Dave Mandelkern
Chief Executive Officer, QuickHealth, Inc.

Thank you for the invitation to come talk with you this afternoon. You wouldn't know it from my accent, but I was raised in the Deep South. My parents told me there were three things you never talked about in polite company: money, religion and politics. Sex was so far off the curve that you didn't even talk about it in impolite company. [laughter] Luckily for you, they also taught me that two out of three ain't bad, and that if you bat .400 you still end up in the Hall of Fame. So I'll see if I can hit a couple of these topics here in the course of the presentation. I'll talk about the health care industry in America and about disruptive innovation and health care reform. I could spend an hour just on that topic because health care in the United States is such a mess. It's crying for disruption. It's currently about 20 percent of the GDP. It's growing to become almost a third of our GDP as the baby boomers age and need more care. It's an incredibly messed-up market. Imagine going into a restaurant where you had a menu with no prices on it. When you asked how much things cost, the waiter said, "Oh, that's OK-I'll order for you and send you the bill in about a month."

Part of the problem is a huge disconnect that I haven't seen in too many other markets and which frustrates innovation. It's between the people who are getting care (patients), the providers (doctors and hospitals), and the people who are paying for it (the insurance companies). Their motivations and interests are not at all aligned. That leads to huge issues.

Here's one example. You might ask an obvious question, "Why can't I email my doctor and get a response back from my doctor via email? Why do doctors just resist this?" It's not a technological or privacy issue. In fact, my doctors tell me that it's the medical impact of hundreds of Blackberries being contained in one small conference room being used at the same time-sorry Michael didn't want me to talk about that! [laughter] The real reason is that payers don't pay doctors to answer emails. They pay them to see people in their office. So doctors don't spend hours a day answering emails from customers if they're not going to be reimbursed for that. As a consequence, customer satisfaction is low. I don't know anyone who really raved about the last time they visited their doctor. Most people have a less than stellar experience. They have to wait a long time and then they see their doctor for a brief period of time. That's what passes for medicine in America these days. I don't know of any other industry that can treat their customers so poorly and still make so much money at it.

At the same time, you have a huge and growing problem of 47 million people in this country who don't have health insurance. How many of you here today have insurance provided in part through your employer group? I see almost every hand in the room being raised here. Let me ask a follow-up question that gets into the political impact. How many of you have automobile insurance provided for you through an employer-based group? No one. That's a pretty striking contrast. We talk a lot about reform and we could talk for an hour about the political solutions proposed by different presidential candidates and the various states. In short, there are no short-term political solutions. It will take a long time to unravel and it is a national embarrassment to us in the meantime. It's also a major economic issue because we see companies who are in global competition and having very severe cost disadvantages based on whether or not they provide employee health insurance. I don't think you can ask a manufacturing company to compete globally with manufacturers in other countries that provide national health care. It doesn't lead to fair competition. Fundamentally, as an employee, it shouldn't come down to an issue of choosing to work for a company based on whether they will provide health insurance or not. Health insurance should be something that consumers have access to at a reasonable price.

Let me focus my remaining time by talking about what QuickHealth is and what we're doing to solve part of this problem. We think there's an opportunity based on consumer needs to provide reasonable quality care at an affordable price in a convenient manner for customers in a very unique setting. We go into retail locations like Wal-Mart stores and Longs Drug Stores and put a doctor's office inside those stores, typically near the pharmacy. You can come in and pay $49 cash and see a doctor seven days a week. We don't care if you have insurance or not. Even if you have insurance you pay the same price as if you didn't have insurance. It's one of the oddities about our health care system: people without health insurance typically pay a lot more for a service than people who do have insurance.

Our company has really struck a nerve with consumers because it resonates well with the consumer's innate common sense about how the health care system should work. We have ten locations in Southern California and five more under construction, opening in the next two months. We're building out another fifteen beyond that over the next sixteen months. We plan to keep increasing this chain in California and eventually expanding regionally over the next five years.

