Category Archives: Retail Clinic

CVSHealth Eyes Breakup: A Reckoning for Corporate Health Care’s Vertical Empire

Posted on by • Posted in Antitrust, Complex, CVS Health, Federal Trade Commission, Federal Trade Commission (FTC), Health Insurance Industry, Healthcare Economics, Market Consolidation, Market Power, Market Trends, Retail Clinic, Retail Healthcare, Retail Pharmacy, Unwind, Vertical Consolidation, Vertical Integration, Vertical Merger, Vertical Mergers, Wall Street • Leave a comment
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In a surprising turn of events, sources say that CVS Health is exploring the possibility of breaking up its business empire — a move that could unravel years of aggressive vertical integration, including its $70 billion acquisition of health insurer Aetna back in 2017.

While details are still slim, such a move signals just how dire the situation has become for CVSHealth as it navigates mounting financial and regulatory pressures on multiple fronts.

It’s yet another chapter in a story that has seen CVSHealth evolve from a retail pharmacy chain into a health care behemoth — but perhaps one that grew too big, too fast. And to be honest, I’m not surprised. I’ve seen this movie before. In fact, I saw it many times – although each time with different stars – during my 20 years in the health insurance business. One of the most memorable featured Aetna, which in the late 1990s and early 2000s had to retrench, at Wall Street’s insistence, after a buying spree of smaller health insurers that brought the company a ton of unprofitable accounts and disappointing bottom lines. Aetna followed its buying spree with a purging spree, dumping as many as eight million health plan enrollees in short order to get back into Wall Street’s good graces.

It seems that CVSHealth also bought too much too fast. The results? Rising expenses, frustrated patients, and now potential cracks in the corporate structure itself.

CVS: A Cautionary Tale of Vertical Integration

Large corporations like CVS and its peers have used their size to dominate various aspects of health care—whether it’s insurance, retail pharmacy, physician practices and clinics, and controlling the drug supply chain. But as these mega-corporations continue to grow, they also become harder to manage, and their inefficiencies start to become evident. 

CVS’s acquisition of Aetna was hailed at the time as a strategic masterstroke — a way to streamline health care by bringing together the different parts of the system under one corporate umbrella. It was supposed to deliver “efficiencies” that would benefit both the company and patients. 

But it’s not just the purchase of Aetna. From pharmacy benefit manager Caremark to Aetna to health care providers Signify Health and Oak Street Health — CVS’s business model has become increasingly complex, making it difficult to navigate regulatory scrutiny, rising costs and fierce competition in the retail pharmacy space.

The latest reports suggest that CVS’s board is trying to figure out where Caremark would land in the event of a breakup. Would it stay with the retail side or with the insurance arm?

This isn’t just an internal debate; it’s emblematic of the broader issue—CVS has built a vertically integrated structure that was supposed to work together to improve care, but investors are now questioning how and even if these pieces should fit together. 

It’s Been a Hard Few Years for CVS

Federal Trade Commission’s Legal Action Against CVS’s Caremark and Other PBMs

Instead, those supposed efficiencies have largely translated into higher costs for consumers and increased scrutiny from regulators, especially with CVS’s Caremark at the center of anti-competitive practices allegations by the Federal Trade Commission (FTC). PBMs like Caremark control the drug pricing landscape in ways that lack transparency and disproportionately affect patients and independent pharmacies.

Now, as CVS grapples with rising medical costs within its Aetna business — just like its biggest competitors, UnitedHealth and Humana —the company’s management appears to be in damage control mode. While nothing is certain, discussions about splitting the business have reached the boardroom level, according to sources familiar with the matter. This comes as activist investors, like Glenview Capital, push for structural changes to improve CVS’s declining financial performance.

CVS’s Aetna Medicare Advantage Loss in New York City

New York City Mayor Eric Adams had a plan to force city municipal retirees out of traditional Medicare and into a corporate Aetna Medicare Advantage plan. The NYC Organization of Public Service Retirees vehemently opposed the move and spent months fighting it.

In August, a Manhattan Supreme Court judge permanently halted the mayor and Aetna’s attempts.

Wall Street Woes

For CVS Health, 2024 started off bad. CVS missed Wall Street financial analyst’s earnings-per-share expectations for the first quarter of 2024 by several cents. Shareholders’ furor sent CVS’ stock price tumbling from $67.71 to a 15-year low of $54 at one point. 

An astonishing 65.7 million shares of CVS stock were traded that day. The company’s sin: paying too many claims for seniors and people with disabilities enrolled in its Medicare Advantage plans. 

Also in August, CVS Health cut its 2024 forecast for a third time, citing troubles covering seniors via the company’s private Medicare Advantage business. Operating income for CVS Health’s insurance arm, Aetna, dropped a whopping 39% in Q3, which forced the company to shake up its leadership – moving CEO Karen Lynch into the role of managing insurance and publicly firing one of her lieutenants, Executive Vice President Brian Kane.

What’s Next?

The notion that CVS could split its operations would effectively unwind one of the most high-profile health care mergers in recent memory. A split up of the company would mark the end of an era in which health care conglomerates could grow unchecked. CVS’s struggle isn’t happening in isolation—other companies, like Walgreens and Rite Aid, are facing similar financial difficulties and structural questions.

CVS’s potential breakup could signal a broader industry trend toward unwinding massive, vertically integrated health care corporations. 

Whether CVS breaks up or not, it’s clear that the model of health care mega-mergers, designed to consolidate power and increase corporate profits, is facing serious headwinds. Cigna recently announced that it is getting out of the Medicare Advantage business and Humana is getting out of the commercial insurance market. UnitedHealth, meanwhile, so far seems to be weathering those headwinds, but it, too, will be facing even more scrutiny by lawmakers and regulators in the months and years ahead.

