Plans by several national retail pharmacy chains to expand primary care services and even some clinical laboratory test offerings may be delayed because of financial woes
Times are tough for the nation’s retail pharmacy chains. Rite Aid Corporation, headquartered in Philadelphia, closed 25 stores this year and has now filed for bankruptcy. In a press release, the retail pharmacy company announced it has “initiated a voluntary-court supervised process under Chapter 11 of the US Bankruptcy Code,” and that it plans to “significantly reduce the company’s debt” and “resolve litigation claims in an equitable manner.”
Rite Aid may eventually close 400 to 500 of its 2,100 stores, Forbes reported.
Meanwhile, other retail pharmacy chains are struggling as well. CVS Health, headquartered in Woonsocket, Rhode Island, and Walgreens Boots Alliance of Deerfield, Illinois, are each closing hundreds of stores, according to the Daily Mail.
They are each experiencing problems with labor costs, theft, being disintermediated for prescriptions by pharmacy benefit managers (PBMs), and probably building too many stores in most markets.
This is a significant development, in the sense that Walgreens, CVS, and Walmart are each working to open and operate primary care clinics in their stores. This is a way to offset the loss of filling prescriptions, which has migrated to PBMs. Primary care clinics are important to the revenue of local clinical laboratories, but retail pharmacy chains do not yet operate enough primary care clinics in their retail pharmacies to be a major influence on the lab testing marketplace.
“With the support of our lenders, we look forward to strengthening our financial foundation, advancing our transformation initiatives, and accelerating the execution of our turnaround strategy,” said Jeffrey Stein (above), Rite Aid’s CEO/Chief Restructuring Officer, in a press release. Clinical laboratory leaders may want to closely monitor the activities of the retail pharmacies in their areas. (Photo copyright: Rite Aid.)
Multiple Pharmacy Companies at Financial Risk
Rite Aid Corporation (NYSE: RAD) confirmed it continues to operate its retail and online platforms and has received from lenders $3.45 billion in financing to support the company through the bankruptcy process.
However, according to the Associated Press (AP), Rite Aid has experienced “annual losses for several years” and “faces financial risk from lawsuits over opioid prescriptions,” adding that the company reported total debts of $8.6 billion.
Additionally, the US Department of Justice (DOJ) filed a complaint “alleging that Rite Aid knowingly filled unlawful prescriptions for controlled substances,” explained a DOJ press release.
Rite Aid is not the only retail pharmacy brand dealing with unwelcome developments. Fortune reported last year that Walgreens and CVS paid a combined $10 billion to 12 states for “involvement in the opioid epidemic.”
Walgreens intends to close 150 US and 300 United Kingdom locations, its former Chief Financial Officer James Kehoe shared in a third quarter 2023 earnings call transcribed by Motley Fool.
And in a news release, CVS announced plans to close 900 stores between 2022 and 2024.
Pharmacy Companies’ Investment in Primary Care
Though they are experiencing difficulties on the retail side, Walgreens and CVS have significantly invested in primary care.
In that same ebrief, we reported on CVS’ acquisition of Oak Street Health, a Chicago-based primary care company, for $10.6 billion. CVS plans to have more than 300 healthcare centers by 2026.
“We looked at our business, and we said, ‘We’re seeing an aging population.’ We know people don’t have access to primary care. We know that value-based care is where it’s going. We know that there’s been a renaissance in home (care). So that’s kind of how we approached our acquisitions,” Karen Lynch, CVS Chief Executive Officer told Fortune.
Other Challenges to Retail Pharmacies
It could be that these major pharmacy chains are hoping entry into primary care will offset the loss of sales from prescriptions that have migrated to PBM organizations.
In addition to reimbursement challenges, retail pharmacies are reportedly experiencing:
High labor costs,
Competition from online, bricks-and-mortar, and grocery businesses, and
Effects from the work-at-home trend, among other struggles.
“I think there’s a number of challenges which are coming to a head. One, you have ongoing reimbursement pressure. The reimbursement level for drugs continues to decrease, so profit margin on the core part of the business is under pressure,” Rodey Wing, a partner in the health and retail practices of global strategy and management consulting firm Kearney, told Drug Store News.
Additionally, the pharmacy’s drug sales need to be high enough to retain pharmacists, who are difficult to recruit in a post-pandemic market, Drug Store News explained.
