Walgreens's VillageMD signed a $9 billion acquisition for Summit Health. The deal marks the largest physician deal of the year.
Walgreens Boots Alliance wants to shell out nearly 9 billion dollars to buy medical practice Summit Health, the company that owns urgent care clinic chain CityMD.
Walgreens Boots Alliance, Cigna's Healthcare Unit, and Evernorth Investments have jointly unveiled their sizable investment in VillageMD. The historic deal includes $8.9 Billion worth of commitments, as well as investments from Walgreens and Cigna. Bloomberg first reported on the potential deal back in late October.
This deal will give Walgreen Healthcare access to primary care, specialty services and urgent care providers. With the purchase, VillageMD and Summit Health will each operate more than 680 locations in 26 markets. Combined, they'll have 20,000 employees across the country.
Walgreens has announced a $3.5 billion investment to support their acquisition of VillageMD. The deal is expected to close in the first quarter of 2023 and when it does, Walgreens will maintain its position as the company's largest shareholder with about 53% ownership.
Walgreens has set its 2025 goals for the U.S healthcare business to between $14.5 billion and $16 billion from a previous goal of $11 billion to $12 billion. Previously this segment was expected to achieve positive adjusted EBITDA in 2023, but that time frame has been shortened to now.
Last year, Walgreens invested a whopping $5.2 million in VillageMD, and it plans to open at least 600 Village Medical at Walgreens primary-care practices across the country by 2025.
This deal comes during a time of increasing M&A activity, with major retailers like CVS, Walgreens and Amazon looking to provide more medical services in order to gain a larger foothold in the healthcare market.
Drugstore rival CVS Health won the bidding war for Signify Health, a home health and technology services company, and plans to fork over $8 billion to purchase the company. Amazon also plans to buy One Medical full-service primary care chain for $3.9 billion.
With this move, Walgreens is seen as "jumping head long into the healthcare IT and digital health arena," according to David Larsen. He’s a healthcare IT and digital health analyst at financial services firm BTIG.
"Walgreens Boots Alliance is graduating from being a drug store to owning the life-cycle of members' health," he wrote in an analyst report. "We view this transaction as a statement by the market that primary care continues to be one of the key drivers of healthcare long-term."
The acquisition will both push CVS Health to break into the primary care business "sooner rather than later" and increase pressure on other retailers, according to Larsen.
In an interview with Fierce Healthcare, Tim Barry, the CEO and chairman of VillageMD, discussed his thoughts on healthcare. He said there is a strong recognition that an integrated and coordinated model of care is what will ultimately deliver the best results. You see this through Optum's acquisition of Kelsey-Seybold Clinic and Summit Health.
"We need something other than the fee-based healthcare system that we currently have. We need doctors who are collaborating and working together to solve unique problems for patients, and make sure that the right doctors are seeing them at the right time," Barry said. "It's all about the risk-based contract."
“There's been a lot of fascination with the argument that technology will transform the health care industry,” he said. “And I wanna suggest that we have to do it in a way that is integrated and value-oriented. The winners in the healthcare system will be those organizations who--given all the changes in healthcare--are committed to doing this at scale and are thoughtful in their approach to how they do it.”
In 2019, Summit Medical Group, a physician-owned and governed multispecialty group based in New York City, merged with CityMD, a leading urgent care company in the area. The result? Summit Health, which has more than 370 locations across five states.
VillageMD provides a patient’s primary care at traditional free-standing practices, Village Medical at Walgreens practices, and anywhere there is an internet connection. The company has grown exponentially to 22 regions with more than 1.6 million patients between both brands, according to the company.
Barry was quoted saying that the combined organizations will enable them to offer more value-based care and create integrated primary and specialty care services.
"Summit Health has a rich history of innovation. Their approach to delivering multispecialty care is truly innovative. They are pioneers within their industry, known as the preeminent brand in their marketplace," he said. Summit Health also owns CityMD, one of the best urgent care models out there.
"VillageMD is an incredible model of value-based primary care delivered. The idea of bringing these two organizations together to bring these best-of-breed capabilities under one umbrella was just so compelling. When we combine all the benefits and depend on risk-based reimbursements, it'll be even more beneficial to all our patients."
Barry is expecting the purchase of Company A to be a success because of Company B's specialization in primary and specialty care.
"We'll be delivering a consistent value-based model of integrated, multispecialty care in a way that delivers the best clinical results on the planet," said CEO Dr. Greg Murphy.
Jeff Alter, CEO of Summit Health, said in a statement that the deal adds Summit Health’s expertise and geographic coverage to VillageMD’s proven value-based primary care approach.
The acquisition also doubles as an opportunity for Walgreens to provide medical care directly to patients. "This transaction accelerates growth opportunities through a strong market footprint and wide network of providers and patients across primary, specialty, and urgent care," Roz Brewer said in a statement.
Cigna's investment in Evernorth will help the company tap into its health services capabilities to potentially lower healthcare costs, Barry said. Their joint venture will include Cigna's business and assets like Express Scripts that provide pharmacy benefit management services.
"To be a risk-based provider, or a value-based provider, you have to have contracts with payers that offer both types of payment models and allow you to work in this construct," Barry said. "We really tried to spend some time and we found that Cigna has been a good partner on our journey. They’ve been willing to explore the care pre-payment type of risk model."
"There are companies that [Cigna] has purchased over the years that have different specializations and capabilities that we believe ultimately will allow us to deliver better care to our patients," he noted. "Original thinking - like Evernorth's specialized focus on behavioral health and its experience with managing specialty pharmaceutical costs - brings new ideas for the future of healthcare. We both liked the idea of supporting an organization like ours that's going to continue to grow and continue its focus on risk, quality, and value."
In 2017, Cigna invested in VillageMD and Summit Health. With this move, they could join their competitors in the race to dominate the primary care space.
"Team up with VillageMD to drive better health and value!" said Eric Palmer, CEO of Evernorth, in a statement. "We have been privileged to have the opportunity to cooperate with physicians at VillageMD who are willing to collaborate through our free lifetime membership program," Eric added. "This model is the catalyst for the continual improvement of their health care delivery practice."