Here at Healthcare Brew, we love a good rebrand—from Morning Brew’s own Tech Brew to Dunkin’ shedding the “Donuts.” Walgreens recently had a mini-rebrand of its own, grouping three of its subsidiaries together into a new business unit called US Healthcare.
Walgreens executives have said since 2021 that they want to transform into a “consumer-centric” healthcare company rather than exist as a mere chain of pharmacies. The US Healthcare unit, formed in October 2022, expands the company’s reach into primary care, post-acute care, and specialty pharmacy. The move opens the company up to a much larger profit pool—$135 billion to be exact, according to John Driscoll, who was tapped to lead the unit, up from $41 billion today.
“I think that healthcare is an epic fail in terms of consumer centricity with regard to convenience, price, and in some ways, connection,” Driscoll told Healthcare Brew.
A ‘drastic difference’ for Walgreens
Walgreens has spent roughly $13 billion to build the unit, which comprises VillageMD, Shields Health Solutions, and CareCentrix—all of which Walgreens acquired in 2021 and 2022.
VillageMD is a primary care clinic operator that’s rolling out centers attached to Walgreens pharmacies. Walgreens spent $5.2 billion in 2021 to buy a majority stake in VillageMD because of the provider’s experience with value-based care; Walgreens executives said they anticipate opening 1,000 Village Medical at Walgreens clinics by 2027. It’s an “aggressive” goal, John Ransom, a healthcare analyst at investment bank Raymond James, wrote in an analyst note on Nov. 22, 2022.
VillageMD also acquired Summit Health-CityMD, another primary care clinic operator, in January 2023 for $8.9 billion—$3.5 billion of which came from Walgreens—giving it a 53% stake in the combined company.
Shields Health Solutions, which Walgreens spent over $2.3 billion to buy between 2021 and 2022, partners with health systems to help run specialty pharmacies. Shields partners with about 35% of the country’s nonprofit hospitals, President Stephen West told Healthcare Brew, giving Walgreens the ability to work directly with health systems.
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And lastly, CareCentrix gives Walgreens legs in the $75 billion post-acute care and home care industry. Walgreens spent $722 million in 2022 to acquire CareCentrix, which works with insurers to coordinate post-acute care services.
“This is a very detailed approach to broaden out their business beyond the traditional pharmacy area,” said Michael Cherny, a healthcare technology and distribution analyst at Bank of America. “This is a drastic difference. It is certainly more than a branding exercise.”
Mixed results so far
The unit brought in $989 million in Q1 2023, which was up from $622 million in the previous quarter, but still short of Wall Street’s expectations, according to CNBC. The segment reported a $436 million operating loss for the first quarter of this year, per a January financial report.
Walgreens EVP and Global CFO James Kehoe said during the company’s Q1 2023 earnings call on Jan. 5 that it expects the unit will make up to $7.3 billion in sales this fiscal year and become profitable by the end of the year. By 2025, Walgreens executives expect the unit will make up to $16 billion per year.
What the future holds
Walgreens doesn’t seem poised to make any major additions to its US Healthcare segment any time soon.
“Our strategy is to expand where we’ve landed,” Driscoll said.
But Cherny doesn’t “believe that their acquisition strategy is complete.”
“They may not buy another pure care delivery business because they have spent a significant amount of capital between VillageMD and Summit,” said Cherny. “But one of the areas that they’ve talked about investing in further is analytics and IT capabilities, which I think would be another logical adjacency for them.”