Are there any physicians in the room? I ask because this is the point where I keep smelling salts available. When a physician sees this little photo montage they tend to have apoplexy. These are shots of a QuickHealth in a Wal-Mart store. You walk right in the front door, and there tucked away next to the McDonalds is a QuickHealth store [laughter]. It's a little bit of a hurdle for physicians to get over-they spent four years in medical school and four years in residency only to drive to a Wal-Mart to go to work. Some get over it and some don't. We hire the ones who get over it!

This is also one of the things that makes our model unique. When you come up to a QuickHealth, you see a menu board just like when you walk into Starbucks or McDonalds or any other consumer-friendly business these days. You can see the prices for what service you're going to get. You can choose to see the doctor for $49 or get a cholesterol check for $29. There's no mystery about it or receiving a bill thirty days later. People put up with the current system because they don't have a choice: we're giving people a choice. We give them better access, more convenience, a better price, and consumer-friendly service.

We're changing the model. We're blowing up the boxes. This is what we call the "Starbucks runs your doctor's office" model. You can see from the photographs that we were inspired by the look and feel of a Starbucks. We're following a basic pattern of consumer behavior. Some of you will remember when you got your haircut at a barber shop that had a little striped pole outside the door. Now you go to places like Supercuts or Great Clips. You used to go to a doctor to get your eyeglasses, and now you go to Pearle Vision. You used to get Jim the mechanic to change your oil but now you go to Jiffy Lube. This is the branding and modernization of America. People like to get their basic retail services done in a retail setting by a trusted national brand. Health care has lagged way behind all of the things that model entails: decent service, convenient hours, and transparent pricing. That's what we provide. Our business plan is the same basic business plan as if we were running a Baskin-Robbins or a Starbucks franchise. The main difference is that our employees wear white lab coats and have medical degrees.

We are a family practice medical office. We offer a range of services from basic checkups and physical exams for kids and employees to minor procedures like wart removal. We do minor laceration repairs. We're not doing brain surgery or liver transplants-none of that stuff going on in the back! [laughter] A lot of consumers get this. A number of people in health care say that consumers aren't smart enough to think through their own heath care options and decisions. They're not smart enough to buy health care the same way they would a digital camera. But consumers who buy digital cameras are pretty discerning and pretty sharp. The same is true in health care if you give them adequate information about what they need and what it costs. They make pretty good decisions. We also do lab testing, immunizations and some consumer-friendly packages. An example is our Healthy Heart check-up package with a suite of tests for only $99. It's value-priced; it would cost $179 if you bought it a la carte. Consumers love that, by the way. They like to get a deal. If you package preventive care in an attractive way, people will buy it and use it.

We spend a lot of time in health care in this country building a better quarter-inch drill when what people are really looking for is a more convenient and affordable quarter-inch hole. We're providing our customers first with affordability and accessibility. If you can't clear that bar, nothing else matters. Our target customer is a working family. If your office hours are 9 to 5 Monday through Friday, it's a hardship for them to come because that means they have to take time off from work. Most of our customers are working at jobs that don't have a lot of fringe benefits like sick pay and time off for leave. If they miss a day's work, they may lose their job. Best case, they've lost a day's pay if they have to go sit in the emergency room for a day. Our customers have some money but not huge amounts of money. We make sure that we have a fast time in and out so they can get back to work. Those are the things that our customers like. In addition, they like the personalized service. They want to be treated like an individual. They don't like feeling like they're a piece of meat sitting in a plastic chair in a public health clinic. They want to be treated like the cash paying, card-carrying consumer that they are. We go far beyond that in the quality of the experience we provide for our customers.

We've been open for two years now. We've had 46,000 customer encounters so far. Customers love it and they get it. They understand what we're appropriate for and what we're not appropriate for. One of the big numbers for us is our turn away percentage. Out of every 100 customers who walked in the door, how many would we be able to treat and how many would we have to send somewhere else for specialty care? The answer is, 97 percent of the people who come in our door we can treat with our doctors. Of the 3 percent we turn away, half is actual trauma (and we send them to the emergency room via ambulance in those cases), and the other half are people with mental health issues (another sadly underserved segment of the health care industry these days).

