America’s two biggest pharmacy chains are attempting to reverse their sagging fortunes by becoming go-to treatment centers for people with chronic illnesses.
CVS Health Corp. and Walgreens Boots Alliance Inc. are remodeling hundreds of stores into medical-service centers targeted at customers with conditions like diabetes, heart disease and hypertension. The idea is to make customers just as likely to stop in for medicine, consultations and lab tests as for lipstick or a candy bar.
The need is urgent. Both chains are under tremendous pressure to find new ways to counter slowing revenue from prescription drugs, which drive the bulk of their sales. On Tuesday, Walgreens shares fell 13% after it gave a gloomy full-year earnings outlook, weeks after CVS did the same. CVS shares have fallen 34% since its $70 billion acquisition of insurer Aetna Inc. as its has struggled to convince investors the combination will prove lucrative.
Drug-pricing pressure isn’t letting up. Both companies are getting hurt as generic-drug makers scale back price cuts and pharmacy-benefit managers squeeze pharmacies across the board on both generic and brand-name drugs.
Meanwhile, looming over both Walgreens and CVS is Amazon.com Inc.’s foray into prescription-drug sales. Amazon said last year it was buying online pharmacy PillPack Inc. for about $1 billion, a move that factored into CVS’s decision to acquire Aetna, people familiar with the situation said at the time. Walgreens cited Amazon’s PillPack deal as a potential threat to its business in its latest annual report.
“It’s clear that the drugstores that we are used to knowing will not be the store of the future for sure, so we have to change,” said Walgreens Chief Executive Stefano Pessina in a recent interview.
But previous attempts to remake the drugstore concept with in-store medical services have had mixed results — and led to a high-profile embarrassment for Walgreens, whose disastrous partnership to offer in-store blood testing with now-defunct Theranos Inc. ended in a legal settlement in 2017.
Walgreens declined to comment on its venture with Theranos, which has been engulfed by charges it deceived investors about the capabilities of its technology, beyond saying the deal was done under previous management.
Now, the chains are focused on a challenge that has long frustrated the broader U.S. health-care system: getting patients with chronic diseases to take better care of themselves.
Roughly 60% of Americans have at least one chronic condition and four in 10 adults have more than two, according to the U.S. Centers for Disease Control and Prevention. Many patients have trouble taking their medicines as prescribed and slip back into poor health habits — or go untreated until they end up in the emergency room. The CDC estimates that chronic conditions account for roughly 90% of the nation’s $3.3 trillion in annual health-care spending, much of it for in-hospital care.
CVS and Walgreens say their vast networks, the ease of access and the data they collect on pharmacy customers make them uniquely positioned to help those with chronic conditions comply with their treatment plans.
“It’s bringing more health services to a more convenient location that doesn’t disrupt your day and has a consumer bent to it,” said Alan Lotvin, CVS chief transformation officer. “We inculcate it into your everyday routine so it’s not, ‘Oh I’m going to the doctor today.'”
The gains could be big in getting people needing costly medicines to actually fill their prescriptions, not least for CVS who could leverage Aetna’s insurance savings from reduced health-care costs. For both pharmacy chains, it could help increase both prescription income and foot traffic to stores.
But there are a lot of obstacles, perhaps the biggest of which is getting customers to take the drugstore chains seriously as health-care providers.
“It’s mind boggling to me that they can say the center of the health-care system will be a retail outlet that sells Doritos as well as prescription drugs,” said Lawton Burns, a health-care management professor at the University of Pennsylvania’s Wharton School of Business.
Others say the chains could have an edge over health systems and hospitals that have long tinkered with ways to improve access to care for the chronically ill.
“The current solutions aren’t working,” said Sanjay B. Saxena, who works with insurers and health systems at Boston Consulting Group. “We aren’t addressing the fact that health care has not caught up with the rest of what consumers expect in their life. Chronic disease keeps getting worse and the costs associated with that are going up.”
CVS sees roughly 1,000 of its more than 9,800 retail stores becoming bigger hubs, offering a range of medical services, while Walgreens envisions a similar setup for about 1,500 of its 9,600 U.S. locations. Those locations — CVS calls them “health hubs” and Walgreens terms them “neighborhood health destinations” — will anchor a broader network of more traditional drugstores that will be tweaked to focus more on health and less on traditional retail.
Walgreens has struck partnerships with about a dozen companies in recent years on ways to monitor patients’ health and behavior, and advise them accordingly. With partners, it already has some 400 clinics inside stores, with treatments such as flu shots administered by nurse practitioners, and more than a dozen urgent-care centers.
