Walgreens closing 60 VillageMD clinics in bid to cut costs

Photo courtesy of Walgreens

In a bid to increase profitability, Walgreens is implementing a cost-saving strategy it hopes will save $1 billion, and one of the main components of that strategy is the closing of roughly 60 VillageMD clinics that the company has deemed underperforming.

The company will also be exiting five markets on the heels of weaker-than-anticipated earnings in the fourth quarter.

According to Business Insider, VillageMD, which operates clinics in Florida, has already closed 14 of its 52 locations. The rest will shutter their doors by March 15, resulting in VillageMD leaving the Florida market altogether.

"To continue to scale our care delivery services and value-based care model, we assess and evaluate our progress on an ongoing basis and refine our approach as we grow, similar to most growth-oriented companies," a VillageMD spokesperson told Healthcare Finance News. "Strategically, we are focused on geographic density in markets and locations where we can serve patients to our standards of quality care."

Patients will remain the top priority.

"We are supporting our patients during this transition including giving them resources of where they can receive care, access their medical records and answer their questions," the VillageMD spokesperson said.

WHAT'S THE IMPACT?

Walgreens posted soft revenue projections for this year based on fiscal underperformance in 2023. The company reported fourth-quarter operating losses of $450 million, compared to $822 million operating losses during the fourth quarter of 2022. Net loss in the fourth quarter was $180 million, compared to a net loss of $415 million in the year-ago quarter.

Another component of the company's $1 billion cost-reduction initiative was the layoff of 267 corporate employees, or 5% of its workforce. That move was announced in November. 

Personnel changes include the departure of Kevin Ban, chief medical officer, and Luke Sauter, chief of staff to the CEO, according to Seeking Alpha, citing a Bloomberg report and memo. Chief Clinical Officer Sashi Moodley is reportedly set to replace Ban.

The moves are the latest leadership shakeups at the company. Former CEO Rosalind Brewer stepped down in August. New CEO Tim Wentworth was introduced during Walgreens' earning call in October.

Interim CEO Ginger Graham told Business Insider that in the past six weeks Walgreens has lowered capital expenditures by about $600 million, with the impact beginning to be felt in the second quarter of this year.

Shares of Walgreens rose 7% this week upon news of its cost reduction plan.

During a fourth-quarter earnings call Graham said that supporting customer-facing activities, scrutinizing every dollar and improving cash management will be the company's operational priorities in the near-term, adding that she believes the "fundamentals of our core business remain strong."

Financial challenges in the coming year include lower volumes of COVID-19 vaccinations and testing and shifting consumer spending patterns, the company said.

THE LARGER TREND

Walgreens operates nearly 9,000 retail locations across America, Puerto Rico and the U.S. Virgin Islands.

In 2022, VillageMD acquired Summit Health-CityMD through an investment from Walgreens Boots Alliance and Evernorth, the health services subsidiary of Cigna. VillageMD currently operates Village Medical, Village Medical at Home, Summit Health and CityMD from 700 practice locations in 26 markets.
 

Jeff Lagasse is editor of Healthcare Finance News.
Email: jlagasse@himss.org
Healthcare Finance News is a HIMSS Media publication.