Can health systems compete with disruption from CVS, Walgreens?

Recent moves from CVS and Walgreens show that the pharmacy retail giants are making leaps into healthcare spaces they've never touched — but hospitals aren't sweating yet.

"At a high level, I think this is healthcare's new normal, so I'm not surprised by these moves," Ashis Barad, MD, chief digital officer of Pittsburgh-based Allegheny Health Network, told Becker's.

In November, VillageMD — in which Walgreens has majority ownership — said it plans to snatch physician practice group Summit Health for $8.9 billion, while CVS secured a deal in September to acquire home health company Signify for about $8 billion.

How are hospitals and health systems responding to these changes from pharmacy giants? Becker's talked to seven leaders to find out.

What these billion-dollar moves mean

Walgreens and CVS are two of the biggest players aiming to disrupt healthcare, though they have a unique foothold compared to outside players such as Amazon or JP Morgan Chase, as they've been in the business for decades already through their retail pharmacies.

Unlike Haven Healthcare — a failed disruptor from Amazon, Berkshire Hathaway and JP Morgan Chase that tried to build its own clinical delivery mechanism — CVS and Walgreens "understand the 'last mile' of care delivery," said Thomas Graham, MD, chief innovation and transformation officer of Kettering (Ohio) Health.

"We believe that our Signify Health will close some of the gaps that we have in home, and it will give us a platform to accelerate return to care and provider enablement," CVS Health CEO Karen Lynch said during a Nov. 2 investor call.

Richard Zane, MD, chief innovation officer of Aurora, Colo.-based UCHealth, said it makes sense that the nation's two largest pharmacy chains would take advantage of their market position, geography and name recognition to expand into other avenues, including virtual and at-home care.

"Much of what happens in traditional hospitals and doctor's offices can be done safely in nontraditional places including the office or home, where it's more comfortable, affordable, timely and, ultimately, the best thing for patients," Dr. Zane said. "It's hard to imagine access to healthcare in the U.S. getting worse, so hopefully this is a story of CVS and Walgreens doing well while doing good."

Where health systems, retailers differ

Todd Karpinski, PharmD, chief pharmacy officer of Morgantown, W.Va.-based WVU Medicine, said the CVS-Signify and VillageMD-Summit Health deals "certainly adds competition" but there's a larger chess game at play.

CVS has cited one of its reasons for the Signify deal, which is expected to finalize in 2023, is to touch the "entire spectrum of someone's health journey," but the pharmacy chain's power to do so has skeptics.

"Where hospitals appear to have an advantage is the full continuum of care from birth to primary care, specialty care to home care," Dr. Karpinski said. "And all these are in our electronic-medical-records system, so that as they transition from the various sites of care all of our providers can see your care history. That creates an advantage for us over some of these for-profits who are trying to acquire various areas of healthcare."

Walgreens did not reply to Becker's questions and CVS declined a request for an interview.

"Vertical integration is the name of the game," said Benjamin Maisano, a former health system tech chief who is now senior vice president and head of strategy at Tendo, a digital health startup developed by Philadelphia-based Jefferson Health and General Catalyst.

He noted that hospitals were the first to do this on the provider side, integrating physician practices, post-acute facilities and ACOs to become "health systems," with Oakland-based Kaiser Permanente and the U.S. Department of Veterans Affairs leading the way.

"But CVS and Walgreens are more accessible in the community and are OK with tighter margins," Mr. Maisano said.

He said real transformation will happen once there's a health tech platform that can integrate all these disparate healthcare operations. He said EHRs aren't it.

Chance for future collabs

The companies CVS and Walgreens have been trying to acquire also have strong digital footprints, relying heavily on data analytics, population health and other tech platforms to shift healthcare to a value-based model.

Chris Coburn, chief innovation officer of Somerville, Mass.-based Mass General Brigham, said digital health is what patients want and the industry needs because of its ability to "increase access to care, speed and enhance diagnostics, and drive needed efficiency and asset utilization." That leaves room for health systems, retail pharmacies and startups to innovate.

"We welcome new entrants as collaborators and competitors with the understanding that care is the ultimate long game and we, and other academic centers, are in it for the singular mission to improve the lives of patients," Mr. Coburn said.

Other leaders say collaboration is an economic necessity. The financial strains in healthcare and elsewhere are forcing this kind of "cross-sector convergence and consolidation," said Sara Vaezy, executive vice president and chief strategy and digital officer for Renton, Wash.-based Providence.

"As care becomes more distributed and decentralized, incumbent providers have a growing role in facilitating data and experience connectivity to serve up a holistic experience for healthcare consumers and patients," she said.

Providence, for instance, partners on clinical services with One Medical, a primary chain that Amazon is trying to buy for $3.9 billion.

Allegheny Health Network's Dr. Barad said it's "imperative" that hospitals and health systems "lean in and partner with disruptors." He pointed to the alliance between his health system's provider-payer parent company, Pittsburgh-based Highmark Health, and Google Cloud for their analytics-driven Living Health program to drive value-based care.

"I don't think incumbents can afford to be all things to all people in all markets, so strategic partnerships when appropriate will be part of our new ecosystem," he said.

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