Walgreens ‘Would Not Be Satisfied to Be On a Fee-For-Service’

The leaders of Walgreens Boots Alliance Inc. want their nascent Walgreens Health business, which includes in-store care options as well as contributions from the Deerfield, Ill.-based company’s investments in primary care practices operator VillageMD, post-acute care provider CareCentrix and other businesses, to grow to about $10 billion by 2025 in part by linking payers’ plan members to its national retail footprint and managing their health.

Speaking to a recent virtual investor conference hosted by Evercore ISI, Walgreens Boots CEO Rosalind Brewer and CFO James Kehoe outlined their goals to build out Walgreens Health, which they see as their primary growth driver going forward. The ambitious initiative to reshape their stores into primary care clinics and support them with a stronger fulfillment network and other services is being funded in part by the more than $3 billion in cost savings Walgreens expects to have generated by 2024.

Brewer, who was COO at Starbucks and CEO of Sam’s Club before taking over at Walgreens Boots earlier this year, and Kehoe have lofty goals for Walgreens Health’s combination of in-store Health Corner offerings, digital options and at-home services as well as what Kehoe called the “loose confederation” of companies in which Walgreens Boots has invested. The company has signed partnership deals with Clover Health and BlueShield of California that have placed about 1.8 million lives under its care but the execs’ 2025 target is 10 million. Similarly, the number of VillageMD clinics co-located with Walgreens stores will grow from about 70 today to 600 by 2025 and more than 1,000 in the ensuing two years.

“It feels inside, as we’re pulling ourselves together, like a startup,” Brewer told the Evercore audience about the urgency behind these and related plans. “I think it’s going to be important that we treat is as such.”

Walgreens Health is a startup with big ambitions of ringing up about $3 billion in revenue next year. Kehoe said the Health Corners staffed by nurses and/or pharmacists will initially offer a set of basic services that are linked to an app used by both the clinician and patient. The idea, he added, is to build the kind of patient engagement that’s long been elusive for many in the industry so that insurance plan members become stickier customers for the carriers, who in turn will want to work more closely with Walgreens.

“We would not be satisfied to be on a fee-for-service. You won’t make money out of the fee-for-service business,” Kehoe said. “Stage 2 is [..] we move to pay for performance and measurement. That would be an access fee to get on the app. It would be a per-patient, per-month and it would specific performance payments for us should we hit the desired outcomes set for us.”

Beyond that, Kehoe said, a longer-term third phase would have Walgreens managing risk together with its insurance partners. Walgreens wouldn’t look to take on 100% of the risk, he added.

Still to come for Walgreens Health is a leader and Brewer said that search is progressing while other parts of the management team are being built out. Kehoe said a big success factor in how Walgreens Health develops in the short term will be its ability to attract the workers it needs.

“What’s the main risk out there? It’s a people risk. Can you hire sufficient health care professionals quickly enough?” he said. “And that’s why we’re making acquisitions as well – to buy into talent.”

Shares of Walgreens Boots (Ticker: WBA) rose 4% Dec. 3 to close at about $46.50. They have fallen about 15% over the past six months.