CEO SUMMARY: In the past year, both national laboratory companies have increased the number of patient service centers they operate in retail pharmacies and grocery stores. But these PSCs are not serving direct access testing (DAT) customers. Rather, early evidence indicates that patients are finding it more convenient to go to their nearby grocery stores or pharmacies to have specimens collected in PSCs than to drive to a lab’s PSCs on a hospital campus.
WITH LITTLE PUBLICITY OR FANFARE, the nation’s two largest lab companies have been opening patient service centers (PSCs) in grocery stores and retail pharmacies. Using retail stores for specimen collection is a response to changing patient and consumer habits.
The national labs are discovering that locating PSCs in grocery or drug stores can be a consumer-friendly feature. Early market experience shows that many patients prefer to have their lab specimens collected at grocery and drug stores near where they live and work. Also, because these locations often have coffee or snack bars, patients who fasted overnight can get something to eat and drink after having their specimens drawn.
Putting PSCs in neighborhood grocery stores and pharmacies offers patients other benefits. It means they don’t need to spend additional time driving to hospital campuses where labs traditionally locate their patient service centers. It also means patients do not have to fight to find—and pay for—parking spaces and waste time getting to PSCs in medical office buildings on hospital campuses.
In the past year, both Quest Diagnostics and Laboratory Corporation of America have expanded the number of PSCs they operate in retail stores in specific regions of the United States. In June, for example, Quest announced it would open 15 PSCs in Walmart stores in Florida and Texas this year. That same week, LabCorp announced a deal with Walgreens Boots Alliance to develop PSCs in Walgreens stores.
99 PSCs in Grocery Stores
Quest Diagnostics is making a push to work with grocery stores. On its website, Quest lists 99 PSCs located in grocery stores in 10 states.
The grocery chains hosting Quest PSCs include Randalls, Safeway, Tom Thumb, and Vons. Albertsons will soon host some Quest PSCs. All of these grocery chains are owned by a single corporation. Within each grocery store, Quest puts its patient service center near the in-store pharmacy.
In announcing the deal with Walmart, Quest said the co-branded sites would provide laboratory testing services. Over time, Quest said the two companies planned to include other basic healthcare services. The announcement did not say what those other basic healthcare services would include and a Quest spokesman would not elaborate.
More PSCs in Retail Stores
Last summer, Walgreens and LabCorp opened five PSCs in Denver and one in Morrisville, N.C., Bruce Japsen reported for Forbes. By year-end, LabCorp plans to open a seventh PSC in Deerfield, Ill. “LabCorp already has about 1,750 existing patient service centers and, depending on how the Walgreens partnership grows, it could tap into a drugstore chain with more than 8,000 stores,” Japsen wrote.
PSCs in pharmacies have a checkered past. From 1999 to 2003, each of the two national lab companies arranged to put PSCs in retail pharmacies. During that time, executives from the lab companies and the pharmacy chains said direct access testing (DAT) was poised to grow.
Typically, these collaborations were intended as marketing tests. The two parties would put PSCs in a handful of retail pharmacies in specific cities or regions. After it was determined that few consumers wanted to visit pharmacies to order laboratory tests, these marketing experiments ended.
Payer Access Requirements
Another reason national lab companies have put PSCs into retail pharmacies is to meet the requirements of health insurers as part of managed care contracts. When a lab company wanted an exclusive contract to shut out other labs as in-network providers with that insurer, the lab would need to demonstrate that it had patient access in certain communities or regions.
To do so, it could put PSCs in retail pharmacies. LabCorp executed this strategy in New York after it won a 10-year exclusive national contract with UnitedHealthcare in 2007. It signed a deal with Duane Reade to put PSCs in retail pharmacies to guarantee patient access for UHC patients.
The current interest in using retail grocery stores and pharmacies as sites for PSCs is motivated by different reasons than to serve consumers with DAT or to meet patient access requirements of managed care contracts. In part, the current interest in putting PSCs into retail stores is a consequence of all the marketing that Theranos did in Phoenix in 2014 and 2015 to promote its consumer lab testing service that were based in Walgreens pharmacies in that area.
