Walgreens ‘Front Door to Care’ Strategy is Building Horizontally
Last Tuesday, Microsoft and Walgreens announced a strategic partnership aimed at “transforming healthcare delivery,” including a commitment to a “multiyear research and development investment.” The partnership intends to create new care delivery models, retail innovations, next-generation health networks, integrated digital-physical experiences, and care management solutions.” Additionally, Walgreens will pilot 12 store-in-store “digital health corners” featuring “select health care-related hardware and devices” in 2019.
Through the partnership, Walgreens hopes to improve access to virtual care and other healthcare services, make better use of data with analytics in community settings, and to create personalized healthcare “experiences.” The goal is to improve patient health outcomes, lower overall healthcare costs, and better integrate IT between participants in the healthcare ecosystem. They plan to accomplish this via:
This consumer-focused platform sounds like it will be part of a larger ecosystem aimed at connecting consumers, providers, pharma manufacturers and payers supported by Microsoft’s cloud, AI and IoT technologies. Additionally, Walgreens will transition the majority of the company’s IT infrastructure to Microsoft Azure.
This and other partnerships (see Figure 1) are part of a larger strategy for Walgreens to be the new ‘front door to care’–bringing healthcare to where patients and customers want to receive it. Walgreens can make it easier for patients to access care since 75% of the United States population is within 10 minutes of a Walgreens.
The question now is whether Walgreens can scale its various partnerships quickly enough to contribute to satisfy investors or to attract payers and employers looking to drive cost savings.
Each partnership is different in terms of complexity and will scale at its own pace (see Figure 1). Some will begin to show more immediate results and some will require multiple years to be successful. Here are some of the key observations and unanswered question about the most recent announcement.
At the J.P. Morgan Health conference, management stated it has all of the healthcare services that Walgreens needs at this point through the various partnerships it formed over the past 18 months. The question is how quickly Walgreens can execute on them. Walgreens management stated the partnership with Humana has gone well, but it is still very early days, and the company can’t make projections about the scope of the rollout beyond the initial 2 locations in the Kansas City area. However, the positive results of the LabCorp partnership mean that it will expand to 600 stores over the next few years.
While customers may already see benefits from these partnerships, whether investors will have the patience to allow these partnerships to mature is an open question. Management has been under pressure to explain how these various partnerships will contribute to the companies’ financial performance.
Walgreens announced a new digital consumer platform, Find Care Now, last July to help consumers connect to an array of services offered by its provider partners, Walgreens-owned health services, and third-party providers including telehealth services (MDLive and DermatologistOnCall) and on-demand doctor house calls (Heal), where available.
Find Care Now will be hosted on Microsoft Azure with plans to enhance it with chronic disease management and more patient engagement apps. Whether the apps developed with Verily will be included is unclear. Walgreens plans to develop a separate B2B platform with Microsoft with services for payers and device manufacturers.
The overwhelming majority of Walgreens’ 370+ retail health clinics use Epic’s EHR. Announced in Nov. 2015, the rollout was fully completed in March 2017. Walgreens announced 14 new partnerships with healthcare systems, such as Advocate Health Care in Chicago and Swedish Medical Center in Seattle, in which the health system operates clinics inside Walgreens retail stores. These health systems hire the providers, oversee patient care, and bring in their own EHRs. The question is how, and more important if, Verily and Microsoft might work together with Epic to find synergies from the solutions each is creating with Walgreens.
Walgreens has a different strategy to its ‘front door to care’ model compared to Aetna-CVS and Walmart which relies upon a multiple ‘horizontal partnerships.’ The question now is whether Walgreens can scale its various partnerships, especially with Humana, quickly enough to contribute to satisfy investors looking for better financial performance or to attract payers and employers looking to drive cost savings.
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Humana-Walgreens Partnership: Primary Care Focused on Medicare Advantage
Medicare Advantage (MA) continues to show the most robust growth of any line of business for health insurers. Overall MA growth was 7.8% year over year in July 2018, reaching 21.4 million, while Part D enrollment grew to 25.5 million. To better serve these members, health insurers are considering several strategies – one of which is operating primary care clinics that exclusively focus on Medicare patients.
On June 19, Humana (NYSE: HUM) and Walgreens (NASDAQ: WBA) jointly announced a partnership under which Humana will initially operate two senior-focused primary care clinics inside Walgreens retail stores in the Kansas City, Missouri area. The clinics will open under Humana’s Partners in Primary Care banner; they will join four existing Kansas City area clinics, opened in 2017, which share the same name. The two co-located clinics are slated to open in the fall and occupy ~2,500 square feet (~25% of an average Walgreens store).
