Brad Fluegel, Walgreens, on increasing health equity with retailers entering healthcare

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In this episode, we sat down with Brad Fluegel, lecturer at the Wharton School’s Health Care Management program and former Senior Vice President and Chief Healthcare Commercial Market Development Officer for Walgreens. Before that, he was the Executive Vice President and Chief Strategy and External Affairs Officer for Wellpoint, now Anthem, and Senior Vice President of National Accounts and Vice President of Enterprise Strategy at Aetna.

What we discussed:

• Consumer behavior shifting to online purchasing combined with excess retail space is driving retailers such as Walmart and CVS to explore opportunities to leverage consumer familiarity with their brands to expand their presence in the growing healthcare industry.
• Retailers, providers, and payers are exploring the tradeoffs of different models for expanding into healthcare, from partnering to investing to build out independent outpatient health centers.
• Collaboration amongst payers, providers, and retailers may drive cost and care benefits for consumers while increasing health equity amongst disadvantaged populations.
• Near-term policy changes on allowing lower level healthcare practitioners to administer care currently dispensed by doctors as well as insurers considering maintaining pay parity for in-person and remote services should persist after COVID.

Start to 17:15: Retail context and different retailer strategies

• Shifting retail environment: With consumer habits trending towards online buying, retailers are left with excess space in brick-and-mortar locations that are being underutilized. As a result, retailers are reconsidering ways to leverage their real estate footprints and brand, many of which are related to healthcare and have built consumer trust with pharmacists.

Retailers taking different approaches:

Walmart: leveraging massive existing real estate footprint and may continue to invest in additional outpatient clinics. Walmart announced they would build 4,000 Walmart health centers, which include full primary care suites, dental centers, radiology, and labs. These clinics may help address the gap in healthcare access in rural areas since many of its brick-and-mortar locations are located in rural areas. Walmart recently experienced some turnover of leadership, so will be interesting to see if this strategy continues to be an organizational priority in the implementation.

Best Buy: tech-oriented and leaning more into devices and technology, such as remote patient monitoring products. Consumer familiarity with their brand may give them leverage on patient engagement.

CVS: leaning into building and expanding health hubs, which hold complete primary care offerings including lab services. These clinics are largely run by CVS-employed nurse practitioners, giving CVS more direct control and oversight of the operations, cost, and quality of care.

Walgreens: investing to build neighborhood health destinations through a partnership approach instead of an ownership approach. Walgreens doesn’t run their own clinics. Instead, these clinics are run by local health systems or providers such as VillageMD.

“One of the things that retailers are really good at is packaging the offerings within their stores to the local communities they serve… Walgreens and CVS are pretty much everywhere and they are an important part of the community’s healthcare system.”

• Exploring direct-to-consumer healthcare: Retailers will likely invest in services that are more patient-directed. Given the relatively small size of the direct-to-consumer segment in healthcare, retailers must be intentional about curating healthcare services they can uniquely provide to consumers over traditional healthcare systems. For the majority of consumers who have healthcare insurance, consumers are used to healthcare insurers or employers paying for a meaningful portion of their healthcare services.
• Potential avenues for direct-to-consumer healthcare: Retailers have experimented with offering optical and dental services since these are areas consumers are more familiar with paying out of pocket for. Basic primary care and urgent care clinics are other areas that may make sense for retailers since consumers have more choice in selecting care in these channels. Consumers can also more easily access retailers given the convenience of their locations which could direct more consumer foot traffic to retailers over traditional healthcare systems.
• How to scale: Retailers are really good at understanding local populations and packaging their offerings within stores to the local communities they serve. In particular, retailers such as Walgreens and CVS are fairly ubiquitous in the U.S. and have experience tailoring their offerings to individuals. Retailers are also experienced in managing extensive logistics and supply chains, which will be especially helpful in scaling drug delivery through pharmacies.
• Different challenges facing retailers: Retailers such as CVS and Walgreens have an advantage in occupying consumer mindshare given they have a larger ingrained association with healthcare given their pharmacy presence. Others, such as Walmart and Best Buy, face some brand issues with consumers who may not traditionally associate their brand with healthcare. In addition, retailers such as Walmart are dealing with competitive threats from online retailers such as Amazon and engaging in capital-intensive activities such as building out clinics may be a financial challenge.