And in the retail space where products are displayed, some pharmacies struggle to compete with Amazon on convenience and with “dollar” stores on price. And with more people working from home, retail pharmacies are seeing less foot traffic, Drug Store News noted.
Retail pharmacy companies also have competition from pharmacies conveniently situated in grocery and big-box stores, Forbes reported. These include:
Walmart, for its part, reduced operating hours of pharmacies at more than 4,500 sites, Daily Mail reported.
Thus, medical laboratory leaders would be wise to keep an eye on market changes in their local retail pharmacies. Some locations are equipped with clinical laboratory services and a closure could give local labs an opportunity to reach out to patients and physicians who need access to a new testing provider.
Expect there to be more clinical laboratory testing at pharmacies as retail pharmacy chains expand their primary care offerings
Walgreens Boots Alliance (NASDAQ:WBA) of Deerfield, Illinois, continues to expand its primary care footprint with VillageMD’s latest acquisition of Starling Physicians, a multi-specialty physicians group with 30 locations in Connecticut, according to a VillageMD news release. Walgreens is the majority owner of VillageMD, which now has more than 700 medical centers, Healthcare Dive noted.
This deal continues the trend of corporations acquiring physician practices. Already, the majority of physicians are employees, not partners in a private practice physician group. Under corporate ownership, these physician groups often decide to change their clinical laboratory providers. For that reason, managers and pathologists at local medical laboratories will want to explore how they might provide daily lab testing services to the corporate owners of these primary care clinics.
The Hartford Business Journal called VillageMD’s acquisition of Starling Physicians—which is subject to a state investigation for possible certificate-of-need requirement—one of Connecticut’s “more high-profile healthcare merger and acquisition deals in Connecticut in recent years.”
The Starling Physicians group acquisition comes just a few months after
VillageMD paid $8.9 billion for Summit Health-CityMD of Berkeley Heights, New Jersey, with primary care services in the Northeast and Oregon. Walgreens invested $3.5 billion in that transaction, a Summit Health news release noted.
These acquisitions by Walgreens/VillageMD provide opportunities for local clinical laboratories to serve the physicians in these practices, though the operations may have a different patient flow and work process than traditional family practice clinics located in medical offices around community hospitals.
“Starling shares our vision of being a physician-led model and they provide care in a compassionate and exceptional way to all the patients they serve. By integrating primary care with specialty care, we are able to optimize access to high-quality care for our patients,” said Tim Barry (above), CEO and Chair of VillageMD in the news release. “This is a natural extension of our growth in the Northeast, including our recent acquisition of Summit Health-CityMD. Together, we are transforming the way healthcare is delivered in the United States.” Clinical laboratories in these areas will want to develop a strategy for serving the physicians practicing at these non-traditional locations. (Photo copyright: The Business Journals.)
Primary Care at Retail Locations a Growing Trend
Dark Daily and its sister publication The Dark Report have reported extensively on the growing trend by pharmacy chains and other retail superstores to add primary care services to their footprint.
In “By 2027, Walgreens Wants 1,000 Primary Care Clinics,” The Dark Report covered how Walgreens had disclosed that it would spend $5.2 billion to acquire a 63% interest to become the majority owner of VillageMD. Fierce Healthcare reported that “[Walgreens] planned to open at least 600 Village Medical at Walgreens primary-care practices across the country by 2025 and 1,000 by 2027.”
VillageMD is a primary care provider with same-day appointments, telehealth virtual visits, in-home care, and clinical laboratory diagnostic testing such as blood tests and urinalysis. Many VillageMD practices are located in buildings next door to Walgreens sites throughout the United States. (Photo copyright: Walgreens.)
Other Retailers Investing in Primary Care
Other retailers have recently taken deeper dives into healthcare as well.
According to Forbes, “The acquisition comes amid a flurry of acquisitions across the US for doctor practices, which are being purchased at an unprecedented pace by large retailers like Walgreens Boots Alliance, CVS Health, Amazon, and Walmart. Meanwhile, medical care providers owned by health insurers like UnitedHealth Group’s Optum and Cigna’s Evernorth are also in the doctor practice bidding war.”
And in February, CVS announced plans to acquire for $10.6 billion Oak Street Health, a Chicago-based primary care company with 169 medical centers across 21 states that plans to have more than 300 centers by 2026.
Do Clinical Laboratories Want Retail Customers?
The question of whether clinical laboratories should pursue retail customers is at this point academic. Consumer demand is driving the change and labs that don’t keep up may be left behind.
