Lab-Pharmacy Partnerships Expand Retail Lab Testing Trend

Another undeniable sign that commercialization of health care is making meaningful inroads on Main Street with the late June partnership announcement between the laboratory chain Quest Diagnostics (Madison, N.J.) and retail giant Walmart (Bentonville, Ark.), as well as the subsequent announcement between LabCorp (Burlington, N.C.) and Walgreens (Deerfield, Ill.). The co-branded testing sites expand the presence of alternative health care delivery settings with the stated goals of increasing access, improving outcomes, and, potentially, lowering costs.

The collaboration will launch with 15 locations in Walmart stores in Florida and Texas by the end of 2017. Initially, these sites will just provide testing services, but over time are expected to expand to include other basic health care services.

Retail-lab partnerships have been viewed as a potential win-win opportunity for both partners—driving foot traffic in both pharmacy and front-end retail and generating incremental volumes for labs through greater retail real estate exposure for their patient service centers (PSCs), with the added benefit of increasing convenience and access for consumers.

Quest has been adding to its consumer-facing offerings in recent years including through its 100-plus companybranded PSCs at Albertsons companies' grocery stores (Safeway, Vons, Randalls, and Tom Thumb) in California, Colorado, Maryland, Oregon, Texas, Virginia and Washington; patient-initiated testing in Colorado and Missouri (QuestDirect) and Sonora Quest Laboratories in Arizona; and direct-to-consumer genotype testing through AncestryDNA. Walmart, too, has been extending its health care offerings with free health screenings, like blood pressure readings at all U.S. stores, and vaccines in select stores.

The co-branded LabCorp-Walgreens centers will provide specimen collection sites for the LabCorp network. The companies say that seven locations will begin seeing patients in 2017. This summer five patient service centers in Denver and one in Morrisville, N.C. will open. A site in Deerfield, Ill. will open later in the year.

Expansion of laboratory services in the retail environment is a natural extension of pharmacy diversification, says Morgan Stanley analyst Ricky Goldwasser, and she expects such diversification to accelerate with Amazon's "anticipated" entry into the pharmacy space.

Goldwasser's analysis shows that CVS's 1,081 MinuteClinics and Walgreen's 374 in-store clinics offer laboratories a "premier" retail footprint, while sharing overhead expenses could yield incremental savings, if laboratories relocate PSCs from other sites, like medical office buildings. Goldwasser says that in addition to the potential overhead savings, relocation to more consumer-friendly sites can also drive increases in testing volume. She highlighted in a recent research note that an estimated 10 percent to 20 percent of laboratory requisitions go unfilled. Goldwasser's analysis shows that if retail PSCs can capture 10 percent of the unfilled requisitions it would yield a 150 bps pickup in test volumes, or an incremental increase in earnings per share growth of one percent to two percent.

Takeaway: Look for future announcements from large national laboratories about further expansions of retail PSCs, as part of a strengthening trend towards increasing consumerization in alternative health care delivery sites.