The economic model works out very favorably as well. People wonder how we can make money on a $49 visit with a doctor. However, they usually need additional services like a lab test or they buy a special bundle. The average spend per transaction is actually $65 and that gives us a model (with low overhead, small footprint, lean staff) so we can break even with about 25 customers per store per day. It's a very reasonable business model. The stores ramp up to break-even in twelve to fourteen months. The business model is fundamentally sound and works.

The outcomes are great. Customer satisfaction is great. We do a survey with 100 percent of our customers. We ask them to fill in a little customer satisfaction card. You've probably seen these cards in restaurants as you walk out. You've probably never seen one in your doctor's office before, though! Our average score is about 4.5 out of 5.0. Customers write remarks like, "This is the first time a doctor ever listened to me." We went in thinking that we were going to provide care that was somewhere below the Mayo Clinic in terms of level of quality but certainly more than adequate, and it turns out that we're providing a very superior level of customer service.

We've also found that there are different categories of players in this area. The customer we're chasing is a little different than the one MinuteClinic or CVS is looking for. They're focusing on the upper end suburban customer who's looking for pure convenience. If it's a Saturday night and your kid has a sore throat, what do you do? You can't get hold of the pediatrician so you take him to MinuteClinic to the nurse practitioner. We're after a working family that doesn't have health insurance or a primary care physician. They want something more than what a nurse practitioner can provide and that's why we use physicians as the provider. That's a key difference. It allows us to do more and raises the average revenue. Economically it more than supports the added cost of having a physician on staff. We also have a firm doctrine about not accepting insurance. The other players in this area tend to take insurance and it just confuses things. Seventy-five to eighty percent of our customers don't have health insurance. I can't look that customer in the eye and tell them they should pay $10 more per visit to pay the added overhead I get from having to deal with Blue Cross or Aetna. Frankly, an insured customer is coming to me for convenience anyway and they're willing to pay the difference. We're about offering lowest price to every single customer with a single pricing model. If a customer has health insurance, we'll give them the paperwork and they can submit it.

We also provide access to low cost prescription drug plans. It does no good to give somebody an affordable doctor's visit if they end up having to pay $200 a month for the branded antihypertensive drug you just prescribed for them if there are perfectly good generic drugs available. We work with our pharmacy partners to provide discount programs for our customers.

We're committed to building our brand. We want our brand to be trusted. Since we're open seven days a week, a customer can't always count on the same provider being there all the time. They may see one doctor on one visit and a different one on a different visit. But through our technology infrastructure, through the training we provide to our physicians, and through the brand experience we provide, the customer can rely on getting the same experience and great quality every time they come in. We're absolutely fanatical about customer service: measuring it, reinforcing it, giving bonuses to our doctors based on it, and so on. This is another point of differentiation between us and some of the other companies that are going into drug stores as a private label under the drug store's own brand.

We also have different infrastructure requirements. We think having the staff wash their hands between patients is a good thing. When you go into the average MinuteClinic or CVS, they don't have running water and that's not sufficient when there are blood tests going on. We need plumbing and running water. We have two exam rooms and a lab area. We run about 500 square feet with real medical-grade equipment and exam tables (not just a desk and chair). This footprint tends to steer us towards a larger box retail partner.

The customer we're going after is the 47 million uninsured in this country. There's a lot of mythology around who these people are. Uninsured does not equal indigent. The uninsured in America spend over $30 billion a year on health care out of pocket and that number is growing rapidly. Most of it is spent on primary care. They also tend to cluster in the urban areas of seven states, one of which is California. Our target audience is in the Southwest states: California, Nevada, Arizona, New Mexico, Oklahoma, Texas and Louisiana. These are working families: it's another myth that they're all healthy 18-24 year olds who voluntarily choose to not have health insurance. That's only 15-20 percent of the demographic. The bulk of the demographic are working families and their kids who would love to have health insurance if they could afford it but can't. They have to pay rent, food, clothes, transportation, and there's not a lot of money left over at the end of the month. Also, in our target states, 55 percent of the uninsured are Hispanic, about twice as many as any other ethnic group, so we provide bilingual signage, branding and staff.