“The trend of putting full-service primary care clinics in retail pharmacies is a significant development for the clinical laboratory industry,” wrote Robert Michel, Editor-in-Chief of Dark Daily and The Dark Report. “These clinics will need clinical lab tests and can be expected to shift patients away from traditional medical clinic sites for two reasons—lower price and convenience—since this new generation of primary care clinics will be located around the corner from where people live and work.”
Thus, healthcare system laboratories or large reference labs may want to reach out to Walgreens, CVS, Amazon, and Walmart for test referrals. These and other large retailers are investing heavily in the belief that consumers will continue to seek convenience in their healthcare.
Damages sought include reimbursement of costs for voided clinical laboratory tests as well as an injunction ‘to prevent Theranos and Walgreens from engaging in further misrepresentations and unfair conduct’
Theranos founder and ex-CEO Elizabeth Holmes and ex-COO/President Ramesh “Sunny” Balwani have been found guilty on multiple counts of fraud and now await sentencing in federal criminal court. But the pair’s legal entanglements are not yet over. A class-action lawsuit filed on behalf of patients who purchased Theranos clinical laboratory testing services between November 2013 and June 2016 is weaving its way through the legal system.
“The lawsuit claims, among other things, that these blood testing services were not capable of producing reliable results, that the defendants concealed the blood testing services’ unreliability, that Walgreens knew that the blood testing services were unreliable and not market-ready, that the defendants conspired to commit fraud on consumers, that Theranos’ ‘tiny’ blood testing technology (blood drawn with finger pricks) was still in development, and that the customers who were subject to ‘tiny’ Theranos blood draws by Walgreens employees gave their consent to those blood draws under false pretenses,” the news release notes.
If the defendants are found liable, plaintiffs, who could number in the hundreds of thousands, could receive money or benefits. The Mercury News reported that Arizona’s attorney general had identified 175,000 consumers who purchased tests from Theranos/Walgreens at an average cost of $60 per test.
A class-action lawsuit filed on behalf of patients who purchased Theranos blood testing services at a Walgreens or Theranos location includes as defendants company founder/CEO Elizabeth Holmes (left), ex-Theranos President/COO Ramesh “Sunny” Balwani (right), as well as Theranos, Inc., Walgreens Boots Alliance, and Walgreens Arizona Drug Company. The trial is expected to begin in 2023. It will no doubt draw the attention of clinical laboratory directors and pathologists who followed the Holmes/Balwani fraud cases very closely. (Photo copyright: The Wall Street Journal.)
Federal Court Upholds Class Certification
The Top Class Actions news site notes that in 2021 Walgreens and Balwani unsuccessfully appealed to get the class-action lawsuit against them decertified.
Class: All purchasers of Theranos testing services, including consumers who paid out-of-pocket, through health insurance, or through any other collateral source between November 2013 and June 2016.
Arizona Subclass: All purchasers of Theranos testing services in Arizona between November 2013 and June 2016.
California Subclass: All purchasers of Theranos testing services in California, between September 2013 and June 2016.
Walgreens Edison Subclass: All purchasers of Theranos testing services who were subjected to “tiny” blood draws (finger pricks) by a Walgreens employee between November 2013 and March 2015.
“The lawsuit seeks damages, including reimbursement of the amounts paid by consumers for the voided tests, as well as an injunction to prevent Theranos and Walgreens from engaging in further misrepresentations and unfair conduct,” the Lieff Cabraser website states.
In its notice to potential members of the class action, JND Legal Administration states the “defendants contend that they did not do anything wrong, and they are not liable for any harm alleged by the plaintiffs.” In addition, the notice points out, “There is no money available now, and there is no guarantee that there will be.”
Where could money come from to pay plaintiffs? Likely not from Theranos or Holmes. Though Theranos reached a peak valuation of $9 billion in 2014, it owed at least $60 million to unsecured creditors when the company was dissolved in 2018, USA Today reported. After turning over its assets and intellectual property, Theranos anticipated having only $5 million to distribute to creditors.
And Forbes reported that Holmes’ net worth dropped from $3.6 billion to $0 in 2016.
However, Balwani, who netted nearly $40 million in 2000 when he sold shares of software company Commerce One, has an estimated net worth of $90 million, according to Wealthypipo. As of 2022, Walgreens Boots Alliance is ranked number 18 on the Fortune 500 rankings of the largest United States corporations by total revenue.
