Walgreens Boots Alliance is looking to reduce its investment in the doctor-staffed clinic operator VillageMD after billions of dollars in losses and the need to focus on more profitable ventures to turn around the drugstore chain.
Walgreens chief executive officer Tim Wentworth, who took over as the company’s top executive last October, told analysts last week the company would remain an investor and partner, but is working with VillageMD’s management “toward an endpoint.”
VillageMD runs 89 Village Medical at Walgreens clinics attached to drugstores. VillageMD also includes CityMD, a provider of urgent care centers and Summit Health, a multispecialty medical group.
Walgreens held a 53% ownership stake in VillageMD as of last Thursday, but that is on the verge of changing.
“We believe in the future of these businesses and intend to remain an investor and partner, but as part of our persistent focus on value creation for WBA, we are collaborating with leadership toward an endpoint to rapidly unlock liquidity and enhance optionality and position them for additional growth,” Wentworth told analysts and investors on the company’s fiscal third quarter earnings call.
Walgreens wouldn’t elaborate on how the company plans to “unlock liquidity” or how the company would exit its majority stake in VillageMD. It’s also unclear given the financial losses at VillageMD how much Walgreens stake would even be worth.
Walgreens invested more than $6 billion in VillageMD under former chief executive Roz Brewer to take a controlling stake, but the company has already scaled back dramatically on the expansion of doctor practices and clinics the company opened attached to Walgreens. In 2020, Walgreens said it planned to open 500 to 700 “Village Medical at Walgreens” physician-led primary care clinics in more than 30 U.S. markets over five years, with the “intent to build hundreds more thereafter.”
The investment hasn’t gone well. Walgreens total operating loss for the first nine months of fiscal 2024 has grown to $13.1 billion, reflecting “a $12.4 billion non-cash impairment charge related to VillageMD goodwill, which resulted in a $5.8 billion charge attributable to WBA, net of tax and non-controlling interest.”
Executives at VillageMD had no comment when reached Monday.
Wentworth said earlier this year that Walgreens and partner VillageMD have slowed the number clinic openings in part because the operators haven’t been able to fill their so-called “patient panels,” which are a certain number of individual patients under the care of a specific provider.
But the decision to scale back to less than 90 Village Medical at Walgreens locations today has put the business “on a clearer path to profitability as it continues to add lives and optimize its cost structure,” Wentworth said last week.
Walgreens decision to reduce its stake in VillageMD comes as rival retailers are beginning disclose a mixed bag of financial results from their efforts to provide primary care services.
Walmart, for example, is closing its Walmart Health centers and last week announced plans to sell its virtual care business to the healthcare technology company, Fabric. Walmart in April said it doesn’t see a sustainable business model in primary care.
Meanwhile, Amazon has been working to grow its doctor-staffed clinics under the Amazon One Medical brand and last week folded its Amazon Clinic telehealth business into Amazon One Medical. Financial terms weren’t disclosed by Amazon nor Walmart on either of those moves.
And CVS Health, which for years has operated more than 1,000 MinuteClinics staffed by nurse practitioners, spent more than $10 billion last year acquiring Oak Street Health, a provider of primary care services to seniors insured by Medicare. While CVS has committed to expanding the Oak Street model across the country, there has been speculation CVS is also looking for a partner to help fund future expansion of the clinics.
Thus, retailers including Walgreens are expected to remain involved in primary care in one way or another.
“As it relates to VillageMD and that model, we like that model,” Wentworth told analysts last week. “That’s why we’ve said we would continue to have some investment and participate in their growth.”
In Walgreens fiscal third quarter, the U.S. Healthcare segment, which includes VillageMD had third quarter sales of $2.1 billion, an increase of 7.6 percent compared to the year-ago quarter, led by VillageMD and the specialty pharmacy Shields Health Solutions, which reported growth of more than 20% in the quarter.
Most of the growth from VillageMD comes from its $8.9 billion acquisition of Summit Health, which operates primary care, specialty and urgent care in more than 20 U.S. markets. “VillageMD grew 7 percent, reflecting additional lives in risk and fee-for-service,” Walgreens said.
Walgreens newly hired head of healthcare services, who brings a background that includes working on various primary care models including successful ones at CVS, says Walgreens will continue to seek partnership without spending huge sums.
“We’ll be a partner to VillageMD in an ongoing way,” Mary Langowski, Walgreens executive vice president and president of the company’s US healthcare segment told analysts last week. “We’ll continue to be an investor, but what we’re really looking to do is invest in capital-light services to be a broader partner across the industry. With a range of providers and with a range of payers as well as a range of pharmaceutical manufacturers.”
