Dive Brief:

• Walgreens on Wednesday announced plans to open up to 700 primary care clinics across the country over the next five years in partnership with medical services provider VillageMD, and "hundreds more" after that.
• As part of the agreement, Walgreens will invest $1 billion in equity and convertible debt in Chicago-based VillageMD over the next three years, including a $250 million equity investment Wednesday. VillageMD will use 80% of the funds to pay for opening the clinics, called Village Medical at Walgreens, and integrate digitally with Walgreens. The partnership values VillageMD at about $3.3 billion, according to SVB Leerink analysts.
• Walgreens, which saw its stock rise slightly in early morning trading on the news, anticipates owning 30% of VillageMD once the investment is done. More details on the partnership will be released in the first quarter next year.

Dive Insight:

Retail clinics, which can generate additional script-writing and drive front-of-store sales for their owners, have seen renewed interest in recent years from giants like pharmacy rival CVS Health and retail behemoth Walmart. But Walgreens is the first national pharmacy chain to work toward building out a primary care infrastructure in stores across the U.S. using actual doctors, as opposed to nurse practitioners.

The move represents a massive investment in the healthcare delivery space for the Illinois-based company, which began trialing the full-service doctor's offices in its stores late last year with five clinics in Houston, Texas. The pilot was successful, Walgreens said, driving high patient satisfaction scores.

Additionally, the integrated pharmacy model is correlated with increased medication adherence and better patient outcomes, according to internal VillageMD data — important factors in managing chronic conditions, which drive roughly 85% of all U.S. healthcare spend.

As such, Walgreens plans to open 500 to 700 stores over the next five years, staffed by more than 3,600 primary care physicians recruited by VillageMD, along with nurses, social workers and therapists working alongside Walgreens' pharmacists in 30 U.S. markets.

The two companies are still finalizing what those initial markets are going to be, but the very first will be in Texas and Arizona, Walgreens' Director of Pharmacy and Healthcare Services Communications Kelli Teno told sister publication Healthcare Dive. More than half of the clinics will be located in government-designated medically underserved areas such as Houston, which have a large share of low-income populations, migrant workers and Medicaid beneficiaries.

The stores will accept a broad array of insurance options, according to the release. Many plans VillageMD works with have a zero dollar to $10 co-pay for primary care services, Teno said.

The clinics use a sliding scale payment model for patients who don't have insurance to try to make care more affordable for the broad range of primary care services provided, like preventative visits, acute infection or minor trauma care or chronic condition management.

Telehealth will be available around the clock for consumers via Walgreens' healthcare marketplace app, called Find Care, or via VillageMD's internal capabilities. VillageMD doctors can also provide at-home doctor visits for vulnerable populations, such as senior citizens or the immunocompromised.

The retail basic care market is still in its formative stages, but competition to build market presence quickly and inexpensively is stiff. Walmart's nurse-led clinics priced at a 35% discount to CVS Health's network of health-focused stores, called HealthHUBs, across 21 identical basic health services, SVB Leerink analysts said in a Thursday note.

"As the first true doctor-in-a-retail-box, VillageMD Medical at Walgreens will be raising the bar, upping the ante on maintaining a robust patient panel to cover overhead," SVB Leerink analysts Stephen Tanal and Harrison Zhuo wrote.

Walgreens already has 14 in-store primary care clinics operated by different partners like Partners in Primary Care, Southwest Medical — part of Optum's physician group — and VillageMD. Late last year, Walgreens announced it was closing 160 of its internally staffed walk-in clinics, though it still has more than 400 clinics nationwide, most staffed or run by local health systems or physician groups.

Its outsourcing model flies against CVS, which built out its HealthHUBS through acquisitions and builds. CVS plans to have a chain of 1,500 locations by the end of 2021 as part of its enterprise growth strategy, adding to its almost 10,000 retail locations and more than 1,100 walk-in medical clinics.

HealthHUBs designate at least a fifth of floor space to health and wellness focused products.

For its part, Walgreens' clinics will be between 3,300 and 9,000 square feet and use existing space within Walgreens' locations. To make room, clinic-linked stores will offer fewer unhealthy front-end products like snacks and sodas. Tobacco products will not be sold in the first 200 Village Medical at Walgreens locations.

"Many of the stores that we're initially looking at to build these clinics naturally sell more pharmacy and health and wellness products," Teno said. "It will really depend on the needs of that local community."

VillageMD, through its subsidiary Village Medical, includes more than 2,800 doctors across nine markets. The seven-year-old company, which competes with other primary care management companies like UnitedHealth-owned Optum has raised $216 million in total funding across three rounds from investors like Oak HC/FT and Town Hall Ventures, a firm founded by Andy Slavitt, former CMS administrator under President Barack Obama.