CEO SUMMARY: A disruptive innovation is one that shakes up an entire market or industry. By adding clinical lab testing to its health services offerings in more than 8,100 stores nationwide, Walgreens could disrupt the status quo in the clinical lab industry. Walgreens says its lab partner will offer testing at prices that are less than Medicare prices and it will post its prices publicly. Theranos is its partner in this effort, a firm introducing patented collection devices and test methodologies that require needlestick quantities of blood.
STARTING THIS MONTH IN ITS STORE in downtown Palo Alto, California, Walgreens, the nation’s largest pharmacy chain, starts on a path that may disrupt the clinical laboratory industry in several ways.
In partnership with Theranos, the new clinical laboratory company, Walgreens will make Theranos’ comprehensive menu of clinical lab tests available in its Palo Alto store. This is the first step in Walgreens’ plan to introduce this clinical lab testing service in more of its stores across the entire United States.
Inside these stores will be a Theranos Wellness Center, located near the pharmacy counter. Trained and certified phlebotomists will collect lab specimens from customers with a clinician order. Tests will be processed in Theranos’ CLIA-certified laboratory.
Both Walgreens and Theranos hope their pricing strategy will be disruptive enough to be a competitive advantage. Clinical laboratory tests performed on blood and other specimens will be priced to payers and consumers at 50% less than the Medicare Part B Clinical Laboratory Test Price Schedule.
The Theranos web site allows customers to see prices for medical laboratory tests. Theranos will electronically communicate results to the ordering clinician when they are available.
Another element of this agreement that Walgreens and Theranos hope will be disruptive is the use of patented diagnostic technologies that are different in two significant ways. First, in its press release about the partnership, the companies state that, for most lab tests, all that will be needed is a micro-sample from a finger-stick specimen, not a venipuncture. That is considered to be a patient-friendly benefit.
Another significant part of this partnership is that Theranos will use its patented technology to perform testing with a shorter turnaround time than is required by most conventional medical lab testing methodologies. (See related article.)
Pathologists may be interested to learn that Walgreens has a strategic plan to become “America’s first choice for health and daily living.” It is huge, with sales in fiscal year 2012 of $72 billion. Its 8,117 stores are located in all 50 states, the District of Columbia, and Puerto Rico.
It currently provides pharmacy, health and wellness services, and healthcare advice. It also provides respiratory services and retail, specialty, mail-order, and infusion pharmacy services. Now, its partnership with Theranos allows Walgreens to add clinical laboratory testing to the services available inside its stores.
Walgreens is a major player in the convenient care clinic business. Its subsidiary company, Take Care Health Systems, runs nearly 400 in-store health care clinics in 20 states and Washington, D.C., and also manages more than 370 worksite health and wellness centers.
Six Million Customers Daily
“Every day, we have 6 million people in our stores, and many of them need laboratory testing in addition to other healthcare services,” said Richard Ashworth, Vice President, Corporate Operations, for Walgreens in Deerfield, Illinois. “Strategically, we expect to do well.”
Ashworth was willing to speak with THE DARK REPORT about the new partnership with Theranos. “The blood sample collection services that Theranos provides will give our customers access to high quality, less invasive, affordable lab testing services,” stated Ashworth. “That’s the same level of service that our pharmacists provide in our stores and our nurse practitioners provide in our clinics. We want Walgreens to be known as a healthcare provider that offers unparalleled access to innovative, high quality affordable health services in our communities.”
Proximity to CLIA Lab
The Walgreens store in Palo Alto is first to offer clinical laboratory testing because it is closest to the CLIA-certified lab that Theranos runs in the same town. After that, Walgreens wants to add lab testing services to its stores on a fast time frame.
“There is no definitive timetable but we both want to grow the lab test service quickly,” Ashworth explained. “At the moment, we are focused on getting the Palo Alto operation running properly in terms of patient experience and process.
“We are confident that the lab testing service will be running smoothly within a few weeks to a month or two,” observed Ashworth. “Then we will introduce it in other Walgreens locations.
“In our stores, Theranos has patient service centers and that is where the lab testing services will be located,” he added. “In this dedicated space, depending on state requirements, trained clinicians or certified phlebotomists will be completing the service.
“For example, in Palo Alto, Theranos will have state-certified trained phlebotomists,” noted Ashworth. “In other locations, as appropriate, we will staff state-certified individuals trained on Theranos’ collection methodologies.
“When it comes to medical lab testing, we believe this service will offer an improved patient experience because there will be no need for venipuncture,” he explained. “From the customer’s point of view, this part is very compelling.
“The method developed by Theranos to collect blood does not require a tourniquet nor does it need three to five vials of blood,” said Ashworth. “It can accomplish the same clinical lab testing with just a few drops.
“This innovative technology is important for many reasons,” he said. “When you think about the patients who need laboratory testing, the list includes the frail elderly, children, or cancer patients.
“Neither patients nor providers want to do multiple draws—least of all for these patients,” Ashworth noted. “Among other reasons, it is because it can be challenging to find good veins. This technology helps us serve these populations specifically.
Benefiting Payers & Patients
“The partnership has the potential to benefit payers and patients,” concluded Ashworth. “The advantages are significant. Theranos’ prices will be so much lower than everyone else’s and these prices will be easy to access because Theranos publishes its price list. These are all good things that help to make clinical lab testing services local and available to the masses.”
Walgreens’ partnership with Theranos is not its first foray into medical lab testing. Back in 2010, Walgreens announced that it would sell the genetic test kits manufactured by Pathway Genomics of San Diego, California, in its stores.
This arrangement would start with three genetic test kits: for drug response, pre-pregnancy planning, and health conditions. Walgreens was going to sell the saliva collection kit for between $20 and $30.
The consumer would then collect the specimen and send it to Pathway Genomics, paying from $79 to $179 for the individual genetic tests. These tests would provide information about the consumer’s risk of such conditions as Alzheimer’s or heart disease, and whether a parent could pass certain health problems along to children.
Following the news of this arrangement, the U.S. Food and Drug Administration (FDA) took swift action. It sent an enforcement letter to Pathway Genomics, giving it 15 days to respond with more information. The FDA asked whether Pathway Genomics believed it did not need to get FDA clearance for its genetic tests. After this news was made public, Walgreens announced that it would not stock and sell these genetic test collection kits.
Now, just three years later, Walgreens is again interested in providing a clinical lab test service in its retail stores—and with a partner, Theranos—that intends to charge prices that are half of Medicare rates. By so doing, Walgreens may be creating an entirely new competitive dynamic in the lab testing marketplace, one that could be truly disruptive to existing lab companies.
Walgreens’ First Step: Assess Consumer Demand
WALGREENS RUNS 8,117 pharmacies in all 50 states. It also has a subsidiary that runs more than 770 health clinics in stores and at employer worksites. This raised the interesting question as to how many of its sites will serve as patient service centers for its clinical laboratory testing partner, Theranos Inc.
“Theranos patient service centers will certainly be located in stores that have our healthcare clinics, but I believe it also works in other Walgreens locations,” said Richard Ashworth, Walgreens’ Vice President of Operations. “With such a big demand for lab testing services, I believe there is room in the clinical laboratory testing marketplace for Walgreens.
“Since the announcement of our agreement, we are often asked how many Walgreens stores will have a Theranos presence,” noted Ashworth. “We don’t know that answer yet. We must first determine what demand there will be for clinical lab testing services. Then we will roll out this program to match that demand.”