Walgreens' VillageMD Closures

Walgreens is closing down many of its VillageMD clinics, hoping to cut $1 billion in costs.

You may be scratching your head… didn’t Walgreens’s acquire a majority stake in value-based primary care company VillageMD not too long ago? And didn’t VillageMD then proceed to acquire multi-specialty group Summit Health for around $9 billion?

Yes and yes. These were two major moves to increase Walgreen’s primary care footprint. However, Walgreens is shaking things up.

In this article, I’ll highlight the VillageMD clinic closures and discuss Walgreens’ journey thus far in the retail health space.

The Deets

Walgreens reported a $6 billion loss in the second quarter due to a reduction in the valuation of its VillageMD investment. For context, back in 2021, Walgreens made an additional $5.2 billion investment in VillageMD to increase its ownership to 63%. With this investment, Walgreens hoped to speed up the opening of at least 600 VillageMD-Walgreens clinics by 2025.

To date, VillageMD has 680 clinics majority-owned by Walgreens across 26 markets. 200 of these clinics are attached to a Walgreens store, which many of you have probably seen. Despite such a widespread footprint, many of the clinics have been too costly to operate since patient panels have been hard to fill and Medicare reimbursements have decreased.

In response to these challenges, Walgreens announced in October 2023 it’d close 60 underperforming VillageMD clinics and exit five markets in an effort to cut $1 billion in costs. Such closures would allow Walgreens to focus on regions where it has more market power. However, after the most recent Q2 earnings report, Walgreens increased the number of closures to 160. Below are the most recent VillageMD closures:

• New Hampshire: three clinics closed

• Indiana: all 12 clinics closed

• Massachusetts: all 12 clinics closed

• Nevada: will close all 6 clinics

• Illinois: will close all 6 clinics

• Florida: will close all 40 clinics

• Rhode Island: 11 clinics sold to Boston-based Arches Medical Partners

Suffice it to say, Walgreens faces strategic realignment as it grapples with the financial implications of its VillageMD investment.

Walgreens’ Retail Health Saga

Walgreens has a hand in just about all healthcare touch points:

• Pharmacy: Walgreens Retail Pharmacy

• Specialty Pharmacy: Shields

• Pre-acute: Health Corners

• Primary Care: VillageMD

• Multi-specialty Care: Summit Health

• Post-acute Care: Carecentrix

• Clinical Trials: Walgreens Clinical Trials

Walgreens has heavily invested in clinical care, notably acquiring a majority stake in VillageMD, as I stated previously. VillageMD expanded its reach by purchasing the multi-specialty group Summit Health for approximately $9 billion in 2022, bringing in 2,000 primary care physicians across 700 locations, serving 7 million patients, and managing 125,000 full-risk Medicare Advantage beneficiaries. Additionally, Summit Health operates the urgent care provider CityMD.

In a separate move, Walgreens completed its acquisition of the home health company CareCentrix in October 2022, expanding its services to include post-acute care and home health services.

In September 2023, Walgreens forged a strategic partnership with Pearl Health, a company specializing in technology that identifies at-risk patients to enhance value-based primary care. Walgreens, like other retailers venturing into health delivery, is banking on these value-based care models, which pay physicians a fixed rate to manage the full spectrum of patient care, adjusted for health risks and performance. This approach, which I discussed in an earlier article on The Rise of Retail Health, shows Walgreens' interest in tapping into the primary care and Medicare Advantage markets. But, such an approach is easier said than done, as evidenced above with the VillageMD closures.

From a business perspective, the decision to close unprofitable VillageMD clinics makes sense. If these clinics aren’t generating sufficient revenue, why continue investing resources in them?

However, the situation is far more complex and nuanced than a straightforward financial transaction….