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Walgreens retreats, Amazon Clinic restructures, and Walmart Health is history

Jul 01, 2024

Editor’s Note: Due to the July Fourth holiday, Our Take will return on July 15.

Despite their heavyweight status as retailers, Walmart, Amazon, and Walgreens have struggled to find a profitable path as providers of primary care.

Walmart and Walgreens have experienced significant financial losses as a result of their investments in primary care, and Amazon has pivoted numerous times in its attempts to find footing as a disruptor in the country’s fragmented health care system.

Five years after launching Walmart Health, and after losing $230 million on the venture in 2023, Walmart announced in late April that it would shut down the business segment. The last of the Walmart Health clinics closed on Friday.

A day earlier, Walgreens revealed another lower-than-expected financial performance for the fiscal third quarter — the latest in a string of disappointing quarters.

During the quarterly earnings call Thursday morning, CEO Tim Wentworth said the company would look at closing “a significant portion” of underperforming Walgreens stores in the next three years. Without providing details, he also said Walgreens would reduce its 53% stake in primary care provider VillageMD.

“We believe in the future of [VillageMD and Summit Health-CityMD] and intend to remain an investor and partner,” Wentworth said. “But as part of our persistent focus on value creation for [Walgreens Boots Alliance], we are collaborating with leadership toward an endpoint to rapidly unlock liquidity, enhance optionality, and position them for additional growth.”

Walgreens took a $5.8 billion write-down on its VillageMD investment in the previous quarter and has closed between 140 and 160 VillageMD locations since the beginning of the year. Wentworth referred to the closures as “rightsizing VillageMD’s footprint” and said VillageMD is “on a clearer path to profitability as it continues to add lives and optimize its cost structure.”

Although a specific number of Walgreens store closings has yet to be determined, Wentworth noted that 75% of Walgreens’ U.S. stores account for virtually all of the adjusted operating income for the company’s retail pharmacy segment. The remaining 25% of stores (approximately 2,150) are, presumably, candidates for closure — especially those near another Walgreens store.

“We are at a point where the current pharmacy model is not sustainable, and the challenges in our operating environment require we approach the market differently,” Wentworth said, adding that he does not expect the store closures to result in substantial layoffs.

He dismissed recent talk that Walgreens might sell Boots UK or Shields Health Solutions, a specialty pharmacy accelerator.

The release of the third-quarter earnings sent Walgreens shares tumbling more than 22% on Thursday — the largest percentage point decline in the retailer’s history, according to The Wall Street Journal.

The loss amounted to nearly $3 billion in market capitalization, the Journal reported, and earned Walgreens the ignominy of being the worst performer in the S&P 500 for the day. Since the first of the year, Walgreens’ share price has dropped from $26.65 to $12.10 as of the close of business on Friday.

Also on Thursday, Amazon announced that it has integrated its Amazon Clinic pay-per-visit telehealth service — which was launched in November 2022 — into the online retailer’s One Medical offerings.

With the Amazon One Medical model, users no longer have the option of selecting a third-party vendor as they did with Amazon Clinic’s marketplace. Instead, they are automatically connected with a virtual provider.

The cost of Amazon One Medical telehealth visits are slightly lower than those for Amazon Clinic when it was introduced. Messaging appointments are $29 each and video chats are $49. (Amazon Clinic’s prices were $35, on average, for messaging visits and $75 for video visits.)

The One Medical membership program Amazon began offering late last year is still available, which gives members access to on-demand virtual care as well as the ability to book same- or next-day appointments at One Medical locations.

Our Take:  Since at least 2018, when Amazon formed the joint venture with Berkshire Hathaway and JPMorgan Chase that would eventually become known as Haven, retailers have tried to expand access to affordable primary care to large swaths of the population.

The secret to providing primary care on a large-scale basis profitably, however, has proved a tough nut to crack — even for the likes of Amazon, Walmart, and Walgreens, with their vast and successful experience in serving customers. We’ll add CVS to the list, too.

