A year after Walgreens-owned VillageMD acquired Summit Health for $8.9 billion, healthcare leaders and analysts told Becker's the deal presents both partnership and competitive opportunities for health systems.
On the partnership side, Chris Coburn, chief innovation officer of Somerville, Mass.-based Mass General Brigham, pointed to his health system's recent hospital-at-home collaboration with Best Buy Health as an example.
"It highlights 'own some elements/partner others' as a high-quality and capital-efficient model," he said. "We expect to see the industry leverage such relationships more broadly over the next several years as the business models solidify."
VillageMD, which Walgreens has a majority ownership stake in, pulled off one of the biggest healthcare deals of 2023 when it said last Jan. 5 that it had closed on its acquisition of Summit Health and its roughly 400 primary care and urgent care clinics. The purchase gave VillageMD nearly 700 practices around the county and an additional 2,800 providers.
"The scale and inherent complexity of healthcare mergers and acquisitions mean that the first year of a transaction like this will have some things go by plan and others that don't," Mr. Coburn said. "From a distance, it appears that 2023 was a transition year targeting synergies among the different units and that will continue into 2024."
VillageMD's acquisition of Summit Health wasn't the only big retail healthcare deal of 2023. Amazon purchased primary care company One Medical for $3.9 billion last February, while CVS bought senior-focused Oak Street Health for $10.6 billion three months later. While Walmart was reportedly in talks late last year to acquire ChenMed, another primary care chain catering to seniors, retail healthcare megadeals appear to have cooled off since the first half of 2023.
Walgreens has already shown its willingness to partner with health systems via cobranded express clinics in several local markets. However, some of its fellow disruptors have been more aggressive of late in seeking out health system partners, with One Medical notably entering into multiple new collaborations last year.
In a Jan. 4 quarterly earnings report, Walgreens said Summit Health contributed to a 95% sales increase for its healthcare segment compared to a year earlier, with $1.9 billion in revenue overall.
"While it is still early to say, we think the deal has been fairly successful so far," said Morningstar equity analyst Keonhee Kim. "On a high level, it looks like productivity and efficiency are increasing for the business."
He pointed to VillageMD's reductions of "noncore" clinics as an example of the company's "rightsizing" approach. VillageMD plans to shut down 60 clinics this fiscal year, as it turns its focus to higher-growth markets.
Despite the boost from Summit Health, Walgreens still has to get costs under control and improve its bottom line, which could provide an opening for its competitors, said Neil Saunders, an analyst with GlobalData Retail. Across the country, many health systems go head to head with Walgreens, VillageMD and Summit Health on retail and urgent care clinics.
"As an acquisition, Summit Health is sensible. However, Walgreens needs to have a much clearer strategy for healthcare going forward," Mr. Saunders said. "This is starting to come into play with a new CEO, but there is a lot more work to do if Walgreens is to gain ground on CVS and other rivals in the space."