These clinics will have their own separate entrance, with an exit into the Walgreen’s pharmacy. While the companies are not sharing details on the nature or economics of the partnerships, Humana did note that it will operate the clinics and staff the doctors and accept a variety of Medicare coverage, including fee-for-service, MA, and Medicare Supplement plans. The clinics will serve seniors exclusively; Humana expects they could take 3-4 years to reach capacity. The companies noted that the collaboration could expand into other markets over time.
This partnership shows how both Humana and Walgreens are focusing more heavily on their longer-term clinical strategy and responding to other competitors “front door to care” strategies.
For Humana, this pilot is a logical extension of the company’s longstanding commitment to an integrated care model that more closely aligns primary care, pharmacy, in-person health plan support, and other services for Humana’s MA and Part D members. It also follows recently acquired minority/joint venture stakes in home health and hospice providers Kindred and Curo.
Humana believes the convenience of the retail pharmacy model should help make primary care more accessible to seniors. In addition to the co-located Partners in Primary Care clinics, Humana representatives will work in select other Walgreens stores to provide general assistance on health-related services to Humana Medicare members and other customers. These in-store “health navigation” services will be available at no cost to members inside the Walgreens pharmacy store (as opposed to the co-located clinic).
The Partners in Primary Care model offers integrated services that “go beyond addressing acute and immediate health issues, and [focus] on developing long-term relationships with patients living with chronic conditions.” In addition to the four wholly owned, standalone clinics that opened in Kansas City in 2017, Humana operates two clinics under the Partners in Primary Care banner in Greenville, SC and another in Gastonia, NC.
All of these providers are risk-bearing for Humana, as will be the locations co-located with Walgreens; the latter may or may not bear risk with other payers, depending on the contracts struck with third parties. Importantly, the collaboration with Walgreens does not preclude Humana from striking any other potential arrangements with other retailers. Humana will also continue to work with Walmart on a partnership that encompasses a value-oriented, co-branded Medicare Part D plan as well as other in-store consultative efforts.
Walgreens has recognized the need to make changes to its store format and is exploring various partnerships that will add new services. This announcement with Humana appears consistent with a strategy of incremental, capital-light partnerships with other healthcare services providers to convert its stores away from retail toward a more comprehensive healthcare offering.
Others within the healthcare continuum have received more attention for their efforts to provide a more convenient location to access healthcare services – namely CVS Health with its acquisition of Aetna. But Walgreens has been actively growing its suite of healthcare services that can be offered both inside and outside the retail pharmacy: Partners in Primary Care with Humana, MedExpress with UnitedHealthcare, LabCorp PSCs, Walgreens Hearing, Walgreens Optical, and its new Find Care Now telehealth service.
In addition, Walgreens is piloting a set of differentiated service offerings in the Gainesville, FL market. These include Walgreens Plus (a subscription-based, in-store savings program with an option for free same-day prescription delivery) as well as an in-store partnership with Sprint for phone purchase and activation.
It appears that any new store concept is very much a work in progress, and Walgreens expects to update investors on its store strategy in about a year. We expect Walgreens to test the “Partners in Primary Care” concept in these two test stores before making a decision to roll it out more broadly, as with its other pilots.
We see four key questions about the Humana-Walgreens partnership.
Humana has stated that it could take 3 to 4 years for the two new clinics to reach capacity. Humana did not provide details on how it will advertise these new clinics to new or existing Humana MA beneficiaries, what types of MA beneficiaries are likely to enroll in these clinics, and how it might convince MA beneficiaries to switch from the long-term relationships they have with their PCPs. These clinics might be a good fit for certain Humana MA beneficiaries (e.g. patients within walking distance of a Walgreens or patients without a regular PCP) – but it would not be surprising to see these clinics struggle to reach capacity unless they hire an existing PCP or two who can bring a large patient panel of MA beneficiaries.
Assuming a patient panel of 500 to 700 MA patients per physician at these new clinics, they are likely to only serve 1,500 to 2,000 Medicare patients in addition to the four existing Partners in Care clinics in the Kansas City area. Humana currently supports more than 65,000 MA and Part D prescription drug members in the Kansas City area. Will those few thousand beneficiaries regularly seeking care at Walgreens be enough to decrease hospital admissions and ultimately the medical loss ratio?