As recently as last summer, they were “all in” on their plans to invest in new locations and/or additional services that would allow them to provide more care to more people.

By then, Amazon had spent $3.9 billion to acquire One Medical and gain a broader network of physical locations. CVS had shelled out $10.6 billion for Oak Street Health and another $8 billion for home health provider Signify Health.

But by last fall, Walgreens had replaced Roz Brewer — who had been a strong proponent for the company’s growth as a primary care provider — with Tim Wentworth as its CEO. Right away, Wentworth implemented a $1 billion cost-cutting initiative that entailed closing stores and thinning out the company’s management ranks, among other steps.

As of the end of May, Walgreens had closed 673 stores here in the U.S. and 581 stores in the U.K., Reuters reported, citing a regulatory filing.

In late March, Walmart was still planning to open new Walmart Health centers in Houston, Dallas-Fort Worth, and the Kansas city area, though by that time it had postponed plans for other new centers in Arizona, Missouri and Oklahoma. The surprising news that Walmart Health was closing came a month later.

In February, Amazon eliminated hundreds of jobs in its One Medical and Amazon Pharmacy segments to “realign” internal resources with goals established for the businesses. The company also closed One Medical corporate office spaces in New York City, Minneapolis, and St. Petersburg, Fla.

We’re still waiting to see what Amazon will do to capitalize more fully on its One Medical acquisition. The One Medical memberships and the “new” telehealth model — which is really only a substitution for previous telehealth offerings Amazon Clinic and its earlier iteration, Amazon Care — haven’t exactly been momentous measures.

Dr. Nworah Ayogu, who was the general manager for Amazon Clinic (as well as the former chief medical officer for Amazon Pharmacy) left the company in May to accept a position with a venture capital firm. And Amir Dan Rubin, who was One Medical’s CEO before Amazon acquired the business, left in September. Trent Green, who previously served as One Medical’s chief operations officer, took over the CEO role.

Maybe after the leadership changes have settled down we’ll hear more about Amazon’s plans for One Medical. Meanwhile, Amazon seems to be biding time.

Only CVS Health appears to be staying the course with the plan it announced last year to open 50 to 60 additional Oak Street Health clinics. In April, Modern Healthcare reported that CVS would open Oak Street Health clinics in some CVS retail pharmacies, and in May, Benzinga reported that CVS was looking for a private equity partner to fund the Oak Street Health expansion.

But CVS has also lowered its 2024 guidance twice so far and closed dozens of its pharmacies in Target stores earlier this year. CVS share prices have fallen from $80.85 at the start of 2024 to $59.06 at the end of business on Friday.

Health Care Rounds #168: Working with IDNs: The Pharma Perspective

In this episode, Matt Portch joins John to explore the evolving collaboration between pharmaceutical companies and Integrated Delivery Networks (IDNs). Additionally, Matt sheds light on how both have adapted to new technologies and market shifts. Matt is a seasoned pharmaceutical executive with successful sales and market access experience at Sunovion Pharmaceuticals, Pfizer, and Bristol Myers Squibb. Now available on YouTube, as well as anywhere you get your podcasts.

What else you need to know

The University of Alabama System’s board approved an agreement with Ascension for UAB Health System Authority to acquire Ascension St. Vincent’s Health System for approximately $450 million. UAB Health and Ascension St. Vincent’s have a history of collaboration, including a strategic alliance formed in 2020 to address health disparities and increase access to high-quality care in the state. According to a news release, leaders at both organizations see the proposed acquisition as “the natural next step to continue to expand access to sustainable care.” Birmingham-based UAB Health has a network of 17 owned and affiliated hospitals throughout Alabama. The acquisition would add Ascension St. Vincent’s five hospitals in central Alabama, along with a freestanding emergency department, imaging centers, and clinics that are part of Ascension Medical Group.