The Arizona Theranos Litigation website points out that the suit does not seek damages or other relief for personal injury, emotional distress, retesting costs, or medical care costs. Any Theranos/Walgreens customer intent on pursuing such legal action would need to exclude themselves from the class action case and proceed with separate litigation. The deadline to opt out of the class-action lawsuit is September 12, 2022.
And so, though clinical laboratory directors and pathologists may have thought the saga of Theranos ended following Balwani’s conviction, it apparently continues. It is anyone’s guess what is to come.
Walmart may be the largest, but it is not the only retailer offering clinical laboratory testing and primary care services at conveniently-located retail stores
Earlier this month in “How Walmart Plans to Take Over Health Care,” CNBC asked, “Is Walmart the future of healthcare?” Good question. In the midst of the COVID-19 pandemic, Walmart (NYSE:WMT) managed to open six Walmart Health locations in Georgia and Arkansas. In addition, the giant retailer announced plans to open more primary care clinics at Walmart Supercenters in Chicago and Florida.
Clinical laboratory managers who struggle to keep revenues flowing should take notice. These retail clinics may not have their own medical laboratories, but their primary care physicians will be generating lab specimens.
And because Walmart offers medical laboratory tests at these locations, with so many people opting to visit health clinics installed within retail stores, independent clinical labs could see a noticeable drop in business as Walmart Health expands its network across the US.
Therefore, clinical labs near Walmart Health locations would be wise to develop strategies and services toward becoming a lab test provider to these retail clinics.
Walmart Health Eyes Florida Primary Care Market
“The past few months in particular have exposed the vulnerabilities of our healthcare system and left many without access to adequate health resources,” said Lori Flees, Senior Vice President and Chief Operating Officer, Walmart US Health and Wellness, in a blog post. “We know our customers need us more than ever, which is why we’re announcing an expansion of Walmart Health.
“We’re planning to open seven Walmart Health locations in the Jacksonville [Florida] market in 2021, with at least one opening in early 2021, and we’re beginning conversations in the Orlando and Tampa markets. Our new health centers will be in communities in need of affordable, accessible preventive care, which we will help deliver through Walmart Health,” Flees wrote.
Can Clinical Laboratories Compete or Collaborate with Walmart?
A news release announcing the opening of the Walmart Health Centers in Chicago stated that Walmart Health partners with “local, on-the-ground health providers to deliver primary care, labs, x-ray and diagnostics, counseling, dental, and hearing services all in one facility at transparent pricing regardless of a patient’s insurance status.”
However, clinical laboratories wanting to be a testing provider to Walmart Health may have to keep their costs of tests and services down in order to be competitive.
Walmart Health’s “Summary Price List” provides a complete list of medical laboratory tests and services offered at the retail clinics.
Other Primary Care Disruptors
Walmart is not the only retailer offering primary care services amid the COVID-19 pandemic.
Walgreens Boots Alliance (NASDAQ:WBA) partnered with VillageMD, a provider of primary care services, to open 500-700 “Village Medical at Walgreens” primary care clinics “in more than 30 US markets in the next five years, with the intent to build hundreds more thereafter,” according to a news release.
Clinical laboratory managers and pathologists will want to be on the alert for opportunities to forge relationships with Walmart Health, Walgreens, and CVS Health to capture new primary care-related testing business coming out of these non-traditional healthcare providers.
Expanding healthcare services into communities is expected to increase orders for clinical laboratory tests, promote precision medicine, and lower overall costs
Clinical
laboratories continue to adapt to servicing providers in non-traditional
healthcare settings. These include freestanding urgent care centers as well as
mini-clinics in retail locations. Dark Daily has covered this trend
extensively in previous
e-briefings.
To secure a share of this new market, national retailers,
pharmacy chains, and grocery stores are increasing their health and medical
service offerings and forging partnerships with other organizations, such as
tech developers.
One such recent partnership involves Walgreens Boots Alliance Inc.
(NYSE:WBA) and the Microsoft
Corporation (NASDAQ:MSFT). In January, both parties announced a joint
venture to develop new healthcare solutions that will improve patient outcomes while
lowering cost through research and development, funding, and technology.