We do have a secondary market. About 20-25 percent of our customers come from the convenience care market. They're people who have insurance and want convenience and access. Or they have high deductible policies and they're making their own smart economic choices about where to spend their money. Also, small business customers come in because they can't afford to continue to pay the high costs of traditional plans and they see us as a viable alternative.

We think the time is right. The market has reached critical mass. There are enough people who are "off the grid" because they don't have insurance and are ignored by traditional providers. If you're a cash pay customer and you try to schedule an appointment with a regular physician, they won't be very interested in your business. The same goes for hospitals. They'll do a lot of financial qualification on you before seeing you. You're not perceived to be a good customer. To us, you're a great customer. One of the things that surprised me when we started was the amount of cash we had to handle in our business and how we had to design a system to get the cash on a daily basis from ten stores into a bank account so we could handle payroll every two weeks. It was a tricky problem for people who didn't come out of the retail business.

The other driver of our business takes advantage of fundamental changes in consumer behavior. Health insurance companies are not high on people's popularity lists. They don't like the gatekeeper attitude towards providing health care. One of the big attractions for physicians coming to work for us is the ability to work out from under the thumb of one of the insurance companies. They can actually practice medicine the way they and their patients see fit without an intermediary telling them what they can and cannot do. The other thing that consumers have a problem with is simply getting access. When they call a primary care doctor, they can't usually get in on the day they call-so if they have a migraine today, it doesn't help if the first available appointment is two weeks out. QuickHealth is drop in, no appointment necessary.

Our go-to-market strategy is based on the relationship with other retailers who handle a lot of the hard things like real estate and site location and do some of the heavy lifting (but not all) in terms of traffic generation. They also provide the benefit of the low cost prescription drugs. Forty percent of our uninsured customers would go to the emergency room for care if we weren't there and forty percent would not seek care at all. Or they would go ask the pharmacist what over the counter medicine they should take for their cough. Being in the same location as the pharmacist is an advantage because they can refer the patient to us so they can see a doctor.

Our organizational model is different from a traditional provider's model. We are all about the customer. The patient pays the bills for us, not the insurance company. We make it clear to our staff that we run the business for the convenience of our customers and not the convenience of our staff. A traditional medical practice closes over lunch so the staff can go eat. Lunchtime is one of our busiest times because that's when our customers can come see us if they're working in the neighborhood. We have all hands on deck between 11:30 and 2:30. If they want to take lunch they can do it either before or after. We also build a team model at our stores. We have a doctor and a medical assistant but the doctor is not the boss of the medical assistant. They are peers in a health care team who are trying to provide quality care to the consumer. That means that the doctor may have to use the cash register if the medical assistant is drawing blood and the medical assistant will check people in and take their vital signs.

We have grown on a fairly limited amount of capital so far. I wrote most of the checks to get the idea off the ground and open the first two stores. We raised an angel round in January, 2006 of $550,000 to open the next six stores. It took roughly $100K of capital expense to get a store open. That's pretty efficient. We raised an $8.5 million venture round in May. We're putting some corporate infrastructure in place to help us scale. We've started to pick up salary for the management team and some other items so the per store capital cost has gone up some. The most recent round will cover another twenty stores and we anticipate another round beyond that to take us to the 100 store mark. At that point we should be enterprise cash flow positive and self-sustaining.

The look and feel of each store is inviting and appealing to the customer. It doesn't look like a local public health clinic. There is comfortable seating and clear signage.