Walgreens considering selling all of its VillageMD business

Posted on by • Posted in Divestitures, Operating Income, Operating Margin, Operating Metrics, Operating Performance, Retail Clinic, Retail Healthcare, Retail Pharmacy, Walgreens, Walk-in Clinics • Leave a comment
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Walgreens Boots Alliance is considering selling all of its VillageMD primary care clinics, according to a filing with the Securities and Exchange Commission.

The company is evaluating options in light of ongoing investments into VillageMD and its substantial ongoing and expected future cash requirements,  Walgreens said in the August 7 filing.  

“These options could include a sale of all or part of the VillageMD businesses, possible restructuring options and other strategic opportunities,” Walgreens said.

WHY THIS MATTERS

Walgreens has been facing financial pressure due to a changing retail environment and increased regulatory and reimbursement challenges on the pharmacy end, according to its Q3 earnings report from June.

VillageMD, as well as some other pharmacy clinics, have faced the challenge of making the clinics a scalable solution.

On August 5, Walgreens Boots Alliance stock hit a 52-week low of $10.62, according to Seeking Alpha. Year to date, shares are down  about 59%.

In the recent SEC filing, Walgreens acknowledged the existence of defaults under the VillageMD Secured Loan. On January 3, 2023, Walgreens had provided VillageMD senior secured credit facilities in the aggregate amount of $2.25 billion. This consisted of a senior secured term loan in an aggregate principal amount of $1.75 billion and a senior secured credit facility in an aggregate original committed amount of $500 million.

Walgreens is actively engaged in discussions with VillageMD’s stakeholders and other third parties with respect to the future of its investment in VillageMD, it said.

On August 8, Walgreens announced the pricing of an underwritten public offering of senior unsecured notes consisting of $750M aggregate principal amount of 8.125% notes due 2029. The sale of the notes is expected to close on August 12.

WBA said it intends to use the net proceeds from the offering, together with cash on hand, for the repayment and/or retirement of its outstanding 3.800% notes due 2024, and to use any remaining amounts for general corporate purposes.

On August 1, WBA announced it had sold all of its remaining unencumbered shares of Cencora, a drug wholesale company, for $818 million, and, subject to the completion of the sale, a concurrent share repurchase by Cencora in the amount of $250 million.

Proceeds will be used primarily for debt paydown and general corporate purposes, as the company continues to build out a more capital-efficient health services strategy rooted in its retail pharmacy footprint, Walgreens said.

THE LARGER TREND

During the Q3 earnings call on June 27, CEO Tim Wentworth said the company intended to reduce its stake in VillageMD. This was part of a strategy announced earlier in the year to close unprofitable VillageMD clinics in order to cut $1 billion in costs.

Walgreens also announced at that time plans to shutter up to 25% of its retail stores that were unprofitable.

Walmart Health’s Demise is Emblematic of the Nation’s Primary Care Conundrum

Posted on by • Posted in Cost Management, Cost Reduction, Health Insurance Industry, Health System, Primary Care, Primary Care Delivery Model, Primary Care Strategy, Private Equity, Retail Clinic, Retail Healthcare, Walmart, Whole-Person Health • Leave a comment
Walmart Health’s Demise is Emblematic of the Nation’s Primary Care Conundrum

Walmart’s announcement on April 30 that it was pulling the plug on Walmart Health stunned the healthcare ecosystem. [1] Few saw it coming.

Launched amid much fanfare in 2019, Walmart Health has operated 51 health centers in five states, with a robust virtual care platform. Walmart’s news release noted that “the challenging reimbursement environment and escalating operating costs create a lack of profitability that make the care business unsustainable for us at this time.” Despite its legendary supply-chain capabilities, expansive market presence and sizable consumer demand for affordable primary care services, Walmart couldn’t make its business model work in healthcare.

Just two weeks earlier with much less fanfare, and in stark contrast to Walmart, the big health insurer Elevance announced it was doubling-down on primary care. On April 15, Elevance issued a news release detailing a new strategic partnership with the private-equity firm Clayton, Dubilier & Rice (CD&R) to “accelerate innovation in primary care delivery, enhance the healthcare experience and improve health outcomes.” [2]

What gives? Why is Elevance expanding its primary care footprint when the retail behemoth Walmart believes investing in primary care is unprofitable? The answer lies at the heart of the debate over the future of U.S. healthcare. As a nation, the United States overinvests in healthcare delivery while underinvesting in preventive care and health promotion.

Enlightened healthcare companies, like Elevance, are attacking this imbalance aggressively.

Elevance isn’t alone. Other large health insurers — including UnitedHealthcare, CVS/Aetna and Humana — and some large health systems (e.g., AdventHealth, Corewell Health and Intermountain Healthcare) are investing in primary care services to support what I refer to as 3D-WPH, shorthand for “democratized and decentralized distribution of whole-person health.”

3D-WPH is the disruptive innovation that is rewiring U.S. healthcare to improve outcomes, lower costs, personalize care delivery and promote community wellbeing. It is an unstoppable force.

Transactional Versus Integrated Primary Care

Across multiple retail product and service categories — including groceries, clothing, electronics, financial services, generic drugs and vision care — Walmart applies ruthless efficiency management to increase consumer selection and lower prices. Consistent with the company’s mission of helping its customers to “save money and live better,”

Walmart Health provided routine, standalone primary care services at low, transparent prices. Despite scale and superior logistics, Walmart could not deliver these routine care services profitably.

