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Analysis

This Walgreens-Humana Venture Could Be The Next Drain On Hospital Revenue

By Bruce Japsen  
   November 27, 2018

The pharmacy chain and insurer are touting the success of their pilot collaboration. If their work proves fruitful, the model could add to the threats diverting revenue away from incumbent providers.

News that Humana and Walgreens may make major investments in each other could be part of a new competitive threat to hospital revenue as the two healthcare giants work to guide seniors covered by Medicare to low-cost outpatient retail care settings.

Neither company would confirm a report in The Wall Street Journal last week that said they are in "preliminary discussions to take equity stakes in each other." But both Humana and Walgreens have expressed excitement in recent weeks about the early success of their joint venture developing senior health clinics in the Kansas City market, where a pilot of two sites inside drugstores has been underway for three months.

Humana and Walgreens executives have been talking up early successes of the partnership during meetings and conference calls with investors and Wall Street analysts. They seem optimistic about the prospect of expansion.

"The initial signs are very, very positive and that's a big deal," Walgreens executive vice president and global chief financial officer James Kehoe said during the Credit Suisse Healthcare Conference in Scottsdale, Arizona, on November 14. "This is moving from pharmacy to managing outcome-based medicine. The goal is to reduce the actual total cost of healthcare."

If its successes continue, the partnership could add to the heap of threats siphoning revenue from hospitals and health systems.

A Scalable Model?
 

The effort is designed in part to keep people out of the more-expensive hospital setting and make sure Medicare patients have their care more closely monitored by Walgreens pharmacists and physicians in Humana's health plan networks. The two companies think they can do a better job of reaching patients who visit Walgreens retail locations and making sure they get better care upfront before they get sick.

"The traditional settings where care is provided now will change over time and, more importantly, … retail stores are a clear asset and differentiator given the access to the patient," Mizuho Securities analyst Ann Hynes wrote following reports that Humana and Walgreens are discussing equity stakes in each other.

Kehoe said the senior-focused clinics are not like urgent care clinics, where patients need "immediate help." Rather, the senior clinics are designed to complement the prescriptions and pharmacy services offered at Walgreens with Humana's "Partners in Primary Care" centers that opened last year in Kansas City. Hospital care is not a part of the equation of the Humana-Walgreens partnership with keeping Medicare patients on their medications as one key to its success, executives involved have said.

Related: Why Health Systems Should Worry About Walgreens and CVS

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Related: If CVS Bets Big on Urgent Care, Hospitals Should Worry

When the partnership was announced in June, Humana said its employees are available inside Walgreens "to assist Humana Medicare members, and other customers, with information and assistance in accessing a range of health-related services," the companies said in a statement at the time. "From conducting diabetes education to identifying local community support groups and finding a new senior fitness class, a holistic approach to customers' health will be available at no cost, and close to home."

And since the launch, Humana and Walgreens executives say they are guiding patients to these wellness and outpatients services, as well as the lower cost clinics inside the stores, rather than a hospital or more expensive care site.

"The convenience of the store is highly appreciative," Humana CEO Bruce Broussard told analysts earlier this month on the company's third-quarter earnings call. "We've seen that the traffic that goes into these particular clinics is more [and it] has increased as a result of the location."

Yet Another Competitor
 

The Walgreens-Humana partnership is the latest competitive pressure facing hospitals and health systems as insurers form closer ties with retailers and other outpatient providers in the healthcare business. UnitedHealth Group, the nation's largest health insurer, owns Optum's growing medical care provider business, and drugstore chain CVS Health is expected to finalize its acquisition of Aetna, the nation's third-largest insurer, on Wednesday.

An even closer relationship between Walgreens and Humana would add to the potential competition hospitals are already facing around the healthcare services CVS-Aetna could provide.

Walgreens and Humana say the partnership thus far has been about executing a strategy to manage the care of elderly patients over time. "This is about a long-term management of a patient over a multi-year period to reduce total medical care cost and what's the role our pharmacist can play in that, together with the primary care physician in managing the total cost," Walgreens' Kehoe said.

It's unclear, though, how soon hospitals and health systems could see competition from any Humana-Walgreens senior clinics beyond Kansas City. The companies will need more time to evaluate their relationship in Kansas City before expanding nationally, and the two have said they also may want to evaluate it in other markets before rolling it out across the country.

"We do see Humana being more discussed as both from a health plan point of view, but also from just a primary care clinic point of view," Broussard told analysts on the company's third-quarter earnings call. "We are very positive and excited about the exposure it provides. We find that it does offer another opportunity for the retail side where they've seen increased urgent care visits in the back of the store."

Bruce Japsen is a contributing editor for HealthLeaders.


KEY TAKEAWAYS

Walgreens and Humana having been working together on pilot clinics serving seniors in the Kansas City market.

If the concept proves fruitful, the partners could scale up nationwide in an arrangement that resembles a CVS-Aetna strategy.


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