Walgreens, CVS Health Are Banking On Home-Based Care

Walgreens Boots Alliance (Nasdaq: WBA) has invested a boatload of money into health care services and home-based care over the last three years. On Oct. 23, however, it will have a new leader.

That change could affect the retailer’s home-based care plans, but maybe not in the way some expect. If anything, Walgreens will be more invested than ever.

In its press release announcing that former CEO Roz Brewer would be stepping down, Walgreens specifically said that its board was looking for someone with “deep health care experience.” On Wednesday, the company announced that it went with Tim Wentworth.

Wentworth was the founding CEO of Evernorth, Cigna’s (NYSE: CI) health services organization. What Cigna has with Evernorth is akin to what Walgreens is trying to build out with its health care services segment, which is led by John Driscoll, the former CEO of the health-at-home solutions company CareCentrix.

“WBA’s goal is to be the independent partner of choice, not just in pharmacy but also in health care services where it can improve health care, lower costs, and help patients,” the press release announcing Wentworth’s hiring read.

The turndown in COVID-19-related business caused trouble for Walgreens. As it did, the company poured billions of dollars into its new health care services segment. It acquired the aforementioned CareCentrix. It invested over $6 billion into the primary care provider VillageMD.

Since then, the health care services segment has also been a near-term drag on the company’s financials.

Walgreens now has no choice but to go all in, and its hiring of Wentworth is a recognition of that reality.

“I’ve spent my career working to improve the health of the patients we’ve served,” Wentworth said in a statement. “I believe WBA is well-positioned to deliver more personalized, coordinated care, and achieve better outcomes at a lower cost. I fully recognize the challenges that health plans, health care providers, pharmacies, and retailers are confronting today and am confident that WBA, and its customer- and patient-focused teams, can seize the opportunities of a dynamic marketplace and be the partner of choice.”

Walgreens isn’t alone, though. CVS Health (NYSE: CVS), Best Buy (NYSE: BBY), and – to a lesser extent – Walmart (NYSE: WMT) are all driving care to the home. Those companies believe that they can set themselves up to be the beneficiaries of two of the most major contemporary health care trends: care moving to the home, and care moving toward value.

That’s not to mention the other retailers starting to design their health care plays. That list of newer health care retailers includes Costco (Nasdaq: COST), for example, which in September announced a partnership with telehealth marketplace Sesame.

Retailers are no longer dabbling in home-based care; they’re banking on it for the survival of their businesses. That’s the topic of this week’s exclusive, members-only HHCN+ Update.

Table stakes

When speaking about Walgreens’ recent investments at Home Health Care News’ FUTURE conference in October, Dr. Harry Saag – the national medical director of virtual care at Walgreens Health – made the company’s goals clear as ever.

“[It was about] really helping Walgreens go beyond simply saying, ‘Hey, we dispense scripts, we sell bubble gum,’” Saag said.

COVID-19’s effects are waning, which is hurting vaccine, mask and test sales. Since the advent of online shopping and delivery, retail stores have become less valuable. Walgreens and CVS Health have to reshape their businesses, and their first steps to doing so were their respective acquisitions.

On CVS Health’s end, it followed a similar path to Walgreens’, acquiring the community-based primary care provider Oak Street Health for $10 billion and the home-based care enabler Signify Health for $8 billion. CVS Health also has Aetna underneath its umbrella, which is one of the largest insurers in the country.

“As we step back and as we looked at all of our businesses, what we said was we needed to extend into other areas for growth,” CVS Health CEO Karen Lynch said last month. “And we said we needed to build out national provider capabilities either through primary care or in the home.”

Lynch has also said before that more home-based care deals could be in the company’s future. Frankly, I wouldn’t be surprised if they’re in the race to purchase Enhabit Inc. (NYSE: EHAB), one of the last remaining independent, publicly traded home health providers in the country.

As these companies shift their businesses, they’re hitting road bumps. For instance, CVS Health laid off over 5,000 workers earlier this year. Walgreens announced Thursday that it is closing 60 underperforming VillageMD clinics in 2024.

Both CVS Health and Walgreens have had to explain to investors the long-term value of investing in primary care and home care. 

“With the permanent appointment of a new CEO/CFO duo still looming, we’ve lost confidence in the previous management team’s financial outlook,” the investment banking company Jefferies wrote in a recent analyst note. “We believe there is significant downside to current FY2024 and FY2025 Street estimates. Specifically, we’re adjusting our model to reflect (1) continued gross margin pressure in the core US retail pharmacy segment and (2) a more realistic earnings trajectory for the US Healthcare segment given recent performance that signals significant operational challenges in the legacy VillageMD asset.”

When he takes the helm on Oct. 23, one of Tim Wentworth’s priorities will be turning a belief – that primary care, home-based care and value-based care are the future of health care – into a profit-driving business segment.

“I think the thing that’s changing with Walgreens is that they’re making a big push into health care,” Jefferies Healthcare Services Analyst Brian Tanquilut told Yahoo Finance this week. “Tim, being the health executive that he is, is very seasoned. [He] will have to look at putting all these assets that they’ve bought over the last few years that are health care related, and come up with a good synergistic offering that actually generates profitability. … I think that turning that segment around is important.”

Both CVS Health and Walgreens may be in precarious positions given their departure from previous business models.

But they also have a leg up in terms of infrastructure and capabilities. They each played a major hand in vaccinating over 230 million Americans against COVID-19, for instance.

“It’s about being in the home and having access to healthy nutrition,” Lynch told Fortune this week. “Our strategy, in a nutshell, is connecting all the dots for someone on their personal health care journey. And so we will be in the communities, we will be in the home, and we will be digitally connected, because we owe it to improve the overall cost, lower the cost, improve access and improve quality of the American health care system.”

For traditional home health and home care providers, the entrance of these large players – whether it be Humana Inc. (NYSE: HUM) and UnitedHealth Group (NYSE: UNH) on the payer side, or the retailers – can be confusing.

After all, companies with great PR and great influence are calling for more care in the home. At the same time, they talk like incoming disrupters.

At least for now, I believe that the retailers of the world can drive more care to the home. Simultaneously, they’re not set up currently to disrupt home health care and home care at a community-based level.