While Humana has acknowledged that retail could be a powerful distributor of provider capabilities for its MA members, its view that model as still unproven. Humana expects to experiment with smaller, more targeted retail initiatives vs. broader ones, at least in the near term. Walgreens as well appears to be in no rush to rapidly expand this concept either, with its pilot starting at two sites and expected to last at least 12 to 18 months.
It has not been disclosed if Partners in Primary Care is using a commercially available EHR or choosing to build its own product. Some primary care clinics focused on the MA population, such as One Medical, use a commercially-available EHR (eClinicalWorks). Others such as ChenMed and Iora Health have chosen to build much, if not almost all, of their own IT offerings, including a proprietary EHR. The startups that have built proprietary solutions felt that commercially available EHRs were not well-suited for their patient populations for several reasons (such as insufficient HCC coding and documentation support); as long as they only served the Medicare population, they found they were better off building and maintaining their own EHR.
We expect this type of coordinated care services model for MA beneficiaries to expand to other geographies over time. While this partnership is immaterial to either Walgreens’ or Humana’s financials over the next few years, it shows how both companies are focusing more heavily on their longer-term clinical strategy and responding to other competitors “front door to care” strategy for MA – especially CVS-Aetna and UnitedHealthcare-WellMed.
Reality Check on the Retail Health Spending Survey
By now you’ve probably seen the Health Affairs study (and requisite mainstream media coverage) stipulating that retail health clinics actually add to the nation’s healthcare spending by encouraging the use of medical services. The study is not without merit, but it’s worth taking a step back and getting to the root of why retail health has increased utilization and spending.
The study (abstract here), which examined Aetna claims data from 2010 to 2012 in 22 cities, found that 58 percent of retail health clinic use represented new utilization, compared to 42 percent for services that would otherwise occur in urgent care or an emergency department (ED). All told, these visits led to a “modest” healthcare spending increase of $14 per person per year.
The natural conclusion, as study co-author Dr. Ateev Mehrotra of Harvard Medical School told CNBC, is that payers and employers should think twice about covering retail health visits since, on the face of it, they don’t save money. This conclusion may be correct, but it misses the bigger picture.
New utilization isn’t necessarily bad. Some consumers visit the retail clinic and receive a diagnosis of a “cold” when a trip down the over-the-counter cold remedy aisle would do. Others visit the retail clinic only to discover that they should, in fact, go to urgent care, their primary care physician, or even the ED. Yes, such visits constitute waste. However, to deny a consumer who wishes to engage in their care just because that care isn’t occurring in the correct venue is poor service at best and a violation of the Hippocratic Oath at worst. Healthcare needs to accommodate those who actively seek services, not push them away. (Besides, wouldn’t the average physician receiving a referral prefer a diagnosis from a retail health clinic to one from Dr. Google?)
Retail health fills a void. Half of the customers at CVS Health Minute Clinics don’t have a PCP, according to the Washington Post. Forty percent of Walgreens Healthcare Clinic visitors say they would otherwise get care at a more expensive venue or skip care altogether. For these consumers, retail health clinics offer a foot in the door – one that leads to shorter waits, faster answers, and better customer service than a trip to urgent care, the PCP, or the ED.
Retail health is transparent. The healthcare industry has been quick to force consumers to pay more for services but slow to actually tell them what those services cost. Retail clinics, operating in an industry where price transparency is paramount, make pricing readily available at the consumers’ fingertips.. There’s no obfuscation or chargemaster at work.
It’s simple economics. As a good or service becomes less costly and more accessible, people are more likely to be willing to pay for it. As this happens, overall spending on that service increases, even as the cost decreases. (Think about it: When was the last time you changed your own oil or cut your own hair?) And treating common conditions is cheapest at retail clinics, according to Mehrotra’s own research.
Momentum is building. There’s a reason payers and employers are willing to cover retail health (and, for that matter, telehealth). The promise of consumer-driven health is meeting patients where they are – and, despite the billions of dollars spent erecting lavish facilities during the last construction boom, patients are less likely than ever before to be in ambulatory care let alone an acute care facility, regardless of the beauty of the edifice. Retail health visits topped 10 million in 2015, and the number of retail clinics topped 2,000. As patients face a heavier burden for the cost of their care, these numbers will only rise.
Smart healthcare organizations (HCOs) partner with retail health clinics instead of dismissing them as a costly fad. CVS Health has more than 50 clinical partners, while Advocate Health Care and Providence Health & Services run Walgreens clinics in Chicago and Seattle, respectively. This helps eliminate duplicate services while also steering patients without PCPs or specialists toward physicians within that system. Meanwhile, both retailers are implementing Epic electronic health record (EHR) systems, which will enable retail clinic data to be folded into the one of the most prevalent EHRs in the market today to create a more complete longitudinal patient record.
