Over the years, Walgreens Boots Alliance (Nasdaq: WBA) has increasingly shifted its focus to the company’s U.S. Healthcare services segment.
On Thursday, the retail giant made it clear that beefing up this arm of its business, and further solidifying its place in the health care sector, is still a priority.
“We are on a path, but we are nowhere near the halfway point of the kind of things that we believe we can do long term to build a really powerful health services company, on the back of and leveraging an excellent community asset that today we call a retail pharmacy,” Walgreens Boots Alliance CEO Tim Wentworth said Thursday during the company’s Q1 earnings call.
Walgreens’ U.S. Healthcare services segment is on the road to seeing significant year-over-year profit improvement.
Walgreens’ involvement in the health care space has meant acquiring or putting its financial weight behind companies like the primary care provider VillageMD and the health-at-home solutions platform CareCentrix.
“VillageMD is rapidly realigning operating costs with sales,” Wentworth said. “The team is executing on several initiatives, from revenue cycle management to procurement with operational actions spanning the organization.”
Wentworth also noted VillageMD’s previously announced plans to exit 60 clinics in nonstrategic markets, in a move to better leverage its footprint. To date, VillageMD has already exited 27 clinics.
Plus, VillageMD has achieved patient panel growth and saw 23% year-over-year growth in full risk lives and 9% growth in fee-for-service volumes.
“Work is underway to implement targeted marketing efforts, leveraging Walgreens’ expertise and patient touch points, and we expect benefits over time as we learn and further develop our provider-based risk strategy,” Wentworth said.
Wentworth pointed out that CareCentrix, along with some of Walgreens other assets, are adding value to payers in areas where they are taking risk.
Overall, Walgreens’ U.S. Healthcare segment had Q1 sales of $1.9 billion, a 95% increase compared to $942 million the previous year. This growth reflects VillageMD’s purchase of Summit Health, as well as growth across all businesses.
First quarter sales were led by VillageMD, with $1.4 billion, and CareCentrix with $340 million.
“The year-on-year increase was driven by growth in full risk lives, better same clinic performance, and increased productivity in the Summit Health multi-specialty business,” Walgreens CFO Manmohan Mahajan said during the call.
Looking ahead, Walgreens has identified a number of key drivers for improving the company’s earnings profile in the second half of the 2024 fiscal year.
One of the key drivers is the company’s faith that its health care services arm will continue to drive growth.
“We expect U.S. Healthcare segment profitability will scale over the balance of the year, mainly driven by benefits from optimizing the clinic footprint, growing patient panels and realigning cost at VillageMD, and growth across all of the businesses,” Mahajan said.
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