Are we really a disruptive innovation? According to Professor Christensen, there are four key attributes that differentiate a disruptive innovation from a sustaining innovation and they are: target customer, solution, business model and competitive landscape. The first one is target customer. We're not looking for the existing customer but for the non-consumer of the service. We're focusing on people using the "Southwest Airlines" model. We're not being 25 percent cheaper than United but offering access to people who used to be riding the bus. We're targeting consumers who feel that they do not have access to the traditional providers and are ignored by the current health care system. The second attribute is the solution. Are we going for an incremental improvement or breaking new ground in different dimensions? We believe we're breaking new ground. We're not changing the way that doctors practice medicine. We're using physicians doing what they do and not trying to change the psychology of the relationship between the doctor and patient. We actually provide that relationship. We do differentiate on the quality and convenience of the experience. The business model itself focuses on a low cost, low overhead model that changes the game instead of just improving the existing business model. We're going with the original Wal-Mart and Costco strategy of cutting the overhead and passing the savings on to consumers. Finally, the competitive landscape. Is this something that the traditional market leaders are going to mimic and catch up with? We talk to other providers and the reactions span the range. The public health providers have a budget determined by the county and based on the number of people waiting in line, and so they can't replicate our model. They'd save a lot of money if they put a QuickHealth store on the front lawn of every hospital in the state of California. Other health care providers can't understand how we open a store for $100K when their IT department can't hook up a computer system in a retail location for that much. This model is not in the DNA of the traditional health care industry to be able to replicate. They may partner with us instead.

Our strategy going forward is to continue to do what we've been successful at so far and build out the footprint. Then we will move up the food chain. We do have to pass on some referrals to cardiologists or other specialists. There's no reason that on a regional basis we couldn't provide that next level of specialization to our customers as well. That could even move up the chain to a QuickHealth hospital. Most of what you get at a hospital you could probably get just as good and at a better cost by checking into a suite at the Hyatt Regency and hiring a private nurse to take care of you. That's a freebie for all you entrepreneurs out there [laughter].

Thank you for your time today. We do put the "dis" in disruptive innovation. We're a great part of the solution to the health care crisis in this country. Over the past two years we've saved our customers $5.5 million on 46,000 transactions based on what they would have paid otherwise.

Clayton Christensen: I've been very interested to listen to the Presidential candidates' health care platforms. Every one of them is focused on the question of how we can afford health care but they don't have anything cogent to say about how we make health care affordable. This is part of a wave that has got to happen. I was a member of the strategy board at the Brigham And Women's Hospital in Boston (one of the big Harvard teaching hospitals). We did a study that concluded that about 70 percent of the patients thirty years ago would have been in the ICU. And 70 percent of the patients in the ICU today would have been dead thirty years ago. If the vertical axis of the disruption diagram is the complexity of the diagnosis and treatment of the disease then our hospitals have shot out the roof. Yet the obsession is on how to pay for that instead of how to make it affordable. To ever expect that the high cost care givers are going to be able to address it is silly. We have to bring technology to outpatient clinics so that you can do there the kinds of things you would have done in hospitals before. Then we bring technology to the physician's practice the way QuickHealth has, so you can begin doing there the simplest of the things that in the past had to be done in an outpatient clinic. Then bring technology to patients' homes. And bring to the general practitioners the simplest things that the specialists had to do. In other words, we need to facilitate the disruption of this industry, not resist it. The question is, "How do we do that?" What is the technological enabler that would go inside the business model of innovation of the sort that Dave has created?

My brain always has to think by analogy. At the end of his presentation, Dave was talking about how QuickHealth was going to move up-market. I think it's very plausible to say that they will. By analogy, if you wanted a new organic fiber seventy years ago, there were only about 50 people in the whole world who could build one of those molecules and DuPont employed almost all of them. Those guys would mix up a few atoms in a beaker, heat it up, draw out a fiber, look at it under a microscope, go down the hall and ask a colleague, "What do you think?" She'd say, "I have no idea, but let's heat it up for ten more minutes and see what happens." The miracle molecules that we know as nylon, Kevlar and polyester emerged from the labs of DuPont through an unstructured trial and error process. It took extraordinary intuition, training and experience to play in that game.

