CVS Health and Walgreens Struggle to Stay Afloat Amid Closures

Author

Jared Dashevsky, MD
October 20, 2024 • Estimated Reading Time: 13 minutes

GRAND ROUNDS

CVS Health and Walgreens Struggle to Stay Afloat Amid Closures

Incumbent retailers continue to face significant economic headwinds. Things just aren’t working out as planned. A couple of months ago, I covered the rise and fall of retail health, detailing three reasons retail health was once a thriving but now dying business model. The most recent news from CVS Health and Walgreens regarding store closures further solidifies this.

In this article, I’ll highlight the latest news regarding CVS Health and Walgreens, discuss their challenges, and offer my take on the impact this may have on communities and healthcare.

The Deets: CVS Health and Walgreens Shutter Stores

CVS Health

CVS Health recently announced plans to close or sell around 30 specialty infusion pharmacies under the Coram brand, which offers services like antibiotic therapy, total parenteral nutrition, and other infusion medications. The company also plans to lay off 2,900 employees, mainly from corporate roles within CVS and Aetna. This comes on top of the 900 store closures they first announced back in 2021, part of a three-year restructuring plan.

Earlier this year, CVS closed 25 of its MinuteClinics in the Los Angeles area.

While Walgreens (more on that below) is pulling back from primary care, CVS Health is doubling down. They’re expanding Oak Street Health, with plans to open 50-60 new clinics. For context, CVS has been making big moves in retail health, both through strategic acquisitions and transforming its existing retail locations. The 2022 acquisition of Signify Health enhanced its home health services, leveraging technology for in-home evaluations and care coordination. In 2023, CVS further solidified its primary care capabilities with the acquisition of Oak Street Health, focusing on value-based care for Medicare Advantage patients to improve outcomes and lower costs.

Additionally, CVS Health Ventures is making calculated bets in the value-based care space. Their recent investments include a stake in value-based oncology startup Thyme Care and a $100 million investment in primary care startup Carbon Health, further expanding their footprint in value-based care models.

Walgreens

Walgreens announced plans to close 1,200 of its 8,000 stores over the next three years, with 500 closures slated for 2025. This comes amid significant financial challenges, including a year-over-year loss of around $15 billion, according to their latest earnings report.

Adding to the shakeup, you might recall that back in April, Walgreens announced plans to shutter 160 VillageMD locations. VillageMD, which operates 680 clinics across 26 markets, is majority-owned by Walgreens, and 200 of those clinics are attached to Walgreens stores—something many of you may have noticed firsthand. However, despite this extensive footprint, several clinics have become too costly to sustain, as patient panels remain underfilled and Medicare reimbursements continue to shrink.

Over the summer, Walgreens announced plans to scale back its investment in VillageMD, signaling a broader strategic shift. The company confirmed they “do not intend to continue investing in brick-and-mortar owned primary care practices.”

So, what’s next for Walgreens? CEO Tim Wentworth has outlined a plan to refocus on their core business as a retail pharmacy leader, moving away from their more aggressive push into primary care.

Why Retailers Are Struggling

CVS Health and Walgreens are struggling on two fronts:

  1. Pharmacy

  2. Primary care

Pharmacy Struggles

CVS Health and Walgreens are up against some tough competition—mainly Amazon Pharmacy. Amazon’s got the edge with its fully digital model and robust same-day medication delivery, thanks to its streamlined supply chain. CVS and Walgreens do offer mail delivery, but their operations just aren’t as robust or scalable.

So how do they keep up? Both companies are trying to figure out how to cut costs and boost efficiency, but their big network of physical stores adds extra complexity. Competing with a digital-first giant like Amazon isn’t easy, and they’ll need to rethink how they do business to stay in the game.

Primary Care Struggles

CVS Health and Walgreens are also struggling to make primary care work. Primary care has always been a tough business—high costs, low reimbursements, and it’s even worse post-pandemic. Their plan to bring people in for primary care and hope they’ll buy other stuff while they’re there hasn’t really paid off.

They’ve also been hesitant to go all-in on full-risk value-based care, especially for Medicare Advantage patients. Instead, they’re trying to balance both value-based care and fee-for-service, which often leads to conflicting goals. Add to that low patient volumes and the challenge of building trust in a retail setting, and it’s clear why primary care hasn’t been the cash cow they’d hoped.

Dashevsky’s Dissection

The struggles facing CVS Health, Walgreens, and other retailers in healthcare highlight more profound systemic challenges. Lower drug reimbursement rates, slower consumer spending, and declining profits from front-end sales are all cutting into their margins. Additionally, intense competition from online giants like Amazon is making it even harder for traditional drugstores to stay competitive.

But the real concern is that these pharmacy closures are likely to occur in lower-income areas, creating pharmacy deserts—places where essential healthcare services become inaccessible. This could disproportionately impact underserved communities, worsening health disparities. As retailers retrench from primary care and pharmacy services, the promise of retail health improving access to care seems to be fading. Instead of transforming healthcare delivery, we may see increased barriers for the most vulnerable populations, which could have severe consequences for public health.

In summary, incumbent retailers like CVS Health and Walgreens are grappling with significant economic headwinds. From shrinking reimbursement rates to increasing competition from online and discount retailers, their initial retail health strategies are faltering. Recent store closures and retrenchment from primary care highlight the broader struggles within the industry. As I’ve covered previously in The Rise and Fall of Retail Health, the retail health model has gone from a promising innovation to a business struggling to sustain itself. These latest developments further underscore the need for these retailers to rethink their approach to healthcare delivery.

PARTNERED WITH MEDALLION

Quick reminder—last chance to sign up for Elevate, Medallion’s free virtual event on October 30.

I’ve already registered, and it looks like a great lineup, with leaders like Tim Barry of VillageMD talking about AI and the future of healthcare.

See you there!

OUTSIDE THE HUDDLE

Some of my favorite content from this past week.

  • Cigna-Humana merger rumors have resurfaced after Bloomberg reported a resumed discussion between the two companies. Don’t know much background about the merger? Read my previous article on the situation here.

  • A large observational study found that kidney transplants from donors with HIV to recipients with HIV were non-inferior to transplants from donors without HIV in terms of safety and survival outcomes. However, there was a higher incidence of HIV breakthrough infections in recipients of kidneys from HIV-positive donors. Ever heard of The HOPE Act? Read more here.

  • I enjoyed this article in Becker’s that discusses the ongoing decline in physician practice ownership. It brings up concerns like the loss of autonomy, profit-driven care, and rising patient costs. I imagine it resonates with the struggles many physicians face today—balancing financial pressures while trying to maintain quality, patient-centered care.

INSIDE THE HUDDLE

Healthcare Huddle
Sunday Newsletter

Huddle+
Inefficiency Insights

Huddle+
Huddle #Trends

Huddle+
Huddle University

Healthcare Providers
Residency Reflections

Check out more exclusive coverage with a Huddle+ subscription.

Read personalized, high-quality content that helps healthcare providers lead in digital health, policy, and business. Become a Huddle+ member here.

COMMUNITY SPOTLIGHT

Upcoming Event

During our coffee break, let's catch up on this week's healthcare happenings. We'll take a quick 15 minutes to recap what we've seen, from fundraising to policy.

Reply

or to participate.