Here’s the problem with applying Walmart’s retailing expertise to healthcare:

While exceptional primary care services are rarely profitable in their own right, they can reduce total care costs by limiting the need for subsequent acute care services. Preventive care works. Companies that invest in primary care can benefit by reducing total cost of care.

Unfortunately, few providers and payers practice this integrated approach to care delivery. Most providers rely on their primary care networks to refer patients for profitable specialty care services. Most payers use their primary care networks to deny access to these same specialty care services.

This competition between using primary care networks as referral and denial machines dramatically increases the intermediary costs of U.S. healthcare delivery. Patients get lost as these titanic payer-provider battles unfold, even as costs continue to rise, and health status continues to decline.

Whole-Person Health Works

A growing number of payers and providers, however, are recalibrating their business models to lower total care costs by integrating primary care services into a whole-person health delivery model.

In its news release, Elevance described its strategic partnership with CD&R as follows:

The strategic partnership’s advanced primary care models take a whole-health approach to address the physical, social and behavioral health of every person. The foundation of the new advanced primary care offering will be stronger patient-provider relationships supported by data-driven insights, care coordination and referral management, and integrated health coaching. It will also leverage realigned incentives through value-based care agreements that enable care providers, assist individuals in leading healthier lives, and make care more affordable.

“We know that when primary care providers are resourced and empowered, they guide consumers through some of life’s most vulnerable moments, while helping people to take control of their own health,” said Bryony Winn, president of health solutions at Elevance Health, in the news release. “By bringing a new model of advanced primary care to markets across the country, our partnership with CD&R will create a win-win for consumers and care providers alike.”

Whole health personalizes and integrates care delivery. I would suggest that transactional and fragmented primary care service provision cannot compete with 3D-WPH.

For all its strengths, Walmart Health is not positioned to advance whole-person health. Primary care service provision without connection to whole-person health is a recipe for financial disaster. Walmart Health’s demise confirms this market reality.

Moreover, whole-person health is not rocket science. The Veterans Health Administration (VA) has practiced 3D-WPH for more than 15 years. [3] It achieves better outcomes at two-thirds the per capita cost of Medicare with a much sicker population. [4]

Countries with nationalized health systems practice whole-person health expansively. With one-third the per capita income and one-fifth the per capita healthcare expenditure, Portugal has a life expectancy that is more than five years longer than it is in the United States. [5] Portugal achieves better population health metrics than the United States by operating community health networks throughout the country that combine primary care and public health services.

The VA, Portugal and numerous other organizations and countries prove the thesis that investing in primary care lowers total care costs and improves health outcomes. The evidence supporting this thesis is both compelling and incontrovertible.

Solving Healthcare’s Primary Care Conundrum

Economists refer to a circumstance when individuals overuse scarce public goods as a tragedy of the commons.

Public grazing fields highlight the challenge posed by such a circumstance. [6] It is in the financial interest of individual ranchers to overgraze their herd on a public grazing field. Overgrazing by all, however, would obliterate the grazing field, which is against the public’s interest.

Societies address these “tragedies” by establishing and enforcing rules to govern public goods.

U.S. healthcare, however, reverses this type of economic tragedy. Advanced primary care services represent a public good. All acknowledge the benefits and societal returns, yet few providers and payers invest in advanced primary care services. Providers don’t invest because it leads to lower treatment volumes. Payers don’t invest because primary care’s higher costs trigger higher premiums, prompting their members to switch plans.

We can’t solve the primary care conundrum until we enable both providers and payers to benefit from investments in advanced primary care services. Fragmented, transactional medicine, even when delivered efficiently, is not cost-effective. Walmart Health discovered this economic reality the hard way and exited the business.

By contrast, Elevance is reorganizing itself to overcome healthcare’s reverse tragedy of the commons. They are betting that offering advanced primary care services within integrated delivery networks will both lower costs and improve health outcomes. Healthcare’s future belongs to the companies, like Elevance, that are striving to solve the industry’s primary care conundrum.

S&P Global Ratings downgrades Walgreens, citing struggles in both pharmacy and retail

Posted on by • Posted in Credit Downgrade, Credit Ratings, Operating Margin, Operating Margin Drivers, Operating Metrics, Retail Clinic, Retail Healthcare, Retail Pharmacy, Strategic Leadership, Strategy, Walgreens • Leave a comment
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The drugstore retailer faces debt maturities, while the upending of some strategies introduces new uncertainties, analysts said.

S&P Global Ratings analysts have downgraded Walgreens Boot Alliance by two notches, to ‘BB’ from ‘BBB-’, which puts the drugstore company into speculative-grade territory.

Analysts Diya Iyer and Hanna Zhang cited guidance for the year “notably below” their expectations, and said “material strategic changes, limited cash flow generation, and large maturities in coming years are key risks to the business.”

The company is struggling in its retail business as well as its pharmacy operations, they said in a Friday client note. In the U.S., margins are taking a hit on the pharmacy side from reimbursement pressure and on the retail side from declining sales volume and higher shrink. They expect Walgreens’ S&P Global Ratings-adjusted EBITDA margin to decline more than 100 basis points this fiscal year, dipping below 5%, from 6% last year, though the company’s cost cuts will counter that somewhat.

Walgreens’ debt and its need to refinance much of it represent another “key risk,” they said. This November, Walgreens faces $1.4 billion in maturities, mostly U.S. bonds. Another $2.8 billion comes due in fiscal 2026 and $1.8 billion in fiscal 2027. The analysts called Walgreens’ move to consolidate cash “prudent” in case refinancing isn’t possible.