As those artists practiced their craft, patterns began to emerge. As it moved into a pattern recognition realm, you didn't have to be the best in the world in order to play this game. You could begin to teach others how to do it. A lot more people became organic chemists and more companies got into the fiber business. Then quantum theory took over and as it became better understood, it allowed you predict the properties of a molecule in advance. Then you could write a piece of software that would help reverse engineer the structure of the molecule from the properties you typed in as much as is possible. Today, all you need is a BS in Chemical Engineering and a great piece of software and you can design better molecules at lower cost than the world's experts could a generation ago.

At any point in your life, stand up, turn around 360° and you can put your hands or your eyes on about twenty different fibers that are a great blessing in our lives. But they didn't come from replicating the expertise of the DuPont scientists, but rather from commoditizing their expertise through scientific progress to enable more people with less skill to do progressively more sophisticated things.

That's the case in every disruption. The technical enabler is one that commoditizes things that at one point had to be left in the hands of intuitive specialists. What we see in health care is a similar transition. In the past, health care was in the realm of intuitiveness. We're moving to the realm of precision medicine. The technological enabler is the development of precise diagnostics. Infectious diseases have largely come this way already. One hundred years ago there was a devastating disease called consumption. It happened when your lungs filled up with gunk. You'd have to go to a hospital where the finest physicians would treat you but they didn't have much success. Then we began to unpack that disease. We realized that tuberculosis causes your lungs to fill up like that and there are three types of tuberculosis. Pneumonia does it as well and there are a couple of types of that. Once we could diagnose by the cause instead of the symptom, then we could develop a rules-based therapy: if this, then that. Now physicians don't have to deal with most infectious diseases. Nor do hospitals because precise diagnosis enabled rules-based therapy.

Now, molecular diagnostics is causing this same phenomenon to happen in a much broader range of diseases. It turns out that the body isn't very articulate. It has a very limited vocabulary that it can draw upon to express that something has gone haywire. For example, we thought in the past that high blood pressure was a disease. A doctor would treat a patient who would respond then treat a different patient who wouldn't respond. You couldn't have a rules-based therapy that way. Now we know that there are several different disorders that are expressed by the same symptom. Now that we understand the cause of the symptom in each of these cases, a rules-based therapy can be developed. A physician doesn't have to treat it any more. A specialist can give it to a generalist and ultimately leave it to a nurse. We now understand that the reason why different patients with type 2 diabetes respond differently to treatment is that diabetes isn't a disease. It's a symptom that has about twenty underlying disorders as its cause. Now that we can diagnose these precisely, a rules-based therapy can emerge. Breast cancer isn't a disease, it's just a location. So disease by disease, the technology is shifting things from the unstructured trial and error world of intuitive medicine to a rules-based world of what we would call precision medicine. That technological enabler has to be embedded in a business model and that's how I interpret what QuickHealth is doing.

There's another thing we observe about the processes of disruption. When you're on the left hand side of the disruption diagram and the product doesn't perform well enough, the way you define quality generally is by the reliability and efficacy of the product or service. But once it's become more than good enough, quality is defined differently. Quality becomes how fast someone can get what they need and how convenient it is to get it. In the health care business, if this is one of these unstructured, poorly defined diseases, it really does matter that the doctor has a degree from Harvard or Johns Hopkins hanging on the wall. In that world, quality is defined by reliability and efficacy. For the kinds of things that QuickHealth is treating, quality is defined by speed, convenience and affordability. That explains why the customers don't call it low quality health care. It's high quality because the definition of quality is different.

Dave: They're not hiring us to be the Johns Hopkins diagnostician. They're hiring us because they want a better price and convenience. Consumers tend to be lousy judges of medical care. They judge it on the superficial: did I get better or not; and did the doctor write me a prescription or not (most patients want to have more prescriptions written). Customers also love whether the floor is clean when they go in or whether someone greets them by name. That's a big deal to them.

Question: Can you comment on your physician compensation?