“Our strategic partnership with Microsoft demonstrates our
strong commitment to creating integrated, next-generation, digitally-enabled
healthcare delivery solutions for our customers, transforming our stores into
modern neighborhood health destinations, and expanding customer offerings,”
said Stefano
Pessina, Executive Vice Chairman and Chief Executive Officer of Walgreens,
in a Microsoft press
release.
Through this partnership, Walgreens plans to provide personalized healthcare (aka, precision medicine) by connecting its customers to pertinent health information through digital devices and in-store expert advice. The goal is to proactively engage patients in their own care to improve medication adherence, reduce emergency room visits, decrease hospital readmissions, and provide customers with lifestyle management solutions.
In addition, the two companies will share each other’s
market research and work with consumers, payers, providers, and pharmaceutical
manufacturers to devise solutions that improve health outcomes while lowering
costs.
“[Walgreens Boot Alliance] will work with Microsoft to harness the information that exists between payers and healthcare providers to leverage, in the interest of patients and with their consent, our extraordinary network of accessible and convenient locations to deliver new innovations, greater value, and better health outcomes in healthcare systems across the world,” Pessina said in the press release.
As part of this partnership, Walgreens will move the majority of its IT infrastructure onto Microsoft Azure, a cloud computing and artificial intelligence (AI) platform. Walgreens also will provide Microsoft 365 to more than 380,000 employees and stores located throughout the world. Microsoft 365 is a business solution which bundles Windows 10 and Office 365 with advanced security features.
Other Walgreens Collaborations That Provide Healthcare at
Retail Locations
Walgreens also announced several collaborations with other
companies to become more competitive and secure their share of the healthcare
market.
Through its partnership with Chicago-based VillageMD, a national provider of primary
care clinics, Walgreens will open five primary care clinics next to Walgreens
stores in the Houston area. These clinics, called “Village Medical at Walgreens,”
will offer customers comprehensive primary care services, pharmacists, nurses,
and social workers.
Another collaboration involves Verily Life
Sciences, a research arm of Alphabet Inc. (NASDAQ:GOOG), Google’s parent company. The
agreement is for multiple projects to improve health outcomes for patients with
chronic illnesses. The two companies will be exploring the use of technology, such
as sensors, and software to help prevent, manage, screen, and diagnose disease
with the ultimate goal of deploying those technologies at Walgreens retail
locations.
“The
continued rise in chronic diseases today can be costly to patients as well as
to our healthcare system,” Pessina told Business
Wire. “Working with Verily, we’ll look at how we can best support
integrated and value-based care to meet our patients’ needs, as well as
opportunities to address other chronic conditions over time.”
Service Agreements with LabCorp and Quest
In 2018, Walgreens
announced a significant expansion of their collaboration with LabCorp, to increase the number of patient
service center (PCS) locations within Walgreens stores. The two companies
agreed to open at least 600 additional LabCorp-at-Walgreens facilities across
the US over the next four years. At the time of the announcement, LabCorp operated
17 facilities at Walgreens in Florida, Colorado, North Carolina, and Illinois.
Along the same lines, Quest
Diagnostics (NYSE:DGX) also has opened hundreds of patient-serviced centers
within various food and drug retail stores throughout the US, which Dark
Daily reported in 2017.
“Healthcare is too complicated, too big, and if I can say, a
little too messy,” Pessina told Digital
Commerce 360. “We cannot be helpful to our patients if we don’t team up
with many, many different, practically all, the players in this industry.”
CVS HealthHubs Offer Blood Testing, Health Screenings,
and Other Services
To remain competitive, CVS also is trying new ways to
capitalize on the growing healthcare market.
In February, CVS announced
the creation of three newly designed stores in the Houston area as pilot
projects. These stores, called HealthHubs,
will include expanded health clinics with medical laboratories for blood
testing and health screenings. They’ll also feature dieticians, respiratory
specialists, and dedicated space to assist customers with the management of
some chronic health conditions, as well as wellness rooms for yoga classes and
health seminars.
“We’re pleased and surprised pleasantly with the ecosystem
of healthcare that we’ve created here and how approachable it is, how much
people are interested in it, and there are certain things we can take to all
stores,” Kevin
Hourican, Executive Vice President, CVS Health and President, CVS Pharmacy,
told Becker’s
Hospital Review.
With more retailers
adding an ever-increasing number of healthcare services to their offerings, the
number of medical laboratory tests available at those locations will likely
also increase. Although this trend may boost competition for clinical
laboratories, it could also benefit them by creating new opportunities to
provide value-added services to their clients.