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Retail Pharmacies Move to Capture More Obamacare Dollars

By Bruce Japsen - Jan 22, 2016 at 12:01PM

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As payments to medical-care providers are driven to value-based models and away from costly fee-for-service medicine, hospitals and health systems find the need for a closer relationship with retail pharmacies.

The nation's largest pharmacy chains are stepping up strategies that link their pharmacists with local hospitals and health systems to win a piece of a larger share of health dollars available under the Affordable Care Act.

CVS Health (CVS 2.05%) and Walgreens Boots Alliance (WBA 1.30%) have formed dozens of affiliations with medical-care providers that they say are looking to manage populations of patients. Increasingly, health systems need more than just doctors and hospitals under their umbrella if they're going to be attractive to the government and private insurance companies that pay them.

Health-insurance companies and the government under the health law are moving away from fee-for-service medicine to value-based models that put the providers at financial risk. Health systems are responding to this trend by forming medical homes and accountable care organizations (ACOs) that contract with health plans, Medicare, and Medicaid to manage patient care. If medical-care providers keep costs in check and improve outcomes for patients, they share in the money saved with the insurer.

Success with value-based care means bigger pharmacy profits
If the pharmacies are successful in their role in the value-based models such as ACOs and medical homes, they get to share in the financial reward of the local health system. That potentially successful scenario means a fatter bottom line for CVS, Walgreens, and Rite Aid, which is poised to become part of Walgreens later this year. Thus, it's good for investors in these stocks, particularly as health insurers and the government shift tens of billions of dollars to value-based models.

"We believe this approach will help ensure a true continuum of care for patients and their providers," Pat Carroll, chief medical officer for Walgreens Healthcare Clinics, said after the drugstore giant signed an agreement this month with Chicago's Advocate Health Care.

The Walgreens-Advocate deal hands off management and ownership of 56 Walgreens retail health clinics in its Chicago area stores to Advocate, which will employ the nurse practitioners and lease space from the drugstore chain. The closer relationship hooks the retail health clinics into the Advocate electronic health-record system, which those involved say allows for a quicker response to patient needs. Advocate has a dozen hospitals and 250 additional outpatient-care sites.

When Advocate contracts with health-insurance companies and employers through value-based models such as an ACO, health plans increasingly want providers to have a full menu of services, says Advocate chief medical officer Lee Sacks. He said Walgreens' retail clinics would be an extension of Advocate's "ambulatory footprint."

"We want to be able to provide the right care and in the right setting at the right time," Sacks said.

Handing off ownership of clinics inside stores is a new strategy for Walgreens, which still employs the bulk of the nurse practitioners in the more than 400 clinics it operates across the country. Walgreens has affiliations with local health systems in 20 markets across the country, including Orlando, St. Louis, Indianapolis, Seattle, and Portland.

CVS, by comparison, manages and controls all clinic operations in its more than 1,100 clinics in 33 states and Washington, D.C., through its MinuteClinic subsidiary, and its nurse practitioners and pharmacists in these pharmacies have relationships with dozens of health systems.

The affiliated organizations and MinuteClinic nurse practitioners work together to plan strategies "around chronic care and wellness," CVS said in a statement announcing two clinical partnerships last year with St. Luke's University Health Network in Bethlehem, Pa., and TriHealth in Cincinnati. 

The idea with all of these partnerships is to get less expensive primary care upfront. If follow-up care is needed, pharmacy and retail clinic patients will be sent to the affiliated local health-system partner, Walgreens and CVS executives say.

"MinuteClinic works collaboratively with more than 60 health systems across the country in a variety of ways, and we offer access to almost every payer," said Andrew Sussman, CVS chief medical officer and executive vice president. "Most important, we believe in the continuity of the primary-care relationship and will refer patients back to their own provider when clinically appropriate."

If CVS and Walgreens reduce hospital ER visits, everybody wins
Health systems see pharmacies as providing vaccinations for flu and other viruses that keep patients healthy and out of more expensive hospital beds. In addition, pharmacies offer other low-cost services such as generic medications.

More coordinated care is key, as the Medicare health insurance program under the Affordable Care Act and large insurers such as Anthem, Aetna, and UnitedHealth Group move away from paying fees for service to more value-based reimbursement. The Obama administration last year said it will shift 50% of all Medicare payments to value-based models by 2018.

These payment shifts mean a larger role in local health systems for pharmacy chains and more reason to be optimistic about increasing revenue and profits for CVS and Walgreens to capture the financial share of this trend.

Bruce Japsen has no position in any stocks mentioned. The Motley Fool recommends CVS Health. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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