How Theranos Helped SQL
In those years, Theranos spent heavily to blitz the population of Phoenix and surrounding suburbs with its message that consumers could order their own lab tests by simply going to a participating Walgreens pharmacy. Theranos advertisements were everywhere.
Sonora Quest Laboratories leveraged that heightened consumer awareness. It cut a deal with Safeway to put PSCs into two Safeway stores in 2015. That deal was expanded into six more Safeway grocery stories last year. (See TDRs, Dec. 7, 2015, and Oct. 17, 2016.) Executives at Sonora Quest Laboratories told THE DARK REPORT that, after opening the first two PSCs in Safeway stores, within weeks the combination of appointments and patient walk-ins filled those PSCs to capacity.
As an interesting side note, the Sonora Quest PSCs began to hand out beepers during peak demand periods. Doing so allowed patients to shop in the grocery store until the PSC staff was ready to draw the specimen. One Sonora Quest manager noted that another benefit of locating PSCs in the Safeway grocery stores was the increased compliance of patients with physicians’ recommendations for lab testing.
Hospital lab outreach programs and independent labs should consider approaching retail pharmacies and grocery stories in their communities and experiment with opening patient service centers in these settings. It may prove to be a useful way to attract new patients.
Health Insurers’ Need for Patient Access Often Motivated Quest, LabCorp to Open Retail PSCs
TO WIN EXCLUSIVE MANAGED CARE CONTRACTS while meeting payers’ demands for patient access, the two national lab companies used the strategy of opening patient service centers (PSCs) in retail pharmacies.
A lab executive who has observed the strategies of Quest Diagnostics and Laboratory Corporation of America for many years said the need to meet payers’ demands for PSCs was one important factor in why the public lab companies wanted to put PSCs in retail pharmacies.
The More PSCs, The Better
“Health insurers believe that the more PSC stations your lab has, the more value it has as a lab provider because of better patient access to lab tests,” he explained. “One of the first questions any payer looking to contract with a lab company asks is, ‘How many PSCs do you have?’
“Remember that LabCorp and Quest want to capture greater market share through exclusive managed care contracts,” the lab executive explained. “During contract negotiations, they may seek to pad their PSC numbers so that when payers ask that question, they can give a big number.
“Beyond the incremental cost of opening and running retail PSCs, these outlets don’t hurt them and may, on occasion, actually give them an advantage with payers,” he noted.
“Health insurers care about the image they project when they are able to tell patients that their lab test specimens can be collected at any of numerous PSCs,” he continued. “However, the reality is that less than 30% of lab specimens from office-based physicians come through a lab’s stand-alone patient service centers.”
The willingness to fulfill payers’ needs may be one reason so many patient service centers located in retail stores have failed in the past 10 years, the executive added. “There are several memorable examples of retail pharmacies failing as PSCs,” he said. “The most recent failure was Theranos, but that failure was based on a different problem.
“Go back 10 years to 2007 when UnitedHealthcare gave LabCorp an exclusive 10-year contract as a national lab provider while excluding Quest from its lab network,” he added. At the time, Quest dominated the market in New York with a huge number of PSCs in the area. UHC was concerned that LabCorp would be unable to handle the demand for PSCs in New York and required LabCorp to open dozens of PSCs in a short period of time.
“Knowing that it did not have the time or resources to meet UHC’s requirements, LabCorp cut a deal with Duane Reade to put PSCs in retail pharmacies throughout the city. That effort, however, proved unsuccessful and disappointing.
Meeting Payer Requirements
“One reason was that Duane Reade’s pharmacies were older and often located in unfriendly locations,” he said. “But LabCorp’s primary intention was not to serve patients so much as to meet UHC’s requirements for adequate numbers of PSCs.
“LabCorp’s strategy worked,” stated the lab executive. “UnitedHealth was satisfied with the number and location of these PSCs. Then, over the next several years, LabCorp opened enough PSCs in medical office buildings and other locations so that it could shut down the PSCs in the Duane Reade stores.”