“We will be monitoring how Walgreens’ new management addresses this large debt load closely amid its persistently weak performance and higher interest rates,” Iyer and Zhang said.

Beyond those financial realities, though, are strategic weaknesses. Ex-Cigna executive Tim Wentworth took over as CEO last fall and this year has overseen a strategic review that has entailed more layoffs and store closures.

Walgreens has also upended some of its plans to expand its medical care operations, divesting of or shrinking many of its original investments and plans. Last month, for example, the company announced it would reduce its stake in value-based medical chain VillageMD, saying it will no longer be the company’s majority owner, after closing dozens of the clinics last year. The company first poured $1 billion into VillageMD in 2020 and more than doubled its stake for another $5.2 billion the following year, but the banner’s waning value helped drive a $6 billion loss in Q2.

Despite such moves, Iyer and Zhang said they continue to see the VillageMD banner as “a significant drag on profitability due to the rising cost of labor, pressures from reimbursement, and lower volumes.”

Walgreens’ acquisition streak led the S&P analysts to believe that it would divest of its Boots U.K. business, which could have helped pay down $8 billion to $10 billion in debt. But the company called off the idea about two years ago.

“We believe these frequent and large changes to the company’s strategic plans diminish management’s credibility to execute on a sustainable and cohesive operating model for Walgreens in both the near and long term,” Iyer and Zhang said.

Gains that Walgreens has managed to eke from its medical operations haven’t managed to offset declines on the retail said, they also said, adding that they are closely watching what it does next with its massive footprint. The company last year announced that it would close 150 stores in the U.S. and 300 in the U.K. and just last month said it was reviewing 25% of its current footprint, with plans to shutter a “significant portion” of its roughly 8,700 stores.

“Our ratings continue to reflect Walgreens’ large scale and its efforts to address its credit metric profile. With almost $140 billion in sales in fiscal 2023 and a diverse array of global businesses, Walgreens remains prominent in the drugstore space,” they said. “However, we think its scale is providing less protection to profitability at least partly due to inconsistent strategic direction.”

Why Walgreens’ US Health President Is ‘Bullish’ on the Role of Retail in Healthcare

Posted on by • Posted in Consumer Care Consumption Patterns, Consumer Engagement, Consumer Experience, Consumer Marketing, Consumer Preferences, Consumerism, Convenience, Convenient Access, Patient Experience, Patient Satisfaction, Primary Care, Primary Care Delivery Model, Primary Care Strategy, Retail Clinic, Retail Healthcare, Retail Pharmacy, Value Proposition, Walgreens • Leave a comment

During a fireside chat at AHIP 2024, Mary Langowski, executive vice president and president of U.S. healthcare at Walgreens Boots Alliance, said she sees a bright future for retail in healthcare.

Retailers are facing several headwinds in healthcare in 2024. Walmart and Dollar General both recently ended healthcare endeavors, and CVS Health is reportedly looking for a private equity partner for Oak Street Health (which it acquired in 2023). VillageMD, which is backed by Walgreens, is shuttering numerous clinics.

Still, Mary Langowski, executive vice president and president of U.S. healthcare at Walgreens Boots Alliance, sees a strong future for retailers in healthcare.

“I happen to be very bullish on the role of retail in healthcare and frankly, having a very central role in healthcare,” she said. “And part of that is because over 80% of people want health and wellness offerings in a pharmacy and in a retail setting. Consumers want the ease, they want the convenience of it. And those are important things to keep in mind, that demand is there.”

Langowski, who joined Walgreens in March, made these comments during a Tuesday fireside chat at the AHIP 2024 conference held in Las Vegas. She added that what the industry is seeing is not an “evolution” of whether retailers will exist in healthcare, but a shift around what the “right model is going to be.” 

“We really think that if you take our core assets, … we can be a really good partner to not just one provider entity but many, many provider entities and payers across the United States,” Langowski said. “We’re everywhere. We’re in the community, we’re digitally inclined. I think a strategy for us is less capital-intensive, capital-light and very scaled models.”

She also told the health plans in the audience that she wants to collaborate more. She said she sees retail as a “really critical entry point” in the healthcare system.

“We have people using their pharmacists two times more than any doctor and Medicare patients see us eight times more than their physician,” Langowski declared. “We’re not doing enough together to take advantage of those moments where we can engage people and we can create interventions way earlier in their healthcare disease state.”

Langowski noted that insurers are under a lot of pressure, including rising costs, regulatory issues and challenges contracting with providers. However, Walgreens’ assets are “highly complementary” to insurers’ assets, she said. 

“We aren’t going to do what you do. You don’t do what we do, but we work really well together,” she said. “And what it will take is being clever about the commercial and economic model and I believe there are multiple ways to create win-win scenarios where everybody does well. Most importantly, patients get healthier and they have a much better and much more seamless experience with the system.”

Dollar General ends mobile health clinic pilot

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https://www.kaufmanhall.com/healthcare-consulting/gist-resources-kaufman-hall/kaufman-hall-blogs/gist-weekly

Discount retail giant Dollar General announced late last week that it will end its mobile health clinic pilot program, run in partnership with mobile medical care provider DocGo.

Launched in Jan. 2023, the mobile clinics provided basic healthcare services—including annual physicals, vaccinations, urgent care, and lab testing services—several days per week outside three Dollar General stores near the company’s Goodlettsville, Tennessee headquarters.

A Dollar General spokesperson said that ending the mobile clinics program was a mutual decision between Dollar General and DocGo and did not provide additional details on the decision. 
The Gist: Dollar General’s small healthcare delivery pilot received significant attention when it was announced, due to the retailer’s extensive footprint in rural and medically underserved areas. 

