Walgreens has announced that it will shut down every VillageMD clinic it operates in Florida. This decision is part of the company's effort to reduce its expenses by $1 billion. With these closures, many customers are concerned about which other clinics might close.
Walgreens Pivots, Struggles in Healthcare Shift
Walgreens is changing its focus, moving beyond being just a retail pharmacy to offering healthcare services. This significant change includes a major investment in its U.S. Healthcare division, home to VillageMD, a primary care provider. In 2021, Walgreens spent $5.2 billion to buy most of VillageMD.
Despite these efforts, U.S. Healthcare hasn't been as successful as hoped. In 2023, it reported a significant operating loss, even though it was making more money. Walgreens leaders say VillageMD and other medical groups they've bought recently are essential for growth. Still, the company is now cutting back on its primary care network.
A spokesperson from VillageMD stated that the company is dedicated to helping patients during this transition. They provide information on alternative care options, assist with access to medical records, and answer any questions that patients may have.
This support comes after Walgreens' October announcement that it would close 60 health clinics. By January, Walgreens CEO Tim Wentworth revealed in an earnings call that nearly half of these closures had already been completed. This has left many customers worried about the future of the business and questioning how many more clinics might close.
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The concerns are evident online. One person commented on a social media platform, previously known as Twitter, expressing uncertainty about the total number of clinics that might ultimately shut down, suggesting it could exceed the initially announced 60.
A report by Jefferies analysts in January highlighted that all VillageMD clinics in Florida are connected to Walgreens stores. The analysts pointed out that the main challenges for these joint clinics likely included difficulties in maintaining enough doctors or patients to be profitable.
Brian Tanquilut, an analyst with Jefferies, explained to Business Insider the inherent challenges of these setups. He noted that clinics co-located with retail pharmacies tend to be too small to achieve the necessary scale for profitability, making it hard to reach the economic goals required for each center.
Walgreens' Ambitious Expansion in Healthcare and Retail
Walgreens has been trying to outdo competitors like CVS by offering direct primary care to patients and dispensing medications from their pharmacies. In 2021, they invested $5.2 billion to take over most of VillageMD.
The plan was to open 1,000 VillageMD clinics near Walgreens stores by 2027. In 2022, Walgreens boosted VillageMD with an additional $3.5 billion to acquire another clinic and urgent-care company, Summit Health-CityMD.
Last year, VillageMD and Summit operated over 680 locations, with 200 of these situated next to Walgreens stores.
Meanwhile, Walgreens is reportedly considering selling its specialty pharmacy, Shields Health Solutions. Analysts have criticized this move, suggesting that getting rid of this profitable part of the business could slow down Walgreens' efforts to make money in healthcare.
Shields Health Solutions is a vital part of Walgreens' U.S. Healthcare division. This division also includes VillageMD, home care provider CareCentrix, and a clinical trials division that Walgreens started in 2022.
However, Walgreens is facing challenges beyond its business plans. The company has recently seen a lot of changes in its leadership team.
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