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Awesome, I was hoping CVS and Walgreens could hire my doctor!

This is super convenient. I can pick up a quart of milk on my way for my yearly check-up.


Walgreens CEO Bets on Doctors Over Drugstores in Search for Growth

Rosalind Brewer is shifting the chain’s focus to medical clinics


CEO Rosalind Brewer is spending billions on acquisitions at Walgreens.


By Sharon Terlep, WSJ

Feb. 19, 2023 5:30 am ET


Deerfield, Ill.—A year into her job as Walgreens Boots Alliance Inc.’s WBA 1.21%increase; green up pointing triangle chief executive, Rosalind Brewer realized the company’s board wasn’t entirely sold on her plan to save its ailing drugstore business.


So she took directors on the road.


Together they visited a Phoenix-area medical practice belonging to VillageMD, a chain of primary-care clinics. Walgreens WBA 1.21%increase; green up pointing triangle, months into Ms. Brewer’s tenure, doubled its stake in the chain as part of a plan to attach VillageMD clinics to hundreds of its drugstores. Ms. Brewer wanted more out of the pairing.


“It took some convincing,” Ms. Brewer, who was Starbucks Corp.’s No. 2 executive before taking over Walgreens, said of her proposal in a recent interview at the company’s headquarters. “We made sure that they could see what a VillageMD looks like, how could these things operate together.”


In November, seven months after the tour, Walgreens directors signed off on a deal valued at $9 billion to combine VillageMD with the owner of urgent-care clinics. The deal capped a string of acquisitions aimed at putting physicians on Walgreens’ payroll and offering a range of medical services to draw more business from patients covered by Medicare.


The strategy is guided by Ms. Brewer’s belief that the nation’s second-largest drugstore chain is in a business that she says no longer works. Industry growth is chronically slow, she said. Meanwhile, a shortage of workers is further cutting into revenue because the chain has had to reduce pharmacy hours.


CVS Health Corp., CVS 0.69%increase; green up pointing triangle Walgreens’ bigger and more-profitable rival, is moving more aggressively into other branches of healthcare. Already the owner of insurer Aetna, CVS this month agreed to acquire Oak Street Health Inc., a network of 169 senior-focused clinics.


Ms. Brewer, a Detroit native who belonged to the first generation in her family to attend college, is diverging in part from the path laid out by her predecessor. Stefano Pessina, who led the company for six years before picking Ms. Brewer to succeed him in 2021, also envisioned an expansion into healthcare as the antidote to Walgreens’ slowing growth. But he said that it was best achieved through partnerships and minority stakes and that buying up companies outside of the core pharmacy industry unnecessarily exposed Walgreens to risk.


A worker shortage is reducing Walgreens’ revenue.

Via a company spokeswoman, Mr. Pessina—who remains executive chairman and the company’s largest individual shareholder—declined to comment. He was on last year’s VillageMD tour, the company said. Ms. Brewer said she works closely with Mr. Pessina and that he has provided crucial advice on deals.


Walgreens last September reached a $1.37 billion deal to take full ownership of Shields Health Solutions, which works with hospitals and health networks nationwide to provide specialty pharmacy services. A month later, Walgreens fully acquired home-health benefits manager CareCentrix.


Then, in November, Walgreens and VillageMD agreed to acquire Summit Health, the parent company of CityMD urgent-care centers. Health insurer Cigna Corp. is also investing in the combined company.


Walgreens has a 53% stake in VillageMD, down from 63% before the Summit deal, and retained the company’s management team. Ms. Brewer joined the VillageMD board last year.


The deals, executives at Walgreens say, give it access to fast-growing value-based care arrangements, which generally involve paying doctors set amounts—rather than fees for each visit or service—to manage patients. That, in turn, positions Walgreens to draw in more patients covered by lucrative Medicare Advantage plans.


