Walgreens Boots Alliance Inc. announced its plan to reduce its majority stake in the primary care provider VillageMD, marking a strategic pivot in its healthcare services approach. This decision, revealed during the company’s third-quarter earnings call on June 27, 2024, comes after significant investments and expansions in the healthcare sector over recent years.
In a statement, CEO Tim Wentworth emphasized that while Walgreens remains committed to VillageMD, it will no longer hold the majority ownership.
“We believe in the future of these businesses and intend to remain an investor and partner,” Wentworth stated. “But as part of our persistent focus on value creation for WBA, we are collaborating with leadership toward an endpoint to rapidly unlock liquidity, enhance optionality and position them for additional growth.”
The decision aligns with Walgreens’ broader strategy to optimize its financial performance and streamline operations. The company aims to unlock liquidity and enhance its flexibility for future growth by transitioning away from brick-and-mortar investments.
Walgreens first backed VillageMD in 2020 with a $1 billion investment, eventually pouring more than $6 billion into the company. This partnership facilitated VillageMD’s significant expansion, including the notable $8.9 billion acquisition of Summit Health-CityMD in November 2022, which added more than 2,800 providers to its network.
However, the recent earnings call highlighted a shift in focus. Walgreens disclosed plans to shut down 160 VillageMD clinics, prioritizing density in its most profitable markets. This move is part of a broader cost-cutting initiative, aiming to reduce expenses by at least $1 billion.
Mary Langowski, president of U.S. Healthcare at Walgreens, reinforced the company’s commitment to value-based care, stating, “We believe strongly … in value-based care as well as in VillageMD… We’ll continue to be an investor. What we’re really looking to do is invest in capital-light services to be a broader partner across the industry.”
The financial performance of Walgreens’ U.S. Healthcare segment reflects the complexity of these changes. In Q3 2024, the segment reported sales of $2.1 billion, a 7.6% increase compared to Q3 2023. VillageMD contributed significantly, with sales rising 7% year-over-year to $1.6 billion. This growth was driven by an increase in full risk and fee-for-service lives, despite the impact of clinic closures.
By focusing on value-based care and capital-light services, Walgreens aims to remain a significant player in the industry while adapting to changing market dynamics.
In the broader retail healthcare landscape, Walgreens’ shift comes as other major players like Amazon consolidate their healthcare offerings. Amazon recently merged its Amazon Clinic telehealth service with One Medical, reflecting an industry trend towards integrated and flexible healthcare solutions.