Although the discount retailer never touted a healthcare strategy on the scale of Walmart or Walgreens, which have each also walked back their healthcare delivery ambitions this year, Dollar General did hire a chief medical officer in 2021, and many thought that this pilot could be the company’s first step toward broader healthcare delivery. 

Instead, Dollar General’s role in improving the health of rural Americans for now remains limited to its retail offerings: it continues to expand its DG Fresh initiative, now selling fresh produce at more than a quarter of its 20K locations, and its DG Wellbeing section, which now accepts supplemental health benefits for its selection of more than 300 over-the-counter medicines and supplements.

Walmart’s Primary Care Failure Is Important and a Problem

Posted on by • Posted in Chronic Care Management, Primary Care, Primary Care Delivery Model, Primary Care Strategy, Retail Clinic, Retail Healthcare, Rural Health, Wall Street, Walmart • Leave a comment

https://www.kaufmanhall.com/insights/thoughts-ken-kaufman/walmarts-primary-care-failure-important-and-problem

On August 8, 2014, Walmart announced it would expand on its existing five primary care centers to a total of 12 by the end of the year. These centers would offer more extensive services than those provided in Walmart walk-in clinics, including chronic disease management.

On September 13, 2019, Walmart announced it was opening the first expanded Walmart Health center, which would provide patients with primary care, laboratory, X-ray, EKG, counseling, dental, optical, and hearing services, with the “goal of becoming America’s neighborhood health destination.”

On April 30, 2024, Walmart announced it would close all 51 of its health centers in five states, as well as its virtual care services. “The challenging reimbursement environment and escalating operating costs create a lack of profitability that make the care business unsustainable for us at this time,” Walmart said.

Make no mistake, this announcement is a big deal.

Walmart is the largest retailer in the world, with about $650 billion in annual revenue, 10,500 stores in 19 countries, and 2.1 million employees—nearly 1.6 million in the U.S. alone. Healthcare services were an important corporate goal for Walmart, a goal the company pursued with significant financial investment and talented executives. Walmart’s healthcare strategy was carefully mapped out, with an expanding set of services tested in various formats and locations in Walmart’s formidable geographic and online presence.

Of course, one of Walmart’s goals was to create profit for the company through its foray into healthcare.

However, Walmart’s primary care strategy also held great promise for improving the health of the people Walmart serves, as well as reducing overall healthcare costs. A recent study by researchers at the University of Chicago Booth School of Business and University of Chicago Medicine, focusing on more than 500,000 Medicare beneficiaries, found that regular primary care visits were associated with fewer risk-adjusted ED visits and hospitalizations, lower risk-adjusted expenditures, and greater cost savings. According to the study, results improved as the regularity and continuity of care increased, both of which potentially would have been facilitated by the highly accessible and affordable primary care that Walmart aimed to deliver.

These benefits to patients and communities would have been especially powerful in rural America. Walmart plays a central role in the rural ecosystem, both as an economic and a social center. Ninety percent of the population is located within 10 miles of a Walmart.

Four thousand of Walmart’s stores are located in HRSA-designated medically underserved areas. In a time when rural healthcare providers are struggling to remain viable and healthcare deserts are becoming more problematic, Walmart had a unique opportunity to be, as the company itself said, “the front door of healthcare for all Americans.”

That enormous opportunity to tackle one of the most significant and persistent problems in American healthcare has now been lost.

Walmart is a corporation with a great history, a great reputation, great resources, and great operational abilities. If any company could make primary care work effectively and efficiently on a large scale in this country, it should have been Walmart.

But, after nearly two decades of trying, Walmart couldn’t succeed as a healthcare provider.

We can draw at least three important conclusions from Walmart’s healthcare failure.

  1. Healthcare as a cash business is a very difficult business model. Like other retailers, Walmart focused on healthcare as a cash business, providing high-volume, low-price services that consumers would pay for largely out-of-pocket. Walmart’s healthcare failure strongly indicates that, even with Walmart’s U.S. footprint of 4,615 stores and 255 million weekly customers, the company could not generate the volume necessary at acceptable price points to make cash healthcare profitable.
  2. It is unbelievably hard to work around the fundamental reimbursement model of American healthcare. Unable to make healthcare as a cash business work, the company ran smack into America’s unfriendly reimbursement system as its source of revenue. For Walmart as for many other healthcare providers, the predominant payers were Medicare and Medicaid, which, as every hospital executive experiences every day, do not pay at rates sufficient to cover costs—not a workable situation for a profit-oriented company in a capitalistic economy.
  3. Even a behemoth like Walmart could not manage around the current healthcare expense-to-revenue problem. Walmart is a company with all the tools any company could ask for to drive down operating expenses. It has the potential for economies of scale other companies could only dream of. It has processes for logistical efficiency that are viewed world-wide as a model of excellence. Yet even Walmart was unable to solve that most basic of healthcare economic problems: expenses—including labor, supplies, and drugs—are rising faster than revenue. Relatively few healthcare providers are able to achieve a positive margin in this environment, and for those that do achieve a margin, it is usually razor thin.

Obviously, healthcare’s business fundamentals are hard, and now we can see they are hard not only on traditional healthcare providers but also hard on a $650 billion retail company. These business fundamentals are unlikely to change anytime soon.

Walmart’s primary care failure is not only a disappointment for Walmart, but also for the healthcare ecosystem at large. What Walmart was trying to do was important, and that was establish a comprehensive retail system of primary care. Although Walmart’s effort, at least for the moment, has not worked, this is unlikely to be the end of the line. Hospitals and health systems will continue to experiment, will continue to apply their unique visions, their considerable talents, and their enormous dedication to the goal of finding primary care solutions that work for their communities.

