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Insurers, pharmacies and primary care forming the next generation of managed care

January 2, 2020

Topics: Quote of the Day

By Jaimy Lee
MarketWatch, December 28, 2019

A handful of companies like Humana Inc. and Walgreens Boots Alliance Inc. that are better known for operating pharmacy counters and managing health plans are now turning into primary care providers.

CVS Health Corp., Humana HUM, Walgreens, Walmart Inc., and UnitedHealth Group Inc. now operate hundreds of clinics that directly market themselves as primary care providers or provide a majority of primary care services. And they all plan to open more clinics in 2020.

“There is an emerging consensus that the best way to control medical costs in America is to have patients have an old fashioned-style primary care relationship with someone in the health system,” said Dr. Bob Kocher, a partner at venture-capital firm Venrock. “There is a belief that the pendulum is swinging to the next-generation version of managed care.”

“Although maybe only 5% of health care cost is incurred in the primary [care] environment, a good or bad decision determines what the next 95% looks like,” Andrew Witty, CEO of UnitedHealth Group’s Optum business, said during an investor day in early December, according to a FactSet transcript. Optum currently operates 47 primary care clinics, a number that has doubled over the past two years, Witty noted during the investor day.

A Walgreens spokeswoman said the pharmacy giant operates nine primary care clinics, in partnership with several organizations, including primary care-provider Village Medical.

Humana had 230 primary care centers that it owns or that are part of joint ventures, according to comments made during its annual meeting by Humana president and CO Bruce Broussard in April. “We’re not convinced that the primary care model is completely figured out,” Broussard had said in mid-2018, before adding: “I would say that the intensity of it will increase and our commitment of putting more and more in a faster way and scalable way will increase over the next 24 months or so.”

CVS Health, which has opened 50 of its HealthHubs in Atlanta, Houston, Philadelphia and Tampa, Fla., and Walmart, which opened its first health center in Georgia this year, don’t expressly say that they operate primary care clinics. However, spokespersons for each company separately said the majority of the visits to their clinics are for primary-care services.

Startups like Iora Health and One Medical have pulled in hundreds of millions of dollars in private funding. One Medical, which is now the largest independent primary-care practice in the U.S., is reportedly considering an initial public offering early next year, according to CNBC.

“Given all the new market entrants, there is an emerging fight for the front door that can dramatically affect the overall business of health care systems and help the move to drive care out of hospitals,” said Lisa Suennen, a longtime health care investor and leader of Manatt’s venture capital practice.

How that has played out so far is a steady stream of announcements in 2019 about medical practices being opened in or adjacent to drugstores. CVS has plans to open an estimated 1,500 HealthHubs in its stores over the next two years; CEO Larry Merlo told investors in November to expect a material impact from the hubs in 2021. In the case of CVS, the pharmacy retailer also operates the Aetna health plan so its investment in building clinics touches on both retail and health care cost-reduction trends.

Walgreens, on the other hand, this year decided to focus on a partnership model. Its first primary care clinic with VillageMD opened its doors in November in Houston, next door to a Walgreens drugstore. The goal is foot traffic.

“If there’s a primary care—that is why we’re testing these pilots—we’re trying to see the uplifts on both retail and on scripts,” Walgreens CFO James Kehoe said on an earnings call in October. “So you’ve got three sources of income in most cases.”



By Don McCanne, M.D.

So now we are going to have pre-packaged for us health insurers, retail pharmacies and primary care. Walgreens CFO James Kehoe says, “So you’ve got three sources of income,” certainly suggesting what it’s really all about. And Dr. Bob Kocher, a partner at venture-capital firm Venrock, “There is a belief that the pendulum is swinging to the next-generation version of managed care.”

While there is considerable foot-dragging on the shift to single payer Medicare for All, the medical-industrial complex is rushing in to change the health care delivery system to position itself for optimal entrepreneurial advantage. Maybe the political hucksters who claim that we’ll have “Medicare for None” have some insight as to where we’re headed. At any rate, a system designed primarily to enrich passive investors does not sound good from the standpoint of the patients.

With the previous iterations of managed care (network model health maintenance organizations, managed competition, accountable care organizations, horizontal and vertical mergers, etc.), those of us advocating for a universal, equitable system of financing health care for everyone seemed to be considered irrelevant in the national dialogue on reform.

What attitude will the industry have toward us when they have rearranged the health care delivery system to meet their business objectives? Will we be left outside while we merely demonstrate with our “Medicare for All” placards? Or are we ready for a real (though bloodless) revolution? We’re starting a new decade; what will we do with it?

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About the Commentator, Don McCanne

Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

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