By Sharon Terlep
Walgreens Boots Alliance Inc., hit by slowing profits from
prescription drugs, will attach doctors' offices to hundreds of
drugstores as the pharmacy chain seeks to remodel itself as a
health-care provider.
The largest U.S. drugstore chain by stores is pairing with
primary-care provider VillageMD to open 500 to 700 clinics at
Walgreens sites across the country over the next five years.
Walgreens will pay VillageMD $1 billion in equity and debt over the
next three years in exchange for a 30% stake in the Chicago-based
startup by the end of that term.
Walgreens and rival CVS Health Corp. are in a race to become
go-to treatment centers, particularly for patients with costly,
hard-to-manage chronic conditions. Both chains are seeking new ways
to counter smaller revenue from prescription drugs, which drive the
bulk of their sales. They also are battling online rivals such as
Amazon.com that have drawn shoppers away from physical stores.
Insurers and hospitals, meanwhile, have been expanding their
clinics or buying up physicians' practices, making more
primary-care doctors employees of larger companies. For example,
UnitedHealth Group Inc. has acquired a network of doctor practices,
surgery centers and urgent-care clinics.
"We heard from patients that they trust their local doctor and
they don't like changing their doctor," said Alexander Gourlay,
Walgreens co-chief operating officer. "It became clear that you
have to have a primary care doctor as part of the model both
physically and digitally."
Drugstores and doctors' practices are getting hurt by the
coronavirus pandemic. Patients are putting off visits to their
health-care providers for fear of catching the virus during visits.
Walgreens is part of a coalition behind a new ad campaign to
encourage people to return to their medical providers as the
pandemic continues.
Walgreens in April said store sales had begun to fall sharply
following an initial surge in demand in March as Americans rushed
to stock up in the pandemic's early days. The company will report
financial results for its May-ended quarter on Thursday.
VillageMD, a network with more than 2,800 physicians, has had a
15% to 20% drop in primary-care visits amid the pandemic, said Tim
Barry, the startup's co-founder and CEO. He said the drop-off is
less severe than declines of 40% or more in the broader
industry.
Executives from both companies said the deal was advancing
before coronavirus.
In adding primary-care doctors to its model, Walgreens is
diverging from CVS, which has said that physicians aren't needed to
create so-called health-care hubs. CVS is creating hubs inside its
stores where patients would go to seek medicine, consultations and
lab tests to manage chronic conditions such as diabetes and
hypertension.
Both drugstore giants say their ubiquity in American communities
makes pharmacies a logical hub for people seeking treatment for
chronic ailments, which are often exacerbated as patients struggle
to take their medications regularly and adhere to medical
regimens.
CVS, which acquired insurer Aetna Inc. in 2018, said its
health-hub model will drive down the cost of health care, savings
that will then be captured by its new insurance arm. It aims to
have 1,500 health hubs opened by 2021.
Walgreens, which has opted to partner rather than acquire
insurers or other companies, said the VillageMD pairing will
benefit Walgreens financially by driving up prescription sales as
well as sales of related medical products as more patients visit
the stores. The company also aims to make money off its 30% stake
in VillageMD.
Walmart Inc., the country's biggest retailer and a major
pharmacy operator, is also adding medical services. The company has
opened a handful of clinics with doctors and dentists that offer
flat-fee primary care, such as $25 dental X-rays and $40 office
visits. The company plans to expand the clinics broadly across
Walmart's 4,700 U.S. stores, said Sean Slovenski, president of
Walmart U.S. health and wellness in an interview.
"The intent is to spread across the majority of the fleet, but
the clinics won't be the same across the entire fleet," he said
last October soon after the first new clinic opened in Georgia. The
first locations were stand-alone clinics next to Walmart
supercenters. Newer versions are inside existing stores.
Critics, including some industry analysts, health-care experts
and physician groups, argue that Americans aren't ready to accept
their local drugstore as a trusted health provider. Some also say
the depth and complexity involved in successfully treating chronic
conditions can't be addressed by pharmacy chains.
Health-care industry lines are being redrawn and providers are
under pressure to revamp themselves. A high-profile health venture
backed by Amazon, JP Morgan Chase & Co. and Berkshire Hathaway
Inc. has shown little to the public three years after it was
announced. The venture's chief executive recently stepped
aside.
Walgreens has been working with VillageMD since last year when
the companies opened five joint VillageMD locations in Houston.
Walgreens' Mr. Gourlay said patients' adherence to medications
improved at the pilot locations, convincing the company the model
should expand.
VillageMD, which has bought up primary-care offices across the
country, will move existing physicians into the Walgreens-adjacent
clinics.
The cost of a VillageMD office visit will vary based on the
patient's insurance coverage and services rendered. Half the
clinics will be in medically underserved areas, and will offer a
sliding payment scale to uninsured patients. Walgreens said it
hasn't yet set the list of planned locations.
Sarah Nassauer contributed to this article.
Write to Sharon Terlep at sharon.terlep@wsj.com
(END) Dow Jones Newswires
July 08, 2020 08:14 ET (12:14 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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