Walgreen Gears Up To Benefit From Obamacare By Expanding Healthcare Services

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With the Affordable Health Care Act approaching and retail pharmacies gearing up for the estimated 30 million new customers that will soon be able to receive health insurance benefits, Walgreen (WAG), the country's second largest retail pharmacy, announced it has expand its Take Care Clinic healthcare services to include diagnosing and treating patients for chronic conditions such as asthma, diabetes and high cholesterol. What this move is basically doing is laying the foundation for Walgreen to be more than a retail pharmacy store, but also a primary care center, as the company's Take Care Clinics move from acute care to chronic care, which account for roughly 75% of the healthcare dollars, and could be a big revenue maker for the company when the Affordable Care Act is implemented.

Overseen by physicians, Walgreen's Take Care Clinics will staff nurse practitioners and physician assistants at more than 300 retail pharmacies in 18 states who will diagnose and also write prescriptions, plus refer patients for additional tests and help manage their conditions. The costs of a visit ranges anywhere from $60 to $120, which is roughly 30% to 40% less than a doctor's office visit and 80% below that of a visit to the emergency room.


This is a bold move by the company as it encroaches on the territory controlled by physicians. However, with the flood of new patients about to receive health insurance there will be shortage of physicians to treat these patients in a timely manner. However, it does put Walgreen into a very lucrative market treating customers with long term medical issues, as these patients often require prescription medicines and other medical related supplies, which would raise the amount of items customers would put in their baskets, thus increasing the total purchase amount.

Walgreen's expansion into chronic care makes good business sense. Not only does it have the potential to bring in more revenue, but by partnering with hospitals and doctors for aftercare and follow up treatments, Walgreen should gain a significant number of new customers over the next few years. Walgreen already has a program in place that links patients with Take Care Clinics after leaving hospitals that the company has linked up with.


Clinics inside of large retail pharmacies may be a window into the future for the vast majority of patients under the Affordable Care Act. CVS Caremark (NYSE:CVS), with its 640 MinuteClinics in 25 states, has already treated 14 million patients. MinuteClinics have been offering chronic care to patients since 2010, with such services as monitoring patients with diabetes, high cholesterol, high blood pressure, and asthma. And CVS has seen a compound annual growth of non-acute patient visits up 41% since the company extended its services. Now chronic care accounts for 16% of the services provided, and the company expects the numbers to rise to 25% by 2015.

Rite Aid (NYSE:RAD), on the other hand, has gone virtual with its NowClinic Online Care service, the first virtual clinic in a retail pharmacy. NowClinic offers Rite Aid customers real-time access to a free online consultation with a nurse, or for a $45 fee a ten-minute consultation with a doctor who can discuss symptoms, provide guidance, diagnose, and prescribe medications. While an online consultation might sound impersonal, it has been demonstrated that that virtual medicine, where physicians conduct face-to-face online chats with patients, or use instant messaging, is as effective as in-person visits.

The Affordable Care Act is just around the corner, and there is no doubt that the major retail pharmacies will be fighting for the flood of new customers who will soon be able to afford to see a doctor and have prescriptions filled. Clearly, with the coming healthcare overhaul, the way the medical business has been run will change. Walgreen has now become relevant with its Take Care Clinics now that it is competing with CVS's MinuteClinics in treating chronic diseases. I think Rite Aid will have a tougher time selling the public on its virtual NowClinic.

Walgreen is a $45.04 billion market capitalization company, and it has had an excellent run-up of just under 29% year-to-date closing on Monday April 8th at $47.66 per share. That run-up was due in part to the positive moves it made in late 2012, including ending the costly split with Express Script (NASDAQ:ESRX) when the two companies came to terms and Walgreen began to again fill Express Script customers' prescriptions. In its other big move the company purchased 45% of the giant British pharmacy, Alliance Boots, with an option to buy the remaining 55%, making it the world's largest retail pharmacy chain. In 2012, 63% of the company's revenue came from filling 785 million prescriptions, accounting for $42.8 billion in sales. Though the bulk of its revenue will still be from prescription sales, I think Walgreen is focusing on carving a much larger piece of the business by expanding from a retail pharmacy to a health care service center, especially for the newly insured, where most do not have a previous relationship with a doctor.


Walgreen has now joined CVS by being ahead of the curve in laying the foundation for how healthcare will look in the future. There is little doubt that big box stores, like Wal-Mart (NYSE:WMT) or Target (NYSE:TGT), will eventually follow the lead with their pharmacies and add more health clinics to the stores to treat chronic conditions. I like both Walgreen and CVS as long term buys; and though CVS might be have the slight edge in price to earnings, Walgreen takes the edge in size when it went global by buying a 45% stake in Alliance Boots, making it the world's largest retail pharmacy chain. Both companies appear to have a bright future, but I think there could be sizable gains next year when the Affordable Care Act begins. If the clinics are as successful as anticipated, we may look back and realize that Walgreen and CVS stocks, though at their 52-week highs, might actually be at bargain prices.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.