Will Walgreens, Walmart Value-based Care Plays Pay Off?

Walgreens last week entered into a strategic partnership with Pearl Health, a technology platform for primary care physicians in value-based care arrangements. The companies will help community-based primary care physicians manage value-based care in ACO Reach, Medicare’s accountable care program, starting in 2024 and eventually plan to expand to Medicare Advantage and potentially commercial payers and Medicare in the future.

Just days earlier, Bloomberg reported that Walmart was exploring the purchase of a majority stake in ChenMed, a value-based care organization of more than 125 primary care clinics in 15 states focused on treating older adults. If the deal goes through, it will cost Walmart several billion dollars, the report notes.

Will the Value Plays Work?

The respective moves have some analysts questioning just how much the retailers could gain from these initiatives given that the companies have had difficulty to date showing positive financial returns for their hefty health care investments. Moreover, the timing of the initiatives is curious.

Walmart largely has remained on the sidelines over the past several years as some of its competitors were planning and scaling their primary care operations through acquisitions. In February, Amazon closed on its acquisition of the primary care company One Medical for $3.9 billion and CVS Health expanded its primary care footprint by completing its purchase of Oak Street Health for $10.6 billion. And now, Walgreens has a majority interest in primary care provider VillageMD, and bought primary, specialty and urgent care provider Summit Health+CityMD for $8.9 billion in November.

ChenMed is seen as one of a rapidly shrinking list of large, primary care assets that still can be acquired. But the company is going through a major leadership change after Steve Nelson took over as president in August. Nelson, a former UnitedHealthcare CEO, most recently served as CEO of JenCare, within the ChenMed family of companies, and before that was co-chair and CEO of Duly Health and Care, an Illinois-based multispecialty physician group.

Walgreens also experienced a major leadership shakeup after Rosalind Brewer, CEO, stepped down earlier this month as part of a mutual agreement with the board of directors after just two years at the helm. Brewer came to Walgreens after serving as chief operating officer and group president for Starbucks. Now, the retailer says it is seeking someone with a strong health care background to lead the company.

3 Questions Raised by the Walgreens and Walmart Moves

1 | Can they compete effectively in the value-based care market?

Both companies face steep competition not only from other retailers, but also from payers like UnitedHealth Group’s Optum, which has vast data and experience as well as what many see as the deepest and most diversified health care services portfolio among power players trying to transform health care.

Key Takeaway

Hospitals and health systems that have demonstrated success in value-based care models have a significant advantage over outside competitors and will need to continue advancing efforts to improve quality and population health management while making care more affordable. Other health systems may look for opportunities to establish a relationship with these power players to lower the cost of care, increase downstream market capture and focus on core specialty services while remaining connected to the patient.

2 | Will the Pearl Health partnership pay off?

If successful, the partnership could bring significant benefits to Walgreens, including helping the retailer to be less reliant on fee-for-service volume. Pearl also has grown its provider and patient panels and can identify patients who can benefit most from care management interventions, Kate Festle, director of health care and life sciences at the Chicago consulting firm West Monroe, told MedCity News.

Key Takeaway

Walgreens brings complementary services to the partnership, including prescription fulfillment, medication adherence, immunizations, care gap closure and diagnostic testing. Walgreens also will work with providers to help patients discharged from the hospital transition to home. Walgreens is positioning itself as the partner of choice for providers and health systems looking to transition quickly to value-based care and improve community health. It bears watching how quickly this partnership will evolve and what impact it may have on referrals to and partnerships with hospitals.

3 | Can the companies demonstrate ROI in value-based care?

Both Walmart and Walgreens have ambitious growth goals for their health care operations, and expanding their reach with value-based care makes sense. This could lead to greater engagement with patients, payers and providers while broadening the payment models in which the companies participate. But as we’ve seen in the past, particularly with Walgreens, companies can’t buy their way to profitability in health care.

Key Takeaway

In late June, Walgreens cut its full-year earnings guidance to a range of $4.00 to $4.05 per share, down from its previous forecast of $4.45 to $4.65. Among other factors, the company cited slower-than-expected profit growth for its U.S. health care segment. The question now is whether the next person to lead Walgreens’ health care operations can change the company’s trajectory in the sector.