Overall, Chilmark Research remains bullish on retail health. Traditional healthcare is inefficient, wasteful, inconvenient, cold, and driven by volume. Healthcare organizations (HCOs) excel at high-touch engagement for high-acuity patients, but they treat low-acuity patients – the vast majority of the population, and those increasingly likely to be selective about where they receive care – little better than cattle en route to market. Only about one in four ED visitors is seen within 15 minutes, according to the National Center for Health Statistics. That’s the norm for retail health.
Retail health usage does merit additional scrutiny. After all, the last thing the industry needs is higher healthcare costs (even if $14 per patient amounts to a handful of tongue depressors). However, a prudent strategy for incorporating retail clinics into low-acuity care, personal wellness, and even disease management will relieve overburdened EDs and PCPs, give patients an accessible venue of care, improve patient education and communication, and ultimately drive costs back down. It will take effort, but the potential impact of retail health cannot be ignored or dismissed, nor should it be perceived as adding to the total costs of care delivered to any given population. That is a conclusion that has no merit, going against the grain of improving the health of a community and one of the primary tenants of the triple aim – removing disparities to accessing care.
Combatting the Cadillac Tax With Wellness
The Affordable Care Act’s so-called “Cadillac tax” of high-priced employer insurance plans has drawn the ire of Presidential candidates, members of Congress, and the general public. All fear that the intentions of the tax – penalizing generous plans that let members receive costly healthcare services they don’t always need – will instead cause employers to cut the benefits that Americans workers have come to count on.
This month’s Domain Monitor will examine how employers can use another provision of the ACA – tying 30 percent of the cost of healthcare coverage to wellness programs – to trim healthcare spending without adversely affecting employee benefits.
Consumer-Driven Forces Disrupting Primary Care
The traditional model of consuming healthcare services is changing. Frustrated consumers – accustomed to the technological advances that have improved air travel, retail, and a host of other industries – increasingly eschew the doctor’s office for newer, more convenient care delivery models. They’re even willing to pay more for these services.
This ongoing shift forces all healthcare organizations, from solo practices to sprawling academic medical centers, to reconsider how they treat low-acuity conditions now and plan to address chronic care management in the future. This month’s Domain Monitor will examine how retail health, telehealth, and direct primary care continue to threaten the traditional model of primary care, identify the challenges that these types of “convenient care” pose, and explain how prudent healthcare IT vendors can address these challenges.
Consumer-Driven Models of Care: Healthcare’s New Front Door
One of the trending topics in healthcare right now is that of the “consumer revolution.” With so many changes happening – the way care is being delivered, who is paying for it, how technology is influencing decision making from doctors to insurers to individuals – the time is ripe for a rethinking of the traditional model of “the doctor will see you now.”
Over the course of 2014, it’s become clear that this trend is here to stay. What’s not yet clear is how exactly these new models will impact the industry. This month’s domain monitor, offers a high level look at some of the specific models and enabling technologies that are slated for a big year of growth in 2015. We will also outline some of the major implications for industry incumbents and break down how various segments of the healthcare market are (or are not) preparing for this sea change.
The Digital Pharmacy: Walgreens’ Emerging Strategy
The Walgreens PR team has been busy of late, announcing a spate of partnerships that aim to transform them from a brick-and-mortar retail pharmacy into a digital one-stop shop for health care consumers. Specifically, three press releases in recent weeks have revealed a strategy that aims to leverage the 82 million “Balance Rewards” members by trading them store loyalty points for using various features from an expanding in-app menu.
First, Walgreens and WebMD have been collaborating for months on a partnership that brings WebMD tools (namely an online goal-setting/care coaching program) to the Walgreens website, and introduces Balance Rewards-based incentives for users of the WebMD app who are tracking fitness, nutrition, or other health data. It also introduces a refill feature to the WebMD app, so that users can order a refill or change pickup location after scanning the bar code on their empty Rx.
Second, Walgreens is working with Qualcomm in a similar fashion to link the usage of a specific set of devices (so far, two blood pressure cuffs and a blood glucose monitor) to members’ Balance Rewards account. This partnership was unveiled at the Health2.0 conference last fall – It will be housed in the Walgreens app at some point in “early 2015.”