17:15 to 32:24: Impacts for the healthcare ecosystem

• Initial response from providers: Initially providers were very concerned about the threat of retailers entering into healthcare. Specifically, they were afraid of retailers taking away patient traffic or fragmenting patient care. However, this threat never fully manifested as most patients who utilized healthcare services through these retailers may not have had primary care doctors and only sought ancillary services.
• Shift towards greater collaboration with providers: Providers see opportunities to learn from and partner with retailers. First, they can learn how to improve patient engagement from retailers who are familiar with interacting with local consumer populations. Second, provider systems can utilize unused retail space to operate clinics. This helps provider systems expand their presence in communities without investing large amounts of capital building out independent clinics, and can increase consumer throughput for retailers since they can offer more services in convenient locations for consumers. Health systems also tend to lose money from primary care so partnering with a retailer may help them share the cost of bringing a patient within their health system.
• Some deviation from a collaboration model: Providers who are more concerned about retailer involvement in healthcare are responding by building out primary care access points in the community (e.g. more urgent care centers, healthcare primary care centers located in more convenient places than they used to be) to emulate what retailers have done around crafting a convenient and pleasant experience for consumers.
• Trend towards more partnerships between retailers and providers: Given the capital intensity of building additional outpatient clinics, retailers and providers may increase their partnership to share costs and leverage the other’s strengths in patient engagement and clinical experience. Partnerships may also reduce the overall cost of operating a clinic as retrofitting an existing space lowers the customer acquisition cost of attracting foot traffic and building sufficient patient volume to reach profitability.
• Opportunity for synergies with payers: Payers can encourage their members to go through its clinics or health hubs, such as the case with the Aetna-CVS merger. This outcome is more difficult to achieve through a pure partnership approach since payers and retailers have less of an economic incentive to converge patient traffic. Other synergies are centered around pharmacy, patient adherence, and administering flu shots. In addition, payers may benefit from shifting patients to lower cost settings such as services administered at retail clinics that have lower cost than traditional healthcare providers.

“Something we can expect to see is on the health equity piece, which has always been a problem but has been much more heightened due to social justice issues as well as the disproportionate impact of COVID on black and brown communities. I see [health equity] as an enormous opportunity for retailers. Retailers are an important part of the community. So I’m hoping there’s a way those vaccines go into all the relevant kinds of pharmacies and in all different communities and not just certain communities.”

32:24 to 37:01: Outlook on future trends

• Some lasting impact from COVID, but COVID will not fundamentally change the relationship between payers, retailers, and health systems: Telehealth adoption will likely be a pervasive trend, which has implications for the types of services providers and potentially offer, as well as what payers reimburse. Pharmacies also have a tremendous opportunity to nail the COVID vaccine distribution over the next few months. If the vaccine distribution is successful, there will be a lot of collaboration between payers and health systems to get more people vaccinated at retail locations. However, there is a natural shift towards collaboration between payers, retailers, and health systems that is independent of COVID.
• Consumers benefit: Retailers expanding healthcare service offerings will give consumers more choices and convenience, as well as the potential for more affordable services. As long as retailers are not creating islands of care and use the same EHR system to allow interconnectivity of patient data with health systems, consumers will benefit from this trend.

“I think it’s hard to argue that more choices, more convenience, and perhaps more affordable services is bad for consumers. I think the only way it could be bad is if the retailers create islands of care that are disconnected from the rest of the healthcare system. And that doesn’t have to be the case.”

Ongoing developments to watch out for:

1. Not as bullish about Amazon’s short-term impacts on healthcare

2. Whether Walmart will make a significant push to build out primary care centers. If they do, these clinics may help solve the issue of access to care in rural areas

3. Whether the integration of Aetna, PBM, health hubs, and pharmacy will be successful and whether this can drive a differentiated experience for consumers at a lower price point. If this model works, CVS may unbuckle itself from an Aetna offering to a broader commercial offering with other health plans

4. The efficacy of the Walgreens and VillageMD partnership

• Advice for retailers: It’s really hard to change people’s perception about the kinds of services and offerings they are used to receiving from retailers. For example, Walgreens and CVS have been pushing into the beauty category for a while but it’s hard to get consumers to view Walgreens or CVS as top-of-mind for purchasing beauty products. The real test will be to see how committed retailers are to investing in building consumer awareness for their healthcare offerings.
• Potential impacts of political shifts: There will be a period of greater stability in the healthcare market, for example support for exchanges and the potential expansion of Medicare. There may also be more work around pharmacy and drug pricing. In addition, health equity will become a bigger issue. There is an enormous opportunity for retailers, especially given social justice issues and COVID disproportionately impacting black and brown communities, to be intentional about ensuring vaccine rollout passes to relevant populations. The government can also encourage retailers in these communities to be more integrated in the healthcare system and offer more services to patients.

Several near-term policy changes will benefit consumers and bring greater health equity

• Allow lower level healthcare providers (e.g. pharmacists, nurse practitioners) to do more than they are currently allowed to do. Many of these practitioners can help lessen the load for what physicians are tasked with and reduce the total cost of care across the healthcare system.
• Payers should consider maintaining pay parity between physical visits and remote care such as telemedicine and remote patient monitoring. This is particularly critical in engaging communities in underserved or rural areas. If remote services are not equally reimbursed, the health system will direct patients to seek in-patient visits for services that can be administered remotely that may be less accessible for disadvantaged communities.

37:01 to End: Advice for how to succeed professionally and personally

Factors driving professional success:

• On the individual level: be a student of the industry you’re in — read about things that are not directly related to your job especially in industries in healthcare that have many interconnected parts.
• On the organizational level: earlier stage companies succeed when they are adaptable and flexible. Steer away from sticking to something if it’s not working. Bigger companies often struggle to stay committed to strategic initiatives given a pervasive internal dynamic where a lot of people have to say yes and only one person has to say no for an initiative to be curtailed.

Personal advice on how to be successful:

• Stay calm especially in environments where there is a lot of stress. Refrain from simply reacting. When you are calm, you are best able to think about the problem and get the right inputs to make a good decision.
• Think about things strategically. We tend to think about things tactically without considering how solving this issue aids a longer-term goal. You may have to lose a few battles to win the war, but stay committed to what you’re trying to accomplish.