As the Walmart failure demonstrates, the challenge is incredibly difficult. But the game must not be over.

Retail clinic failures show collaboration may work better than competition

Posted on by • Posted in Amazon Care, Amazon Clinic, Amazon Pharmacy, Amazonification of Healthcare, CVS Health, Disruption, Primary Care, Primary Care Delivery Model, Retail Clinic, Retail Healthcare, Retail Pharmacy, Walgreens, Walmart • Leave a comment
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CVS has fared better because of its ability to scale and coordinate its other business model resources, Aetna and Signify, analyst says.

The disruption promised by the retailization of healthcare hasn’t materialized as planned.

Walmart and Walgreens recently announced the closing of retail clinics.

“The news is a significant setback for retail health players, some of whom are now realizing that delivering retail-driven primary care may not be economically viable and certainly isn’t causing the disruption in local healthcare markets that many predicted,” said Emarketer senior analyst for digital health Rajiv Leventhal.

Reimbursement for primary care is a major challenge, as are labor shortages and higher costs. Retailers that are not able to scale their clinics through synergies with other parts of their business models, as CVS has done, will find costs rising above their ability to make money.  

Walmart is closing all 51 of its health centers across five states, saying the business model was unsustainable.

“Healthcare is very difficult and very challenging,” said Innocent Clement, cofounder and CEO of Ciba Health and a physician by training. “Walmart (was) very disappointing news. I expected a lot. It’s embedded in all of our communities.”

Retail clinics help make healthcare affordable and the convenience of pharmacies creates access for vulnerable populations, Clement said.  

Retail based clinics and urgent care clinics play a role in controlling healthcare costs by diverting approximately 30% of cases from much higher-cost emergency rooms. 

“Walmart Health’s decision to shut down its health centers and telehealth services is a sudden pivot from its recent plans to expand but not surprising given retailers’ overall struggles in the care delivery space,” Leventhal said.

“It’s not Walmart’s first failed attempt at operating medical clinics, but it will likely be its last crack at it considering how badly it went – going from signing off on a plan in 2018 to build 4,000 primary care clinics to shutting down in 2024 after opening just 51. The latest effort was littered with red flags throughout, from struggling with basic billing and payment functions to leadership changes and other operational obstacles.”

Walgreens suffered a $6 billion loss in its second quarter due to its struggles to make VillageMD profitable. It announced it was closing 60 VillageMD clinics and that number is expected to rise.

Walgreens invested $1 billion in VillageMD and then dumped in $5.2 billion more, Leventhal said. The plan was to keep expanding and co-locating VillageMD clinics with a Walgreens pharmacy. As of last year, Walgreens had 680 clinics with an estimated 200 co-located with a drugstore. Now 140 are already closed with 20 more to close, many of those are co-located with a Walgreens drugstore.

“They’re still leaning into VillageMD investments where they’re succeeding,” Leventhal said. However, “the investment just has not paid off at all. That led to a significant jaw dropping loss.”

Walgreens’ $1 billion cost-cutting strategy should put it in a better position going forward, Leventhal said.

“What many people don’t realize is that urgent care clinics are experiencing a level of extreme financial pressure that endangers their availability, range of services, and continued existence,” said longtime healthcare executive Web Golinkin, a former CEO of RediClinic and FastMed Urgent Care. He recently published a book about his experiences in “Here Be Dragons: One Man’s Quest to Make Healthcare More Accessible and Affordable.”

Reimbursements from third-party payers on services at clinics have been relatively flat over the past recent memory, Golinkin said. This includes both commercial and government payers, Medicare and Medicaid. At the same time, operating costs have increased dramatically.

“It’s difficult for providers to have leverage in a retail health setting. It’s harder than it looks,” Golinkin said. “The reason we were disruptive, we were open seven days a week for extended hours and co-located with a pharmacy.”

But supply and labor costs increased during the pandemic and have not reset, he said. There’s already a shortage of primary care physicians.

RediClinic began inside retail clinics such as Walmart and Walgreens before being sold to Rite Aid in 2014, Golinkin said. FastMed was sold off piecemeal to HCA Healthcare, HonorHealth in Arizona and others.

The bigger picture is the lack of access in this country to primary care, Golinkin said. CMS needs to shift dollars to primary care, he said, a statement backed by the American Medical Association, which has been banging the drum for greater physician reimbursement.

Healthcare has narrow margins to begin with, Golinkin said, but may be able to offset losses in one area with profits from another.

Retail clinics may be able to offset losses through pharmacy sales, with the clinics acting somewhat as a loss leader to getting customers in the store, Leventhal said.

But what’s really needed is the ability to scale and a business model that brings consumers from retail pharmacy sales and the clinic to drug purchases and other care needs, as CVS has done.

The struggles for Walmart and Walgreens are a cautionary tale for other retailers, Leventhal said. 

“It’s difficult to operate a primary care startup,” he said.

There are nearly 14,000 urgent care clinics in the United States, Golinkin said, adding that most are under sole ownership and all are under the same financial pressure that caused Walmart to shut down.

“This is not just about Walmart. It’s an access issue,” Golinkin said. “What happened to Walmart is symptomatic.”

The answer may lie in partnerships between providers and retailers.

There are many examples of partnerships between retail medical providers and health systems. Prominent health systems such as Advocate Health Care, Providence, Kaiser Permanente and Cleveland Clinic either provide care in retail pharmacies or are clinically affiliated with one, according to Golinkin. 

