Walgreens invests $5.5B to accelerate new healthcare business segment

Walgreens Boots Alliance has upped its healthcare strategy by launching a new business segment, Walgreens Health.

The pharmacy retail giant has been working its way into the health space for some time now and unveiled plans to accelerate its progress today during its fourth quarter and fiscal year earnings presentation.

“I am pleased to announce WBA’s new strategy to transform our core businesses, focus our portfolio and launch our next growth engine of consumer-centric healthcare solutions, enabled by a high-performance culture and winning team,” Roz Brewer, CEO of Walgreens Boots Alliance, said in a statement.

“Our strategy leverages an ecosystem including our trusted brands, exceptional assets, healthcare expertise and scale, integrated with a range of new talent, capabilities, resources and an intensified focus on operational excellence to drive long-term sustainable profit growth.”

With the launch of Walgreens Health, the company is doubling down on its consumer-centric healthcare strategy. Walgreens described the new business segment as “a technology-enabled care model powered by a nationally scaled, locally delivered healthcare platform.”

The platform will offer care in-store, at home, in the doctor’s office or via mobile app. It will also partner with payers and providers to give value-based care.

Coinciding with the announcement of Walgreens Health is the company’s fourth-quarter and fiscal year results. In Q4 the company’s operating income reached $910 million, representing year-over-year growth of nearly 50%. For the full year, Walgreens’ operating income increased to $2.3 billion, compared to $982 million from the year prior.

WHAT’S THE IMPACT?

Launching Walgreens Health was enabled by a series of investments worth $5.5 billion to take majority stakes in two healthcare provider companies, Walgreens said in its announcement.

The first is a $5.2 billion investment in VillageMD, upping Walgreens’ stake from 30% to 63%. The companies already have a partnership that has yielded 52 colocated primary care practice locations, with 80 more on the way for this year.

Walgreens’ investment will accelerate the opening of at least 600 in-store VillageMD clinics in more than 30 U.S. markets by 2025 and 1,000 by 2027, with more than half located in underserved communities, according to the announcement.

“Over the past two and a half years, we have worked side-by-side with Walgreens to create an integrated primary care and pharmacy model that accomplishes one primary goal: better patient care,” Tim Barry, CEO and chairman of VillageMD, said in a statement.

“WBA’s investment supports our ongoing commitment to providing the highest quality healthcare to all patients, including many people who don’t currently have convenient access to a primary care provider. This expanded partnership helps us accelerate our mission to deliver the best healthcare in the world.”

In another effort to support its new healthcare strategy, Walgreens has invested $330 million in at-home healthcare company CareCentrix to purchase a majority stake of the company, with an option to acquire the remaining equity interests in the future.

The deal provides a new platform for Walgreens Health to coordinate home care for patients transitioning from hospital to home.

“CareCentrix’s suite of home care solutions will advance our capabilities in this important segment for healthcare delivery, to help address the needs of people living with complex or chronic conditions in the home,” Brewer said in a statement.

THE LARGER TREND

This news follows other recent moves by Walgreens to focus more on its healthcare businesses.

For example, it recently sold off its Alliance Healthcare wholesale pharmacy business to AmerisourceBergen for $6.5 billion for that very reason. Then in September, the company teamed up with Blue Shield of California to give its members access to Walgreens’ Health Corner services.

Retail pharmacies such as Walgreens are increasingly becoming a one-stop-shop for consumers’ health and wellness needs. In fact, more than half (51%) of retail pharmacy customers say they’ve used health and wellness services at their pharmacy over the last year, according to the J.D. Power 2021 U.S. Pharmacy Study.

Based on these shifting consumer needs, a number of other retail companies are placing bets on healthcare. CVS has its own line of primary care clinics, called HealthHUBs, and also recently launched virtual care services.

Walmart has also dipped into healthcare by opening Walmart Health clinics in a number of its stores and selling insurance plans through its licensed insurance brokerage Walmart Insurance Services. Additionally, Walmart Health recently added telehealth capabilities through its acquisition of MeMD.

Even Amazon is getting on the bandwagon with the launch of Amazon Care, a virtual primary care offering, and Amazon Pharmacy, an online pharmacy that delivers to users’ homes.

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