuteClinics have focused more on filling in gaps in care by offering more convenient alternatives for bumps and bruises, QuadMed, which opened its first healthcare clinic in 1991, is positioning Wal-Mart nurse practitioners as a primary care option for patients -- an opportunity for patients to receive disease diagnosis and treatment in addition to the usual battery of screenings, physicals, and vaccinations. As the Wal-Mart website notes, "our expanded scope of services enables us to be your primary medical provider."

And with those additional services offered, Wal-Mart's clinics could tempt away CVS patients with a low-cost (an office visit costs $40 at a Wal-Mart clinic) alternative designed to peel away customers. And with more services offered at a Wal-Mart location, it's easy to see this as a big potential problem for CVS over the long term. For now, Wal-Mart appears focused on rural markets where there's a shortage of physicians. If that model succeeds, however, Wal-Mart could conceivably move into urban areas and muscle in on CVS' turf everywhere.

Fool-worthy final thoughts
Wal-Mart appears to be taking a slow-but-steady approach to rolling out these new primary care locations. Currently, it operates just six, but it plans to have 12 by the end of this year. Given the low prices and expanded service offerings, it wouldn't be surprising to see customers flock to Wal-Mart's clinics -- and for Wal-Mart to then roll out these services in far more locations.

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