Primary care has revived as it is viewed as a less expensive way to lower downstream health care spending.
“Although maybe only 5% of health care cost is incurred in the primary [care] environment, a good or bad decision determines what the next 95% looks like”
Health insurers and retail pharmacies are making a play for primary care
Published: Dec 28, 2019
By JAIMY LEE – REPORTER
A handful of companies like Humana Inc. and Walgreens Boots Alliance Inc. that are better known for operating pharmacy counters and managing health plans are now turning into primary care providers.
CVS Health Corp. CVS, -0.57%, Humana HUM, +0.90%, Walgreens WBA, -0.34%, Walmart Inc. WMT, -0.66% and UnitedHealth Group Inc. UNH, -0.69% now operate hundreds of clinics that directly market themselves as primary care providers or provide a majority of primary care services. And they all plan to open more clinics in 2020.
“There is an emerging consensus that the best way to control medical costs in America is to have patients have an old fashioned-style primary care relationship with someone in the health system,” said Dr. Bob Kocher, a partner at venture-capital firm Venrock. “There is a belief that the pendulum is swinging to the next-generation version of managed care.”
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Primary care has long been a relatively small slice—about 6%—of the $3 trillion spent on U.S. health care each year. As the U.S. health care system has shifted from a fee-for-service model to one that emphasizes value over the last 10 years, interest in primary care has revived as it is viewed as a less expensive way to lower downstream health care spending.
“Although maybe only 5% of health care cost is incurred in the primary [care] environment, a good or bad decision determines what the next 95% looks like,” Andrew Witty, CEO of UnitedHealth Group’s Optum business, said during an investor day in early December, according to a FactSet transcript. Optum currently operates 47 primary care clinics, a number that has doubled over the past two years, Witty noted during the investor day.
A Walgreens spokeswoman said the pharmacy giant operates nine primary care clinics, in partnership with several organizations, including primary care-provider Village Medical.
Humana had 230 primary care centers that it owns or that are part of joint ventures, according to comments made during its annual meeting by Humana president and CO Bruce Broussard in April. “We’re not convinced that the primary care model is completely figured out,” Broussard had said in mid-2018, before adding: “I would say that the intensity of it will increase and our commitment of putting more and more in a faster way and scalable way will increase over the next 24 months or so.”
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CVS Health, which has opened 50 of its HealthHubs in Atlanta, Houston, Philadelphia and Tampa, Fla., and Walmart, which opened its first health center in Georgia this year, don’t expressly say that they operate primary care clinics. However, spokespersons for each company separately said the majority of the visits to their clinics are for primary-care services.
But not all insurers are trying to own primary-care practices.
Anthem ANTM, -1.22% reiterated to investors this year that it isn’t interested in buying or operating primary care practices. “The strategy around our core business is not to buy primary care. I’ve been asked that quite a few times,” Anthem president and CEO Gail Boudreaux said during an investor event in May. “The goal is to keep primary care independent in the markets where we serve them.”
That doesn’t mean that investor interest in primary care is slowing down.
Startups like Iora Health and One Medical have pulled in hundreds of millions of dollars in private funding. One Medical, which is now the largest independent primary-care practice in the U.S., is reportedly considering an initial public offering early next year, according to CNBC. One Medical did not immediately respond to a request for comment.
At the same time, fewer Americans are using primary care. Researchers have attributed that decline to millennial and Generation X patients who prefer convenience over seeing the same physician. “That’s the way that we’re moving: cost, quality, and convenience,” said J.P. Morgan’s Lisa Gill. That means “continued growth of these primary care clinics,” she added.
Retail pharmacy chains, in search of new revenue streams as they face off with competition from Amazon AMZ, +0.49% and other online retailers, have recognized the opportunity that stems from changing behaviors of younger patients. “Given all the new market entrants, there is an emerging fight for the front door that can dramatically affect the overall business of health care systems and help the move to drive care out of hospitals,” said Lisa Suennen, a longtime health care investor and leader of Manatt’s venture capital practice.
How that has played out so far is a steady stream of announcements in 2019 about medical practices being opened in or adjacent to drugstores. CVS has plans to open an estimated 1,500 HealthHubs in its stores over the next two years; CEO Larry Merlo told investors in November to expect a material impact from the hubs in 2021. In the case of CVS, the pharmacy retailer also operates the Aetna health plan so its investment in building clinics touches on both retail and health care cost-reduction trends.
Walgreens, on the other hand, this year decided to focus on a partnership model. Its first primary care clinic with VillageMD opened its doors in November in Houston, next door to a Walgreens drugstore. The goal is foot traffic.
“If there’s a primary care—that is why we’re testing these pilots—we’re trying to see the uplifts on both retail and on scripts,” Walgreens CFO James Kehoe said on an earnings call in October. “So you’ve got three sources of income in most cases.”