The transaction is subject to regulatory approval and other closing conditions, as well as the Catholic Church’s approval. The organizations anticipate completing the deal this fall. The Ascension Foundation for Health Equity “will continue its presence in the market and expand grant-making beyond the transition period, investing in nonprofit organizations that accelerate positive change for generations of Alabamians,” said Jason Alexander, Ascension St. Vincent’s CEO

Providence, R.I.-based Lifespan Health System will be renamed as Brown University Health, potentially starting later this year, reflecting a set of recently expanded affiliation agreements between the nonprofit health system and Brown University. The organizations, which have been affiliated with each other for 55 years, will remain separate, independent entities after the rebranding initiative, according to a press statement. Brown University will invest $150 million in the health system over a seven-year period in annual increments of $15 million to $25 million. After that, the health system will invest $15 million annually to support education and research efforts at the university’s Warren Alpert Medical School. Lifespan has five hospitals, three of which are academic teaching hospitals. It’s the largest health system in Rhode Island and the state’s largest employer as well, with approximately 17,000 employees.

Hackensack Meridian Health is partnering with Medically Home to expand its hospital-at-home program. Although Hospital From Home was officially launched in April, the program started as a pilot in 2022 at JFK University Medical Center, according to the announcement. Hackensack University Medical Center and Jersey Shore University Medical Center are now participating as well, and eventually the program will be expanded to all of the Edison, N.J.-based health system’s 18 hospitals. Hospital From Home incorporates both in-person nurse visits and 24/7 patient monitoring through a clinically integrated, physician-led virtual command center. Patients can receive infusions, IV antibiotics, various types of rehabilitative therapies, laboratory and imaging services, and meals and nutritional consultations through the program. Medically Home is providing command center services, logistics and technology.

All 71 hospitals affiliated with Community Health Systems will use Cost Plus Drugs Marketplace’s wholesale services, a step that expands the partnership formed in March between the Franklin, Tenn.-based health system and Mark Cuban Cost Plus Drugs Co. CHS said in a press release that initially its hospitals will buy 12 generic drugs ranging from antibiotics and antiemetics to treatments for glaucoma, acid reflux, hyponatremia, and other health conditions. The health system anticipates annual savings of “several hundred thousand dollars” as a result, with the potential for additional savings as other drugs are approved for purchase from the Marketplace. CHS also said Cost Plus Drugs would work to source drugs directly from manufacturers in instances where the health system identifies new savings opportunities or a need for specific drugs to help prevent or address drug shortages.

Optum is walking away from its plans to acquire Steward Health Care’s physician group, Stewardship Health, various news outlets reported on Friday. Discussions between Optum and Steward Health Care about the sale of Stewardship Health began in December, and Optum signed a letter of intent in March to acquire the physician group for an undisclosed amount. Steward Health’s subsequent financial implosion help up progress on the deal and no definitive agreement was finalized. An analyst at Forrester told Healthcare Dive that Optum may have had concerns about potential regulatory challenges.

Irving, Texas-based Vizient will acquire Kaufman Hall, a health care management consulting firm based in Chicago. Vizient provides health care organizations with expertise, analytics, and advisory services to help them improve their performance; the company has owned a minority stake in Kaufman Hall since 2021. Currently, Kaufman Hall is majority owned by funds affiliated with Madison Dearborn Partners, a private equity firm. If the proposed deal receives regulatory approval, it is expected to close later this year, according to Vizient’s news release. Financial terms were not disclosed.

The Supreme Court rejected Purdue Pharma’s bankruptcy settlement in a 5-4 decision on Thursday. Worth up to $10 billion, the nationwide settlement would have given members of the Sackler family immunity from current and future lawsuits in connection with their role — as owners of Purdue, which made and marketed Oxycontin (oxycodone) — in the opioid epidemic. Purdue filed for Chapter 11 bankruptcy in 2019 and a bankruptcy judge approved the settlement in 2021, but the federal government and several states challenged the settlement because of the provision that shielded the Sacklers, who have not filed for personal bankruptcy.


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