A carrot, a stick and closing the space between
A carrot, a stick and a face-to-face encounter. Those are the tools that will chisel away at healthcare costs, noted Wade Miquelon, Walgreens EVP and CFO. And Walgreens is uniquely positioned to help realize those savings.
To lower costs, you could raise co-pays or premiums to discourage unhealthy behaviors like smoking, poor diet or lack of exercise. That’s the stick. On the other hand, you could waive co-pays or a reduce premiums to help encourage healthy behaviors like regular checkups or disease-state management programs. That’s the carrot.
Or you could put the two together.
And if you add Walgreens’ 8,000-plus stores, retail clinics and employer-based health centers, on-site hospital pharmacies, specialty pharmacies and infusion centers all across the country — and the face-to-face interaction of the tens of thousands of pharmacists, nurse practitioners, physician assistants and physicians in them — then you really have something. Because then you can move the carrot and stick closer together, and shorten the distance to lower costs and expand access.
That’s how Walgreens believes it can help.
“If you do it telephonically and if you don’t have a carrot and stick in place, you can’t change human behavior,” Miquelon said. “We’ve been trying to reduce the 12 cents on the $1 [that represents prescription costs] for years, and we’ll still keep trying to do that. But if we can help people reduce the other 88 cents, that’s the big idea for us,” Miquelon added.
And that’s the big idea that keeps getting bigger in the years to come. Indeed, health reform creates more momentum for Walgreens’ transformation of community pharmacy and the expansion of the model.
“In general, healthcare reform is a net positive for our model because of a few different components,” Miquelon explained. First, will be the 32 million newly insured patients themselves — Walgreens, which already dispenses one out of every five prescriptions filled in the United States, is positioned to gain an even greater share of the new business, Walgreens executives believe, as payers look for ever more creative ways to lower costs and still expand access to care. “It will [facilitate] deeper and deeper relationships [for us] with payers,” Miquelon said.
Another component of health reform that will benefit Walgreens will be the rise of accountable care organizations, as payers demand better outcomes data as a means of measuring cost versus quality of patient care. The combination of its pharmacies, clinics and employer-based health centers — and all of the healthcare providers in them — is “the glue needed to make [the ACO model] stick,” Miquelon said. In a healthcare system where all providers are encouraged to practice at the top of their respective professions, 70% to 80% of all primary care services could potentially be provided in a Walgreens community pharmacy — particularly, one that has a retail clinic.
Critical to community pharmacy’s ability to play an integral role in the ACO model will be the ability to connect providers at every end of the patient care team. “They also need the information to be integrated so they can manage the entire patient’s health profile [at every point in the continuum of care]. Where we’ve gone with our systems and are going, we’ll be able to do that,” Miquelon noted of Walgreens’ recent announcement that it will roll a common electronic health record platform into all 8,000 stores, on-site hospital pharmacies and worksite clinics.
Its Well Experience stores are built to take advantage of it all. The rollout of the new store concept — which it had been testing in several stores — began in earnest last year in Indianapolis, and while it has been tight-lipped on which markets will come next and when, it will continue to open more stores with various levels of the Well Experience model. In true hedgehog fashion, Walgreens plans to go slow, tweak where it needs to and allow the stores to pay for themselves along the way.
Part of the Well Experience format is the ability to co-locate a Take Care Clinic, and while the company also has been reluctant to share its plans to add more clinics, as payers look to get more creative with plan design, it will become more important to have a national footprint for its retail and worksite clinics. “We’d like to become the third place you go for health care,” Miquelon noted. “You go to your doctor, your hospital, but you also go to Walgreens.”
So Walgreens’ future looks bright, Miquelon said, and so does the present. As of Sept. 15, Walgreens is once again part of the Express Scripts pharmacy network.
There is no denying the impact the feud had on Walgreens quarterly comps. In its most recent earnings call with analysts, Miquelon noted that comparable prescription sales were down more than 9%. Still, when you back out the impact of Express Scripts — a negative 0.7% hit, by Walgreens estimates — it works out to an adjusted prescription growth rate of 1.6%, “which compares favorably to the industry, including Walgreens, which decreased 0.3% over the same period, per IMS,” Miquelon explained, during the June 19 call.
And although the temporary loss of ESI customers had some impact on its front-end as well, where comps were down 0.9%, during the company’s recently reported third quarter, the fact that average basket sizes increased by 1.7% despite the fact that traffic in its stores was down 2.6%, was another strong indication that when you peel back the impact of ESI, Walgreens’ underlying business is quite healthy. It is also a strong indication that its transformation is working, and resonating with customers.
And with all of the ESI noise behind, Walgreens executives are quite confident in the company’s ability to get a great number of its patients to come back to Walgreens. “We have been out of networks before,” Miquelon said. “So we have some experience when we’re out of a network [and] what happens when we get back in.”
Walgreens expects a significant surge of pharmacy patients to come back immediately, he said. Others patients will take more coaxing, but the launch of its new loyalty program will help bring many more back over the next six to 12 months. “The No. 1 reason you get them back is because they came to you in the first place,” he said.
Next for Miquelon: Walgreens begins the first step of its two-step strategic partnership with Alliance Boots, looking for synergies and learning from the two businesses. “If you actually look under the hood, their business is very strong and very resilient to tough economies,” Miquelon said. On the wholesale side of the Alliance Boots business, business is brisk. European economies are looking for savings drivers, and in the healthcare space, that means generic conversion. “In the United States, generic penetration is about 80%. In southern Europe it’s only 25% and in northern Europe it’s 60%,” Miquelon said. Clearly, this is an area where the two companies believe they can move the needle.