Will Obamacare Push More Patients Into The Hands Of Walgreen And CVS?

 |  Includes: CVS, WBA
by: Joseph Harry

Even though the United States spends more on healthcare than any other country in the world, our healthcare system only ranks 37th: mostly due to unnecessary, uncoordinated, and avoidable care. These three mentioned thorns in the side of our healthcare system account for over $300 billion in supercilious spending per year. Avoidable readmissions into hospitals are costing American citizens and our government huge and unnecessary sums of money each year.

As a result of President Obama's Affordable Care Act, October 1 began the start of penalties for hospitals that readmitted patients at unreasonable rates or readmitted them too soon. Medicare penalties will be enforced against hospitals that discharge patients and then readmit them within 30 days at too frequent of a rate. These hospitals are already looking at up to $280 million in penalties as a result. An average of $125,000 will be charged to more than 2,200 hospitals (66% of the Medicare serving facilities) according to the government. Maximum Medicare penalties are also expected to grow- 2% in fiscal 2014 and 3% in 2015.

With all these Medicare penalties being enforced, hospitals will need to adapt, because the fines are clearly not going away anytime soon unless significant amounts of legislation gets repealed. This is where pharmacies, particularly Walgreen (WAG) and CVS (NYSE:CVS) are stepping up to the plate.


Walgreen has announced its new transition of care program, dubbed "WellTransitions." This new program is designed to bring the nation's largest drugstore chain closer together with hospitals. WellTransitions, according to Walgreen, will help to better coordinate care and reduce readmission rates, beau

"Readmissions can be costly for the patient as well as our health care system. Through this program, our pharmacists work closely with hospital staff to oversee medication therapies and to help make the discharge process smoother, providing the care patients need during, as well as after being discharged."

The program will help review patient's prescriptions, provide bedside delivery, patient counseling, regularly scheduled follow-up calls, and around the clock pharmacy support. Walgreen's coordinated care program will assimilate pharmacists into roles that prevent unnecessary readmissions, while also working to keep healthcare costs down.

CVS Caremark

CVS, like Walgreen, has also gotten in on the transitional healthcare market, by forming an alliance with Dovetail. According to Troyen A. Brennan, MD, MPH, executive vice president and chief medical officer of CVS Caremark:

"Dovetail Health will help CVS Caremark clients deal with the high prevalence of hospital readmissions, which are costly and have a negative impact on members' health outcomes...Very often these patients are taking multiple medications and are trying to navigate a variety of treatment guidelines provided by their primary care physician and the hospital discharge team, all of which can complicate medication safety and adherence. Our research shows that the intervention of a clinical pharmacist helps patients better understand their medications and avoid potential barriers to recovery after coming home from the hospital."


Clearly the United States healthcare system is changing, egged on by Medicare-enforced penalties. These penalties are causing a movement to reduce patient readmissions, and the direct beneficiaries are companies like Walgreen and CVS, who can handle tasks and provide services that will help create and establish coordinated healthcare systems which will attempt to reduce the need for patients to go back to hospitals. Companies like Walgreen and CVS are moving closer and closer to patients, and will most likely see increasing revenues and customers as a result.

Walgreen and CVS Caremark will be the main beneficiaries of the new healthcare landscape being crafted by Medicare penalties, and both seem to be attractively valued, as well as protected from patent cliffs, unlike many major pharmaceutical companies. Both companies seem to be attractive long-term plays, as penalties push patients closer to pharmacies and an aging population will continue to demand more prescription drugs.

Disclosure: I am long WAG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.