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Rebecca Springer, Ph.D., is a senior healthcare analyst at PitchBook.
Walgreens-owned VillageMD is in talks to merge with Summit Health in what could be a more than $5 billion tie-up, Bloomberg reported this week. Summit is backed by Warburg Pincus and owns CityMD.
The news puts another retailer's push into healthcare in the spotlight after Walmart, Amazon and CVS grabbed headlines earlier this year. Walgreens' efforts stand out because of the retailer's clear emphasis on whole-population, value-based care—in contrast to rival retail pharmacy chain CVS, whose recent M&A activity has a Medicare Advantage bent. The big picture Acquiring Summit Health's 340 practice locations and multispecialty care coordination capabilities would establish Walgreens as a peer, rather than a pursuer, of CVS' healthcare services bid. In the vertical integration game, Walgreens has assembled provider and pharmacy benefit manager arms but lacks a payer. Since the company is too small to contemplate purchasing Cigna or Centene, it will need to proceed down the partnership route, which Walmart is also pursuing.
Even if the Summit transaction does not materialize, it adds clarity to Walgreens' multispecialty, value-based care ambitions and portends additional acquisition or partnership opportunities for VC- and PE-backed home health, behavioral health and specialist groups with value-based care credentials. Walgreens healthcare strategy background Until recently, Walgreens was playing catch up with CVS in the healthcare provider space. The company began investing in VillageMD in 2019, participating in a $175 million series B venture round. The same year, the two companies began opening co-located clinics. Walgreens then spent $1 billion to raise its equity stake to 30% of VillageMD in 2021 and $5.2 billion to acquire an additional 33% in 2022. Walgreens now has 200 Village Medical primary care clinics co-located with Walgreens stores, with a goal of reaching 600-plus practices by 2025.
Walgreens has also quietly moved into the PBM space, using a similar partnership-to-ownership strategy. In 2019, the company established a partnership with Centene and RxAdvance to create a cloud-based PBM, AllianceRx. By January 2021, it had gained full ownership. Summit Health and value-based care Walgreens has publicly stated that it intends to become a leader in value-based care. VillageMD is a primary care provider focused on value-based care, with 348,000 lives under value-based contracts as of 2021.
VillageMD's synergies with Summit Health, also a value-based care provider, are clear. In addition to CityMD urgent care clinics, Summit is a multispecialty group providing a range of services from primary care to oncology. An interesting comparison is Optum's April acquisition of TPG-backed Kelsey-Seybold Clinic, a Houston-based multispecialty group with a strong value-based care track record. Difference between CVS and Walgreens approaches By number of clinics, CVS has outstripped Walgreens so far: CVS currently boasts around 1,100 MinuteClinics and 1,000 HealthHUBs. However, the strategies of the two companies differ.
Most CVS MinuteClinics and HealthHUBs are staffed by advanced practice providers, such as nurse practitioners and physician assistants. In contrast, Walgreens Village Medical clinics are led by primary care physicians. APPs are easier to hire and less expensive to employ, which has allowed CVS to scale quickly and to offer low-cost out of pocket options for uninsured patients. PCPs, on the other hand, are better equipped to manage patients' health holistically, which benefits Walgreens' value-based care strategy.
CVS publicly discussed its desire to add PCPs to HealthHUBs in 2021, but it is unclear whether the company has begun to do this organically. Instead, CVS is currently focused on M&A. In addition to the acquisition of home health provider Signify Health, CVS pursued One Medical, which includes Medicare Advantage provider Iora Health, and Cano Health, also an MA primary care group. This differs from Walgreens-VillageMD's approach, which is geared toward primary care for all age groups.
Featured image courtesy of Walgreens
This article originally appeared on PitchBook News