Finally, late last year, Walgreens announced they will partner with MDLive, a leading virtual visit supplier, to give patients round-the-clock access to doctors through a smartphone camera-driven visit. This is available to customers in two states today (California and Michigan). Functionality-wise, this represents an expansion of a “pharmacist chat” feature that came out in the Walgreens app last year.
It’s a no-brainer that Walgreens is looking to incent people into coming to their stores. But their strategy to leverage wearables, at-home biometrics, virtual visits, and in-app tools is worth a closer look. The first two announcements above essentially provide people with coupons that they must earn – by monitoring a chronic disease, making progress against a weight loss plan, and so on. The MDLive partnership will likely route any prescriptions through Walgreens pharmacies, while building loyalty to the app and establishing brand credibility in the eyes of the time-pressed, convenience-seeking healthcare consumer.
These deals all appear to be win-wins for the companies involved at first, but real success for the healthcare system will hinge on consumers actually participating. And if we’ve seen one thing in digital health, it’s that if you build it, they’re not guaranteed to come.
More importantly, “success” needs to be defined here. Is more business and brand glad-handing by three publicly traded companies worth celebrating? Measuring outcomes and quantifying the public health impact of an undertaking of this scale will not be easy – nor do any of these three entities really have an obligation or incentive to do so publicly. Will rewards points lure people in to buy discounted soda and candy, or will this function as more of a health savings account (HSA) that only applies to healthcare items in-store?
And speaking of HSA, how will other stakeholders such as employer groups and payers get involved – is there a bigger role that WebMD can/will bring to the table? Walgreens embarked upon a handful of ACO partnerships in the last 18 months – will they be able to use these new mobile tools to add in a new layer of data about consumer preferences and behaviors (and take advantage of a new set of between-visit reimbursements by CMS)? Is there a strategic role for their partnership with Theranos in all of this? Will their partnership with Qualcomm just be another corporate co-branding PR play, as it appears to be today, or will they take a more device-agnostic approach moving forward that really enables their pharmacists to monitor populations, regardless of which device a patient is using?
All in all, while these partnerships need to play out and mature over the next couple of years, Walgreens is taking a bold, app-first step into the age of the digital pharmacy. This comes at an interesting time for the company, as they recently completed their acquisition of Alliance Boots, the European pharmaceutical wholesaler. As a result, Walgreens faces some questions about leadership of the new global corporation, and is in earnest cost-cutting mode. It remains to be seen if these recent announcements are aimed solely at ensuring their investors of a long-term strategy during this merger process. Perhaps their shift to digital-first entry points is aimed at reducing in-store overhead and improving overall operational efficiency for the long-term.
Either way, our take is that Walgreens has obtained a diverse set of pieces to enable them for long term success – but it remains up to them to execute. It’s too early to predict what will happen, but if these pieces align properly, Walgreens will be able to take advantage of the emerging age of the new healthcare consumer, for whom convenience, access, and cost are dominant drivers of utilization and spending.
One thing is for sure – their main competitor, CVS, is taking a no-holds barred approach to the same opportunity – albeit with a slightly different strategy involving deeper clinical services, delivery system partnerships, and of course more investments in their digital presence. For CAS subscribers, this month’s domain monitor explores this emerging consumer trend through a deeper dive on two key forces shaping the new landscape: virtual care and retail care, including a deeper look at what the other 900-lb gorilla of pharmacies, CVS Health, has got planned for the next few years.
Push for Interop – Two Initiatives Lead Way
HIEs only add value to patient encounters when clinicians are connected to them. The capability to provide clinical information exchange is a great tool for clinicians when they have access, and know how to effectively use these services in the context of care. While one desirable end state for the industry would be for all clinicians to have access to all of a patient’s data through the clinician’s native (and hopefully improved) EHR, a combination of data, application, and network silos make this nearly impossible to achieve today. This limits the value proposition to a physician and subsequently use of an HIE.
But an even bigger issue is on the horizon that requires strong interoperability across clinical venues, the move to value-base reimbursement and enabling population health management strategies. HCOs are flying blind if they cannot effectively understand the population they serve. HIT vendors certainly understand this and have begun, partially due to customer prodding and secondly, their own self-interests to take the issue of interoperability seriously.
The CommonWell Health Alliance and Carequality are two different HIT-vendor driven initiatives that aim to tackle the interoperability challenge. While many HIT vendors are watching these initiatives closely their HCO customers are not. If these two initiatives are even partially successful they will help to commoditize the technology elements found in today’s HIEs. For this reason, we think that HCOs should be paying closer attention to both of these efforts.