Walgreens has a partnership with Advocate Health Care.

It makes a lot of sense from a continuity of care perspective, Golinkin said. If someone goes into a clinic in a retail space and sees a clinician associated with a hospital or physician practice, and that doctor or PA or nurse says the consumer needs further care, that person goes to the provider.

Most clinics and urgent care centers are tied now to an EHR for a clinically integrated network.

“This approach will boost referrals for health systems while saving them the costs of maintaining their own outpatient practices,” he said. “That’s the model we’re really going to see going forward, more collaboration.”

WHY THIS MATTERS

CVS Health has created the scale to make its clinics successful, according to Leventhal.

Amazon is also lurking as a potential competitor through its expansion with primary care startup One Medical. Amazon bought One Medical for $3.9 billion last year.

CVS took a hit to its bottom line as well, but that was mostly due to high MA utilization through its insurer, Aetna.

CVS is in a much better position strategically, because it has an insurer, a pharmacy benefit manager and also Signify Health, said Leventhal. 

CVS’s Aetna business makes it the most imposing retail health disruptor, he said. This combination of a payer and provider has substantial power in local markets and can influence patient decisions on where to get care.

The company’s acquisition of Oak Street Health and Signify Health gives it a full circle strategy. CVS is leaning into opening more Oak Street clinics within CVS drugstores, Leventhal said. 

CVS has the ability to synergize Aetna with Oak Street Health and Signify operations, as outlined in its 2023 Investor Day Presentation, according to Leventhal. 

For example, over 650,000 Medicare beneficiaries (not all of them Aetna members) visit CVS stores in Oak Street geographies each week, CVS data said. 

There are over 300,000 Signify Home visits annually in Oak Street geographies. Approximately one in six CVS customers end up scheduling a visit at an Oak Street clinic. CVS promotes this by setting up tables within their drugstores that have material on Oak Street.

Ten percent of Aetna seniors educated by Signify about Oak Street as a primary care option scheduled a Welcome Visit, the presentation said.

CVS was in a competitive battle to acquire Signify Health last year for $8 billion. Signify does risk assessments that are billed to the insurer, which connects them with services, specifically with Oak Street Health.

Even CVS would acknowledge delivering primary care through a retail entity is challenging due to low margins, Leventhal said. 

In theory, clinics appeared to be the perfect one-stop shop model. In reality, they faced a bunch of challenges, especially during and after COVID-19, Golinkin said.

THE LARGER TREND

Pharmacies, particularly independents, are also dealing with the cost pressures of reimbursement. 

Pharmacies are paid by pharmacy benefit managers a reimbursement fee for dispensing drugs, and over the course of the last 10 years those fees have materially declined, squeezing pharmacy margins, according to Seeking Alpha.

This squeeze is in part why Walgreens Boots Alliance’s cash flows have declined so precipitously and why rivals such as Rite Aid have been forced into bankruptcy, the report said.

The newest model for pharmacies is the cost-plus drug model. CVS, Walmart and Walgreens all have offerings and Walgreens is soon expected to roll out its own cost-plus drug model to create a more sustainable model for pharmacies to be reimbursed.

Walgreens CEO Tim Wentworth, who came aboard in October 2023, recently said that the company is ready to adopt a cost plus drug model, which is similar to the one used by Mark Cuban’s online pharmacy, Cost Plus Drugs. 

Cost Plus Drugs, which launched in 2022, works directly with drug manufacturers to avoid PBM middlemen. It lowers prices on medications by basing costs on the manufacturing fee, plus a 15% markup, a $3 pharmacy handling fee and a $5 shipping fee. Cost Plus also transparently displays what it pays for its medicines. 

Third time’s not the charm for Walmart’s healthcare delivery ambitions 

Posted on by • Posted in Competition, Disruption, Outpatient Care, Primary Care, Primary Care Delivery Model, Primary Care Strategy, Retail Clinic, Retail Healthcare, Walmart • Leave a comment

https://www.kaufmanhall.com/insights/blog/gist-weekly-may-10-2024

With Walmart’s announcement last week that it plans to shutter its Walmart Health business, this week’s graphic takes stock of the company’s healthcare delivery journey over nearly the past two decades.

In about 2007, Walmart launched “The Clinic at Walmart,” which leased retail space to various third-party retail clinic companies, and then later health systems, to provide basic primary care services inside Walmart stores, with the ambition of eventually becoming “the largest provider of primary healthcare services in the nation.”

However, low volumes and incompatible incentives between Walmart and its contractors led most of these clinics to close over time. In 2014 Walmart partnered with a single company, the worksite clinic provider QuadMed, to launch “Walmart Care Clinics.” These in-store clinics offered $4 visits for covered Walmart employees and $40 visits for the cash-paying public. Despite these low prices, this iteration of care clinic also suffered from low volumes, and Walmart scrapped the idea after opening only 19 of them. 

The retail giant’s most recent effort at care delivery began in 2019 with its revamped “Walmart Health Centers,” which it announced alongside its goal to “become America’s neighborhood health destination.” 

These health centers, which had separate entrances from the main store, featured physician-led, expanded primary care offerings including X-ray, labs, counseling, and dental services. As recently as April 2024, Walmart said it was planning to open almost two dozen more within the calendar year, until it announced it was shutting down its entire Walmart Health unit, which included virtual care offerings in addition to 51 health centers, citing an unfavorable operating environment. 

Despite multiple rebranding efforts, consumers have thus far appeared unwilling to see affordability-focused Walmart as a healthcare provider. 