“We want to get more out of pharmacy than healthcare is getting today,” said John Driscoll, Walgreens’ head of U.S. healthcare, who was CEO of CareCentrix. “In order to do that, we need to have real, high-impact assets and also bring the pharmacy in to having a bigger impact on healthcare.”



Rosalind Brewer, at a Walgreens in Deerfield, Ill., wants to overhaul a business model that she says no longer works.

Ms. Brewer created a new division, Walgreens Health. It has yet to make money, and generated around 1% of the company’s revenue last fiscal year. Ms. Brewer said the unit will become profitable this year and, by 2025, will bring in $14.5 billion to $16 billion in annual revenue.


She also overhauled the company’s executive team, installing several healthcare industry veterans, including the CEOs of Shields and CareCentrix.


Meanwhile, the company, with nearly 9,000 U.S. locations, plans to launch reformatted stores, tailored to local communities’ needs, as it shuts down hundreds of underperforming locations throughout the country.


Hundreds of other stores will be attached to VillageMD clinics. At those locations, Walgreens pharmacists can work with VillageMD physicians to coordinate care for patients and solve difficult cases.


Having doctors’ offices attached to the pharmacy also gives patients an incentive to get their prescriptions filled by Walgreens. Roughly 50% of patients at VillageMDs attached to a Walgreens pharmacy opt to get their prescription filled there, the company said. That level is more than double Walgreens’ overall market share of U.S. prescriptions, which is about 20%, according to analysts.


CVS, with the Oak Street deal, said it doesn’t have a plan to attach clinics to drugstores, though executives said they would consider using CVS properties to expand the Oak Street network.


The U.S. has nearly 9,000 Walgreens locations.

“No matter what you think of the moves Roz has made, moves are being made. Decisions are being made,” said Bank of America analyst Michael Cherny. He said it remains to be seen whether Walgreens can overcome competitive challenges from CVS, which is financially stronger and has already largely built out its healthcare delivery strategy.


CVS had just accelerated its push to become a wide-ranging provider of medical services when Ms. Brewer took over at Walgreens. CVS acquired insurer Aetna in 2018 and rolled out a plan to make drugstores a one-stop shop for such medical care as blood-sugar testing and mental-health services.


Last year, CVS generated revenue of $322 billion—more than twice that of Walgreens in its latest fiscal year—with less than one-third coming from the pharmacy business. The rest comes from the health-insurance business and a unit that manages drug benefits on behalf of health plans and employers.


Meanwhile, Walgreens U.S. retail pharmacies, which saw sales decline in the latest quarter, account for more than 80% of sales, a reliance Ms. Brewer said she aims to upend.


Walgreens’ share price has fallen more than 30% during Ms. Brewer’s tenure, and the company reported slower growth and slimmer profit in the most recent quarter. Meanwhile, CVS’s share price is up nearly 20% in that same period, buoyed by the company’s highly profitable insurance and pharmacy-benefits businesses.


Many employees and customers remain disgruntled by short-staffed stores and reduced hours as Walgreens struggles to overcome industrywide staffing shortages that left pharmacists and pharmacy technicians overworked and spurred many to quit.


“People stand in lines, many with conditions, for hours,” said Edward Forde, of Taos, N.M., where the local Walgreens in which he shops is closed on weekends, while other pharmacies have shortened hours.


Ms. Brewer said the staffing issue is steadily improving as the company has rolled out raises, guaranteed breaks for pharmacists and paid out hiring bonuses as high as $75,000. Walgreens is hiring hundreds of pharmacists, she said, and has invested hundreds of millions of dollars to create automated prescription-fulfillment centers to cut down on pharmacists’ workloads.


Ms. Brewer said she is convinced that moving away from Walgreens’ traditional business was the only way forward.


“I went deeply into a strategic analysis of what could be next” after taking the helm, said Ms. Brewer. “It was clear to me that, from a strategic standpoint, traditional retail plus the pharmacy business is a very mature business, and at some point we’re going to have to have another way to grow revenue.”


Write to Sharon Terlep at sharon.terlep@wsj.com

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