Microsoft Corp. is helping Walgreens develop software that would manage patient engagement, while Alphabet Inc.’s Verily Life Sciences unit will develop a pilot project to get patients to take their medications as prescribed. Walgreens has also opened two in-store primary-care clinics in the Kansas City area with insurer Humana Inc. and has replaced its ill-fated Theranos partnership with a blood-testing deal with clinical-lab operator LabCorp to open at least 600 centers at Walgreens stores over the next four years.
Mr. Pessina, the CEO, says data collected by Walgreens can ultimately be used to flag unhealthy behaviors in consumers. Among Walgreens’ new features will be an app that encourages customers to log their diets and other information and that alerts users to the consequences of their choices.
That fright factor will encourage people, such as diabetics not following their recommended diet, to make better choices, Mr. Pessina said, including taking prescriptions regularly and keeping up with recommended diagnostics.
Walgreens has opted for partnerships over big acquisitions, which Mr. Pessina said carry too much risk.
CVS, meanwhile, wants full control over its assets. That thinking drove the chain’s Aetna acquisition, as well as its deals for the walk-in MinuteClinic chain and pharmacy-benefits manager Caremark more than a decade ago.
“These systems and operations can talk to one another, we can set the culture,” said Kevin Hourican, president of CVS Pharmacy, who oversees the company’s retail operations.
Aetna is central to its latest mission. With access to its insurance rolls, CVS pharmacists will be able to reach out directly to customers with chronic health conditions and encourage them to come to the store for a consult on services they can access. If CVS’s approach works, Aetna’s data can then be used to demonstrate savings and, the company hopes, woo other insurers into using its model.
Also central to the plan is an overhaul of the MinuteClinic network.
Today, roughly 1,100 MinuteClinic locations, located inside CVS pharmacies and Target stores and staffed primarily by nurse practitioners, address immediate and simple health issues, such as flu shots or treatments for a sore throat. CVS is aiming to shift the clinics toward managing complex and chronic cases, for example equipping them with retinal imaging systems to carry out eye exams that are part of annual physicals recommended for diabetics.
But wading deeper into health care, particularly complicated chronic conditions, could put the companies at greater risk of medical malpractice claims, said Nicholson Price, a professor at the University of Michigan Law School who has written on health law and ethics.
Patients today don’t interact much with their pharmacists, Mr. Price said, so building a system in which pharmacists aid in carrying out treatment is a big shift. “Once you get into more actively managing chronic conditions you start to ask, ‘Would a physician’s assistant or nurse practitioner be expected to recognize some sort of complications that are arising?” he said.
Shirlette Williams, a Type 2 diabetes patient in Buffalo, N.Y., says she couldn’t fathom using a drugstore as her medical provider. The 54-year-old says she relies on a combination of a health clinic near her home and regular visits with a diabetes educator and nutritionist, and that she would question a drugstore’s motives in treating her condition.
“I wouldn’t go to CVS or Walgreens to manage my condition because I feel that a drugstore’s priority would be to sell me drugs,” Ms. Williams said. “While the idea could be a good one for people who don’t have a health-care provider in their neighborhood, I’d feel more confident if my pharmacy and health-care provider were separate entities.”
Both companies say people who have visited stores with the new format have responded positively and that further changes will help consumers make the leap more confidently.
“Care coordination with our pharmacists and patients’ providers is often critical to better outcomes, and benefits all parties including patients, payers and providers,” a Walgreens spokesman said.
Both companies say they will comply with health-privacy laws and won’t share data with the retail side of the business.
CVS says its existing capital budgets will cover costs of reinventing stores nationwide. A Walgreens spokesman said investments would be made “in a financially disciplined manner,” declining to further quantify.
Unlike CVS, which stopped selling tobacco products in 2014, Walgreens has continued to sell cigarettes in most of its stores, drawing criticism from federal regulators, lawmakers as well as activists who say that tobacco products don’t belong in a health store. Mr. Pessina says the chain is testing some tobacco-free stores and is encouraging employees in others to offer aids to quit smoking to customers buying cigarettes.
One recent weekday afternoon, Mr. Pessina, the company’s CEO, walked through a store near the company’s Deerfield, Ill., headquarters. In an area called the “health corner” were signs for optical, lab, hearing and pharmacy services. As Mr. Pessina quizzed the in-store optometrist about the number of visitors he was getting, a customer shuffled by pushing a shopping cart with a case of Bud Light. Across the store, a woman had her blood pressure checked.
Mr. Pessina said he’s convinced moving away from traditional retail is the only way forward. “We are also a retailer,” he said. “But we are above all a pharmacy.”