Almost two decades of clinic experimentation have shown the company is willing to try things and admit failure, but it remains to be seen if this is just the end of Walmart’s latest phase or the end of the road for its healthcare delivery ambitions altogether.

Cigna writes down VillageMD investment amid shrinking value

Posted on by • Posted in Cigna, Health Insurance Industry, Medicare, Medicare Advantage, Primary Care, Primary Care Delivery Model, Retail Clinic, Retail Healthcare, Walgreens • Leave a comment
https://www.healthcaredive.com/news/cigna-villagemd-writedown-walgreens-q1-2024/714966/?utm_source=Sailthru&utm_medium=email&utm_campaign=Issue:%202024-05-02%20Healthcare%20Dive%20%5Bissue:61689%5D&utm_term=Healthcare%20Dive

Walgreens’ decision to slash VillageMD’s clinical footprint has reverberated to the financial accounts of the primary care chain’s minority owner — Cigna.

Dive Brief:

  • Cigna has written off more than half of its multibillion-dollar investment in VillageMD amid the declining value of the primary care chain.
  • Cigna invested $2.5 billion into VillageMD in late 2022, with the goal of accelerating value-based care arrangements for employer clients by tying VillageMD’s physician network with Cigna’s health services business, Evernorth — hopefully reaping profits from shared savings as a result.
  • But on Thursday, Cigna wrote off $1.8 billion of that investment, citing VillageMD’s lackluster growth after its majority owner Walgreens elected to close underperforming clinics. The writedown drove Cigna’s shareholder earnings down to a net loss of almost $300 million, compared to profit of $1.3 billion in the same time last year.

Dive Insight:

Overall, Cigna’s first-quarter performance was solid, especially amid the mixed results of its insurer peers, analysts said. The Connecticut-based payer grew its revenue 23% year over year to $57.3 billion.

Yet Cigna’s bet on VillageMD is a new thorn in its side, as the investment’s value becomes increasingly bogged down by Walgreens’ operational decisions, along with broader challenges in the primary care sector.

Walgreens began closing underperforming VillageMD centers last year in a bid to force the segment to profitability, and quickly blew past its initial goal of 60 closures. Now, the retailer expects to close 160 clinics overall, majorly downsizing VillageMD’s footprint.

That decision is reverberating to the financial accounts of VillageMD’s minority owner — Cigna.

“The writedown was largely driven by some broader market dislocation that is hitting the space … as well as Village determining that they are going to pull in supply lines and constrain some of the growth in some of the new clinics that they were establishing,” CEO David Cordani told investors on a Thursday morning call.

However Cigna’s priorities for VillageMD remain unchanged, management said. Cigna is still aiming to link VillageMD’s primary care centers to its own clinical assets to build a high-quality provider network that can serve its own patients, and those of health plan and employer clients.

The partnership has already launched in four markets, and the companies plan to continue scaling, according to Cordani.

“At the macro level our strategic direction in terms of what we are seeking to innovate with Village has not changed despite the writedown of the asset,” Cordani said, though “no one likes a writedown of the asset.”

In the quarter, Cigna’s health benefits segment emerged unscathed by headwinds that buffeted other major payers: notably, spending and regulatory pressure in Medicare Advantage.

Seniors in the privately-run Medicare plans began returning for medical care in droves starting last year, sending insurer spending soaring. Meanwhile, the government is tamping down on reimbursement growth.

Yet the majority of Cigna’s business is with employer clients, which served as a “well-underwritten shelter from the MA storms,” TD Cowen analyst Gary Taylor wrote in a Thursday morning note.

Cigna is planning on getting out of Medicare coverage altogether, having agreed in January to sell its Medicare business to Chicago-based insurer Health Care Service Corporation. That deal remains on track, executives said, after a key waiting period for antitrust regulators to challenge the deal came and went in mid-April. The divestiture is expected to close in early 2025.

Cigna’s medical loss ratio — a marker of how much in premiums insurers spend on patient care — was 79.9% in the quarter, better than analysts had expected. Cigna did see higher utilization in areas like inpatient care for employer-sponsored members in the quarter, but the payer’s pricing decisions for its plans covered the trend, executives said.

Cigna cut its MLR guidance for 2024, along with raising earnings expectations. The insurer now expects an MLR between 81.7% and 82.5% this year, suggesting management is confident in their ability to control medical costs, J.P. Morgan analyst Lisa Gill wrote in a Thursday note.

Meanwhile, Evernorth’s revenue increased by more than a third year over year in the first quarter thanks to the migration of Centene’s lucrative prescription drug contract.

CVS, which previously held the contract, cited its loss as a factor in declining revenue and income for its pharmacy benefit management business on Wednesday.

Cordani specifically called out specialty pharmacy — which already represents a major portion of Evernorth’s revenue — as an “accelerated growth opportunity” for the business.

Roughly a week ago, Evernorth announced it will have an interchangeable Humira biosimilar for $0 out-of-pocket cost for eligible patients of its specialty pharmacy arm, Accredo.

Currently, 100,000 Accredo patients use Humira or a biosimilar for the frequently prescribed immune disease drug, which has long been the top-selling drug for its manufacturer AbbVie. In addition, all of its PBM clients and patients will have access to the biosimilars, according to Cordani.

Evernorth has also taken steps to ramp up coverage of GLP-1s, expensive diabetes drugs that have soared in popularity for weight loss. In March, the company announced cost-sharing agreement for GLP-1s covered in a condition management program, to insulate health plan and employer clients from the soaring costs of the medication.

The program has seen “strong interest,” and Evernorth has enrolled more than 1 million people in it to date, Cordani said.