Is Walgreens looking for retail clinic exit?

An agreement between Providence Health & Services and Walgreens Boots Alliance could signal that the retail drugstore is looking to get out of the healthcare clinic business.

Renton, Wash.-based Providence will lease space to own and operate healthcare clinics in multiple Walgreens drugstores across Oregon and Washington state.

The deal marks the first time the Deerfield, Ill.-based drugstore chain has allowed a health system to own and operate its in-store healthcare clinics, and it's the first time Providence has placed its providers in a drugstore setting. Together, the companies plan to outfit up to 25 stores with clinics within the next two years, and expect to open the first six clinics in the Portland, Ore., and Seattle metropolitan areas by early 2016.

Neither company would talk about the cost of the move, which is a geographic expansion for Walgreens' healthcare clinic program because it doesn't currently have a presence in Oregon or Washington.

Providence-owned clinics will make for a smoother experience than customers are used to in retail clinics, said Mike Waters, the system's senior vice president of physician services. He said primary-care providers have increasingly complained about a disconnect between what happens at a retail clinic and what happens in the health system. That's especially true for the transfer of electronic health records. Waters said the Providence clinics will run on the system's protocols and, more importantly, its EHR.

Creating low-cost, convenient-care options is one of Providence's “core strategies” as it moves from volume- to value-based care, Waters said.

Although the deal gives Providence ownership rights for clinic space within Walgreens stores, it represents much more than a lease agreement, said Dr. Pat Carroll, Walgreens' chief medical officer overseeing healthcare clinics. Providence won't be sharing revenue from the clinics, but the two organizations will engage in a “collaborative leadership governance council” that will jointly work on furthering their retail health efforts.

Carroll said Walgreens hasn't yet decided whether it will partner with more health systems under this model.

U.S. retail pharmacy sales for Walgreens Boots Alliance, the parent company of Walgreens, were $20.4 billion in its third quarter ended May 31, with total sales up 6.3%. The company does not break down its healthcare clinic revenue, but includes it in retail pharmacy sales figures. When asked whether Walgreens sees clinic ownership as a sustainable part of its business, Carroll said retail clinics remain an important part of the company's overall strategy.

But Walgreens clinics have stopped growing, said Tom Charland, CEO of Merchant Medicine, a research and consulting firm focused on walk-in medicine. In fact, Walgreens has been closing more clinics than it is opening, according to the firm's data. “I would say that they are clearly re-evaluating their direction and they're in no way keeping pace with CVS,” Charland said.

Woonsocket, R.I.-based CVS Health already has nearly twice as many clinics as Walgreens and plans to operate as many as 1,500 clinics by 2017.

Charland doubts most hospitals will sustain the retail clinic model because they lack scale. His firm has tracked a failure rate among hospital-owned retail clinics of over 50%.

But Milwaukee-based Aurora Health Care and Springfield, Mo.-based CoxHealth have defied those odds, Charland said. Providence could potentially have the regional scale, with 27 hospitals across Alaska, California, Montana, Oregon and Washington state. But retail clinics aren't a strong business on their own—there has to be a concurrent strategic value to them, such as attracting pharmacy customers, Charland said.

“Hospital systems have so much on their plate and they have so few people who have operated retail-oriented businesses that it's going to be difficult,” he said.

But Tine Hansen-Turton, executive director of the Convenient Care Association, the retail clinic trade group, said nearly half of all patients who walk into a retail clinic don't initially have a primary-care provider and that provides an opportunity.

“Physicians at the community level are overwhelmed, and if you have a retail clinic you can send patients to and they're open after-hours, that's a win,” she said.

Convenience and access for consumers is obviously a priority for Walgreens. Earlier this year, the company said it planned to expand a telemedicine app it started testing in 2014 that lets people see doctors for minor ailments.

Walgreens plans to make it available in 25 states and estimates that would allow it to reach about half the U.S. population.