Cracks Appear In Walgreens Clinic Strategy As Patient Panels Go Unfilled

Walgreens CEO, Tim Wentworth, has confessed that the company has had to slow the expansion of its doctor-staffed clinics due to struggles to fill patient panels - a term referring to the number of individual patients under the care of a specific provider. The retailer, which has been working in partnership with Chicago-based startup VillageMD and owns about half of the company, recently announced it would be closing 60 underperforming locations in order to focus on high opportunity markets.

The underperformance has become evident as typical patient panel sizes for primary care doctors, typically numbering 2,500 or more, have not been achieved. This has led Wentworth to put VillageMD "on a diet," focusing on operations such as patient recruitment and expanding patient panels. Despite these struggles, however, Village Medical's Walgreens clinics are experiencing growth in other areas, having achieved a 23% year-over-year growth in full-risk lives and 9% growth in fee for service volumes.

Walgreen's patient panels are crucial to increasing profitability, and the company aims to exit approximately 60 clinics in non-strategic markets. As of present, 27 exits have been achieved. Despite first-quarter sales of $1.9 billion for Walgreens' U.S. Healthcare segment, which reflects the acquisition of Summit Health by VillageMD and growth in all businesses compared to the previous year, the business continues to lose money, reporting an operating loss of $436 million in the quarter.

The difficulties faced by Walgreens are emblematic of wider struggles within the industry, with retail titans such as Amazon, CVS Health, and Walmart all pushing deeper into the provision of medical care in drugstores and other retail settings in the face of a healthcare labor shortage. An added challenge is the formidable task of recruiting primary care physicians amid a shortage of doctors.

Despite the setbacks, Walgreens remains positive, with their global chief financial officer and senior vice president, Manmohan Mahajan, stating that they expect U.S. Healthcare segment profitability to improve over the rest of the year due to several strategies. This includes optimizing the clinic footprint, growing patient panels, realigning costs at VillageMD, and expanding all other businesses.