Competition is heating up among healthcare retailers to provide services for the rapidly swelling senior population.
About 1 in 6 people in the U.S. were age 65 or older as of 2020, increasing to roughly 1 in 5 by 2030, according to the U.S. Census Bureau. As the population ages, healthcare providers see the potential cost-saving benefits of changing care delivery for seniors who are living longer but managing chronic conditions.
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Retail providers are stepping in where traditional healthcare has failed, working to develop holistic care plans in lower-cost settings to prevent acute illnesses.
Patient health outcomes can improve in these value-based arrangements, and the industry, at least theoretically, can have fewer cost strains. But capturing the senior population also offers a long runway for potential profits for the retailers. Millions of baby boomers have yet to reach 65 years of age, ensuring a large aging population for many years to come.
“[If] it’s something where you could move the needle, like having those interventions to prevent a cardiac incident or something like that, [it] just makes much more sense with the senior population,” said Elizabeth Anderson, managing director at investment banking advisory firm Evercore ISI. “If you’re keeping 23-year-olds healthy, you could be retired before the payback comes through on that.”
Big retail players such as CVS, Walgreens, Walmart and Kroger want in. They are paying billions of dollars to scoop up senior-focused primary care operations or forming their own to attract a population with whom they see the biggest returns. The strategy, supported by retail brand recognition, involves aggressive plans for clinical expansion and increased investment in value-based health plans.
Reaching seniors through primary care
Focusing on seniors is an expansion for some retailers that already appeal to younger generations through convenience, said Sanjay Pathak, managing director at the BDO Center for Healthcare Excellence and Innovation.
Kroger, for example, launched The Little Clinic 20 years ago to treat minor illnesses and injuries in patients of all ages. It now operates more than 225 clinics across nine states.
However, Kroger in December announced a potential strategy shift with eight Atlanta clinics transitioning to senior primary care, in addition to their regular services. If the new model sticks, Kroger may look to expand it to other locations, James Kirby, chief commercial officer at Kroger Health, said in a November interview.
CVS bought Oak Street Health, a primary care provider tailored to seniors, in a $10.6 billion deal in May and has already laid out plans to open 50 to 60 clinics in 2024. That’s in addition to its more than 1,000 existing in-store MinuteClinic locations for the general population.
Walmart, which launched its health division in 2019, opened 17 clinics in Florida this year, bringing the total to 48 clinics across five states. The clinics, paired with Walmart Supercenters, offer primary care, lab, dental and other services. The company plans to add another 28 clinics in Texas and Missouri in early 2024.
Walgreens’ VillageMD, which tailors its services to Medicare or Medicare Advantage patients with complex conditions, opened hundreds of Village Medical primary care clinics co-located with Walgreens stores in the past couple of years.
"Primary care is the gatekeeper to a lot of downstream healthcare expenditures," BDO's Pathak said. "CVS, Walgreens or any number of organizations are saying, if we get into that and we're the gatekeeper, we can control and demonstrate that we can deliver value by controlling total medical expenses that normally would have been going to expensive emergency rooms and urgent care centers, but we can do it better in these locations."
Walgreens has tempered its expansion timeline and plans to close 60 clinics by the summer, but company executives say the overall strategy to invest in clinics is intact.
A Walgreens spokesperson said the company is “prioritizing some markets over others” and focusing on “achieving density in markets with the greatest potential to best serve patients with our portfolio of services and capabilities.”
The role of Medicare Advantage
One important driver for retailers is a Centers for Medicare and Medicaid Services goal established in 2021, which pushes for all Medicare members to be in accountable care relationships by 2030.
Retailers are targeting Medicare Advantage patients. Those increasingly popular plans offer more flexibility for supplemental benefits and typically set higher reimbursement rates than traditional Medicare, although prior authorization denials have raised concerns.
Retailers can distinguish themselves through Medicare Advantage plans with benefits such as gym memberships, home delivery for prescriptions or transportation services.
Companies like CVS, with its Aetna insurance operation, can tap into Medicare Advantage growth and draw seniors into its in-house pharmacy and primary care services as well. For example, CVS already has a senior pharmacy care business that serves more than 1 million patients each year. As of Sept. 30, the company reported more than 3.4 million Medicare Advantage members.
“In theory, if you own care delivery, you drive market share,” said Brian Tanquilut, a healthcare services equity analyst at investment banking firm Jefferies.
In 2023, Walmart and UnitedHealth Group partnered to offer Medicare Advantage in some states. Walgreens and Alignment Health signed an agreement in October to jointly market Medicare Advantage plans in 2024.
