Recent pushback against Walgreens' decision to limit distribution of an abortion drug raises questions about whether the controversy could affect its growth strategy, including ambitious aspirations to become a major primary care provider.
Walgreens said last week it would not sell mifepristone in 20 conservative-led states, following threats from attorneys general to take legal action if the pharmacy sold the abortion pill by mail. The company said it is participating in a certification process that will allow it to dispense the drug "in any jurisdiction where it is legally permissible to do so."
Walgreens' situation, however, is somewhat complex because of its strategic push into value-based primary care through VillageMD, in which it took a majority interest after infusing another $5.2 billion in 2021. By the end of 2022, Walgreens had opened more than 150 clinics operating as Village Medical and co-located with its stores to encourage collaboration between doctors and pharmacists. The plan is to reach 1,000 Village Medical locations by 2027. But VillageMD has a footprint in several states, including Texas and Florida, where attorneys general threatened legal action.
While it's unclear how much the controversy will affect Walgreens in the long term, it is clear that a rapidly changing healthcare landscape has complicated operational strategies once seen as black and white.
"If you think back to six or eight years ago, when pharmacies were pharmacies and hospitals were hospitals and insurers were insurers, you didn't have these spillover type of effects," said David Dobrzykowski, associate professor and director of Walton College Healthcare Initiative at the University of Arkansas. "It makes these decisions that you might make in one business unit much more complex, much more sensitive and [with] implications that could potentially spill over into other business lines."
It's also possible consumers on the anti-abortion side of the argument could respond positively to Walgreens' decision, he added.
VillageMD, where Walgreens CEO Rosalind "Roz" Brewer has a board seat, continues to buy primary and specialty care physician groups in a range of geographies as well as other assets. In November, VillageMD announced it would acquire Summit Health-CityMD for $8.9 billion to expand into more multispecialty care. Earlier this month, it announced its acquisition of Rocky Hill, Connecticut-based Starling Physicians, another primary and multispecialty care group.
Walgreens has also invested billions of dollars in deals with home health company CareCentrix and specialty pharmacy organization Shields Health Solutions.
Last week's decision to limit mifepristone dispensing roiled some pro-choice leaders, including California Gov. Gavin Newsom (D), who said Wednesday the state will not renew a specialty pharmacy contract with Walgreens valued at $54 million that provided prescriptions to the state's prison system.
A Walgreens spokesperson said the company is "deeply disappointed" by California's decision to not renew the longstanding contract, which expires April 30.
"Walgreens is facing the same circumstances as all retail pharmacies, and no other retail pharmacies have said that they would approach this situation differently, so it’s unclear where this contract would now be moved," the spokesperson said. "Our position has always been that, once we are certified by the FDA, Walgreens plans to dispense mifepristone in any jurisdiction where it is legally permissible to do so, including the state of California."
A spokesperson for Newsom said California is reviewing all agreements with Walgreens, following the governor's social media post on Monday saying the state would no longer do business with Walgreens.
Other large retail pharmacies, such as CVS or Kroger, have remained mum on the issue.
That silence may be short-lived. Government officials in New York sent letters Thursday to Walgreens, Rite Aid and CVS, asking about their plans to dispense mifepristone in the state, Reuters reported.
Some analysts say California could remove Walgreens from the pharmacy network in its state employees' health plan, although the timeline would depend on the current contract. As of January, California had more than 230,000 active employees, including government positions, universities and the Judicial Council, according to the state controller's office.
Covered California, one of the state's public plans serving roughly 2 million people, said Tuesday it is "working to determine the potential implications" of Newsom's post, referring further questions to the governor's office. Medi-Cal, another large public plan with more than 15 million certified eligible members, declined to comment.
John Ransom, managing director of healthcare equity research at Raymond James & Associates, views Newsom's comments as a political play, comparing it to backlash previously experienced by Chick-fil-A, Hobby Lobby Stores and, more recently, the Walt Disney Co. over hot-button issues. Losing even a small amount of market share could be significant, given the highly competitive landscape among retail pharmacies, he said.
But some industry watchers aren't convinced the current debacle will have long-term effects on the company, which posted $132.7 billion in sales during its fiscal year 2022, ended Aug. 31.
"It's hard to say it's zero impact, but at the same time, it's like how significant could that really be? It's hard to tell," said Brian Tanquilut, an analyst at investment banking firm Jefferies. "There is the PR component of, by (Newsom) making that announcement, it puts the topic in the spotlight."
Retail pharmacies were forced to reassess policies surrounding abortion medication after the U.S. Food and Drug Administration finalized a rule change in January allowing more pharmacies, including large chains and mail-order companies, to dispense mifepristone if they go through a certification process. After the announcement, Walgreens and CVS said they would review the change and adhere to state and federal laws.