PriceWaterhouseCooper Says Call Walgreens a Provider, Not a Retailer

Jun. 9.11 | About: Walgreens Boots (WBA)

Price WaterhouseCoopers is out with an intriguing report on health care called The Health Care Gold Rush, which predicts that the current round of efforts to lower health care spending will instead result in the market taking 19% of GDP by 2019.

That sounds like failure, but the report makes clear we are developing two separate systems of care.

  1. Basic health care, with squeezed margins, high levels of automation, paid for through centralized insurance and government systems.
  2. Wellness care, with wider margins, a focus on younger consumers, paid for directly by patients.

The report divides the opportunity into Fixers, Implementers, Connectors and Retailers and profiles companies in each segment. A relative start-up called Artificial Medical Intelligence is a fixer, helping automate records so doctors can get paid. RTKL is an implementer, an architect making hospitals and clinics more efficient through design. Zibbel is a connector, building iPad applications for the chronic care of amputees.

Only one of the profiled firms is publicly held, retailer Walgreens (WAG). What makes them intriguing to PwC is the strategy of moving from mere retailing to mass delivery of medical services.

Like CVS Caremark (NYSE:CVS), whose moves it seems to be emulating, Walgreens is building clinics into its stores, called Take Care Clinics, staffed by nurse practitioners, physicians assistants and doctors and depending heavily on technology. The report says these clinics are where younger consumers are going to be spending their out-of-pocket medical expenses.

The clinics provide basic wellness services like shots, health care screenings and assessments and management of chronic conditions. By using nurses and technology, it maximizes the efficiency of the doctor's time. Because no appointment is necessary, this gains the store market share against general practitioners working in offices and often tied to hospitals.

It's the automation, which was my beat for years at ZDNet Healthcare, that's the key point. Gaining consumer loyalty in the production of an Electronic Health Record is the "holy grail" for many hospitals and most of the health IT sector.

While hospitals like Intermountain Health, insurers like Kaiser Permanente and software companies like Practice Fusion are going after the opportunity through employers and doctors, Walgreens is going directly after patients and building a parallel health delivery system in the process.

It doesn't just work with the young, of course. My mother is 87 and a dedicated Walgreens fan. Her tie to the company comes from filling prescriptions for the chronic conditions of aging, especially the ability to get a three-months supply of her pills at once.

Making this kind of transition is expensive and results have been suffering, especially with the high price paid recently for,

But the PwC report asserts that for Walgreen's it's all about the Electronic Health Record, guaranteeing customer loyalty and bringing people into a lower-cost wellness system that, by using fewer doctors and more nurses, may prove highly profitable.

If you buy that strategy, you might want to give the stock another look.

Disclosure: The analysis here is based on my work with ZDNet Healthcare from 2006-2010.