PUBLISHED WED, JUL 8 20208:00 AM
EDTUPDATED WED, JUL 8 20209:55 AM EDT Melissa Repko@MELISSA_REPKO
KEY POINTS
·
Walgreens and VillageMD have struck a deal to open doctor
offices in 500 to 700 drugstores over the next five years.
·
Most of the primary-care clinics will be about 3,300 square
feet, about a quarter of the size of Walgreens’ average store.
·
More than half will open in areas with a shortage of health
professionals and a population that’s underserved.
The
pharmacy chain said Wednesday it has struck a deal with VillageMD, which will
staff and run the primary-care clinics. The companies said they will open the
clinics in 500 to 700 stores in more than 30 U.S. markets over the next
five years.
Walgreens
shares, which are valued at $37 billion, rose about 3% in premarket trading on
the news. Since January, the stock has fallen more than 28%.
Walgreens
will invest $1 billion in equity and convertible debt in VillageMD over the
next three years as part of the deal, including a $250 million equity
investment completed Wednesday. Most of the money will be used by VillageMD to
open the clinics and integrate its technology with Walgreens.
VillageMD
will recruit and pay employees’ salaries, cover other operating expenses and
pay Walgreens to use the space. Walgreens said it will own about 30% of the
primary-care company after the multiyear investment.
Walgreens
is expanding its focus on medical care as it cuts costs and invests in new
areas. It has closed hundreds of stores and laid off employees, while
experimenting with innovative business models. The company wants to turn its
drugstores into health and wellness destinations where people spend more time
and money. For example, it leases space in some stores to optical company For
Eyes and weight loss company Jenny Craig. The chain is also testing a small-format pharmacy designed
to strengthen relationships between pharmacists and patients, particularly those
on multiple medications.
Walgreens
already has 14 primary-care centers in its drugstores, through partnerships
with providers VillageMD, Partners in Primary Care and Southwest Medical
Associates.
Investors
and analysts will get an update on how the company’s efforts are going during
the coronavirus pandemic on an earnings call Thursday morning.
Wide range of services
Through
the new partnership, patients will be able to visit the Village Medical at
Walgreens clinics for a wide range of medical services from annual checkups to
walk-in appointments if they feel sick. Each clinic will have nine exam rooms,
a waiting area and a four-person physician-led staff that coordinates with
store pharmacists. They can also request a home visit or get care around the
clock through telemedicine.
Walgreens
and VillageMD will convert an existing part of drugstores into the clinics.
Most clinics will be about 3,300 square feet — nearly a quarter of the
drugstore’s average size of 13,500 square feet. Some will be as large as 9,000
square feet.
The
companies did not share specific costs for services but said Village Medical
clinics will accept different kinds of health insurance, often with copays of
up to $10, and allow people to pay out of pocket. For those without insurance,
it uses a sliding scale to make care affordable, it said.
Rivals expanding into health care
Walgreens
and VillageMD will face stiff competition. Walmart has
opened four primary-care clinics, with plans for more. The big-box giant’s
clinics, called Walmart Health, emphasize its signature low
costs and upfront pricing. Amazon’s
acquisition of online pharmacy PillPack underscores
its broader health-care ambitions. And CVS
Health, which acquired health insurer Aetna, plans to open 1,500 HealthHUB stores by the
end of 2021. The redesigned stores have a variety of health-related features
such as expanded clinics, wellness rooms for yoga and more medical-related
products.
Walgreens
co-Chief Operating Officer Alex Gourlay said there’s still plenty of demand to
go around. He pointed to the high number of Americans who live with at least
one chronic condition that requires multiple daily medications — 6 in 10
Americans.
Over the
past several months, Walgreens and VillageMD have tested the new primary-care
model. They opened five in-store clinics in the Houston area in November and
said they decided to scale up after getting positive reviews from patients.
Gourlay
said the clinics will help Walgreens increase the number of prescriptions it
dispenses and health-care products it sells — something he said it’s
already seen in pilot locations. He said it will go beyond that, too, shaping
the way the public thinks of it.
“It’ll
start to change the feel of Walgreens, particularly these locations, to be a
health-care company,” he said.
Serving unmet needs
VillageMD
CEO Tim Barry said the new model can rein in costs and improve health
outcomes, particularly for those with chronic diseases, such as diabetes. Since
many of Walgreens’ locations are near people’s homes, he said people will be
more likely to go for regular doctor appointments or get a medical matter
checked sooner. That earlier intervention and ongoing relationship with a
doctor could help keep people out of the emergency room or hospital — or at
least lower costs that can escalate as a health problem becomes a crisis, he
said.
He said the
format encourages frequent communication between pharmacists and doctors, since
they work nearby. For example, the pharmacist could suggest a lower-priced
drug, flag potential interactions between medications or help sync up multiple
prescriptions so the patient can pick up refills all on the same day.
Barry
said the company aims to flip the typical approach. Instead of “giving someone
a referral slip or handing them a prescription,” it wants to be proactive. He
said clinics can see about 100 to 120 patients per day.
More than
50% of the new primary-care clinics will open in areas with a shortage of
health professionals and a population that’s underserved. The U.S. Department
of Health and Human Services designates those areas based on certain criteria,
such as the number of people nearby who have low-incomes, qualify for Medicaid
or experience homelessness.
Barry
said those locations will help VillageMD reach “older, sicker and poorer
populations” that often do not have access to care.
Gourlay
said it furthers Walgreens’ mission, too.
“We want
to be everywhere in America where people need health care,” he said. “That’s
always been our position and always will be.”
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