What Walgreens' decision reveals about retailers' healthcare ambitions 

By  Colleen Wagner and Eliza Dailey

We've talked about key shifts in Walgreens' care delivery strategy before. Last year, they focused on expansion with the goal of becoming a national multispecialty medical group. Following VillageMD's acquisition of Summit Health in November 2022, it acquired four medical groups in a four-month span from December 2022 to March 2023.

Those fast-paced acquisitions stood out for the investments made in multispecialty care. But just a year later, Walgreens announced a robust cost-cutting agenda with plans to scale back and connect the assets it just acquired.

Why now? Corporate medical groups are betting on market depth over national breadth.

Closing clinics in Florida and Illinois allows VillageMD to put greater attention toward markets where it has a stronger presence. Florida is a complex market that presents several opportunities for medical groups but also significant challenges. With a growing Medicare Advantage population, Florida is ripe for competition among senior-focused primary care groups like CenterWell, ChenMed, and WellMed (an Optum* subsidiary).

Since the Florida market is highly saturated, it's not surprising that VillageMD decided to exit the state. Now, it's looking at markets where it has existing market share, less competition, and a wider customer base, including in rural communities.

When VillageMD announced plans to expand last year, it shared a specific focus on opening clinics in medically underserved communities. Over 75% of Americans live within five miles of a Walgreens store, which makes VillageMD uniquely positioned to become the provider of choice in rural communities. As it scales back in more heavily saturated markets, we expect to see more resources put toward markets where it's better positioned to build a strong regional network, across both urban and rural areas.

VillageMD isn't the only provider prioritizing regional depth over national breadth. It's a shared ambition across most growth-focused medical groups. We're covering this trend in more detail in our webinar, "Understand your customer: Medical groups 101," on April 9.

What these closures mean for retailers and traditional providers

Early indicators show potential for success in the co-located pharmacy-clinic model, but the impact to date has been limited. Last year, Walgreens reported pharmacies at co-located VillageMD clinics that had been open for two years filled an additional 40 prescriptions per day — and about half of the patients who visited these clinics filled their prescriptions at Walgreens. We predict Walgreens will continue to focus on pharmacy connectivity with some success.

However, it's more challenging to replicate this connectivity with the other assets the company owns, such as Shields Health Solutions (which Walgreens is exploring selling) and CareCentrix, as well as its partnership with value-based provider enablement company Pearl Health.

To achieve more robust connectivity, VillageMD will need to focus in two areas:

1. Refining its primary care model so that it serves as the front door to its care delivery ecosystem

2. Integrating its other healthcare assets to keep patients in-house after their initial pharmacy or primary care interaction

While we caution provider executives from fully dismissing Walgreens as a competitor, we expect its impact will be limited to pharmacy and those markets where they have a denser presence. Health systems should explore partnerships to grow downstream specialty volumes while we advise independent medical groups to double down on patient access and their primary care value proposition.

*Advisory Board is a subsidiary of Optum. All Advisory Board research, expert perspectives, and recommendations remain independent.  

(Village MD press release, 11/2022; Repko, CNBC, 10/2021; Walgreens Boots Alliance Inc earnings call transcript, 3/2023; Landi, Fierce Healthcare, 01/2024; Landi, Fierce Healthcare, 09/2023)