Dave: Ninety percent of the compensation is based on a flat salary model. There is a 10 percent variable based on things like customer satisfaction and productivity. Our salaries are competitive with what physicians make in the surrounding communities. We're paying a market rate. Our average fulltime physician makes around $150,000.

Question: Is there a critical mass at which point you'd move to a franchising model?

Dave: We've thought about that. Right now in the areas that we're targeting, we want to have corporate-owned locations. Because the quality of service is so important we want to have control of that consistency. A franchise model at this stage of the game would be too risky to guarantee that. Also, to execute a franchise model, we'd need to have more of a cookbook model than we have today. And running a franchise business is dramatically different from running company-owned locations. But it might make sense outside of our Southwest target market. There may be pockets of Chicago, for instance, where a few stores could be supported but would not justify the entire infrastructure for a corporate presence. An entrepreneur could open a couple of stores, though, and have a nice presence there. That might be a candidate for franchising.

Question: How do you handle liability insurance?

Dave: That was one of the major red flags that came up when we were first investigating this idea. Surprisingly, malpractice insurance is not that expensive for the types of things that we do. It limits our scope of service to some degree in order to keep the overall cost umbrella low enough. Malpractice insurance actually costs us less than worker's compensation insurance.

Clay: I know the data from MinuteClinic (they're only nurse practitioners). But they've had millions of visitors and have not been sued once. The reason is that lawsuits arise in the realm of intuitive medicine when the physician exercises the wrong judgment or doesn't follow established practice. In the kinds of disorders that QuickHealth practices on, this is really rules-based medicine and the rules are clear enough so as to reduce the exposure to lawsuits.

Question: Would the next step for you be to go up one level and go after the market of people who are insured?

Dave: That gets into the larger societal issue of what form health insurance should take and what will the ratios be between deductible, co-payment and out-of-pocket costs. The problem with insurance today is that you don't have an appreciation of how much insurance is costing you per month (because your employer is paying for a large chunk of that) versus how much it might cost you to go to the doctor. Consumers tend to make irrational choices today as a result. As more companies change the game of insurance and give their employees a $2,500/year deductible then you will find people shopping around for their primary care. This gets back to my analogy about automobile insurance. Auto insurance doesn't cover new tires and a battery every year. You pick that up out of pocket. Your insurance covers those rare, unexpected things you can't afford to pay for out of pocket. Why should health insurance be different? Why should your physical be covered by your insurance plan? That should be you paying $69 out of pocket to pay for that. However, if you need a heart catheterization that is going to cost $150K, then it would be nice to have the insurance company pick that up instead of you wiping out your retirement plan.

Question: Of the different plans out there in the political environment, which seems the most likely or the best/worst for your business model?

Dave: Great question. The most likely and the best are not necessarily going to be the same. None of the plans will have a significant impact on our business model. The low cost provider of primary care will be an enviable position to be in for any outcome. The cost shift on primary care will be towards self-pay. That's inevitable. The only option that would be detrimental to our business model is a UK-style national health plan where the physicians are the employees of the government and the government owns the clinics. But the odds of that happening are just about zero. Americans don't want to go to a government doctor for their health care.

Question: Do you pay market rent on your space?

Dave: Yes, we do. Legally, under various federal laws of anti-kickback, we're required to pay fair market rent on our locations, not a penny more or less. When you go to negotiations with Wal-Mart, the best friend you can have with you is the US Government saying what your rent will be. They can't have a share of profit or revenue. Our landlords are people who fill prescriptions and our doctors write them and there can't be any financial inducement either way.

Question: How many physicians do you need to staff a particular location and what sort of margins are you expecting?

Dave: We're open seven days a week. It takes about 2.5 physicians and 2.5-3.0 medical assistants to staff a store to start with. As traffic levels grow, we first add an additional medical assistant and then when the levels get really big, we add a second doctor. We can move about 60 people per day maximum through one of these facilities. Break-even is about 22-23. The margins are very attractive in the higher traffic situations.`

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