Get better! Your pharmacy’s profits depend on it.

January 11, 2013

As one of the country's largest pharmacy chains, Walgreens dispenses millions of prescriptions every year. In 2013 though, its mission changed dramatically: The pharmacy now has a financial stake in ensuring those drugs make customers healthier.


People walk by a Walgreens store on June 19, 2012 in San Francisco, Calif. (Justin Sullivan/GETTY.)

The pharmacy chain announced Thursday that it would form three Accountable Care Organizations, new health care systems where the pharmacies' Medicare payments depend partially on the the quality of care they deliver.

The Accountable Care Organizations are a part of the health care law meant to reduce the cost of Medicare. Under this model health care providers have banded together and accepted a lump sum payment to care for a group of seniors. If they can provide high quality care at a lower price, the providers' net some of the different.

If their costs go too high though, the health care system could find itself in the read. The idea is to move away from a system that pays for a high quantity of care, and move towards one where payment is based partially on quality.

Up until now, hospitals and large physician groups were the only health care systems that had launched ACOs. Walgreen's decision to move forward marks the first time a pharmacy has gotten into the new model and puts it among 250 ACOs created since the program began in 2011. 

"I see this as a natural evolution," says Walgreen's Senior Vice President Jeffrey Kang, who leads the pharmacy chain's work on health and wellness. "Over the last five years we have been moving more aggressively into health services. Historically our pharmacists were just filling prescriptions. We've moved them out behind the counter in a more consultative role.

While a pharmacy-run ACO is not the traditional model, Kang argues it actually makes a lot of sense. Pharmacy stores are open every day of the year, making them a more accessible point of contact than most doctor offices. They have begun to handle basic health care, like vaccination and preventive check-ups, right in the store, which could prevent more costly diseases down the line.

Health care research shows that unnecessary hospital readmissions are often caused by a patient not following the prescribed medical regiment after discharge, creating another place where pharmacists could easily intervene.

Walgreens' three ACOs - located in New Jersey, Texas and Florida - all partner with large doctor groups. But Kang argues that Walgreens stands to play a big role in ensuring that the systems do deliver savings at the end of the day. The pharmacy has already been a driving force, coming up with the idea, recruiting partners, and drafting the application sent to the federal government. 

"The way I like to describe it is as a physician-led plan where we're an active partner," Kang says. "They're the quarterback who creates the treatment plan. We can be care extenders who help implement and execute the plan."

In order to make that active partnership work, Walgreens is working to become better integrated with its partner health care systems. While both the pharmacies and doctors, for example, already have electronic medical records, they now need to ensure that each system can interface, allowing all health care providers to track a given patients' care. 

Any savings that the new health care systems create will be shared between Walgreens and the local doctor group with which the pharmacy has partnered (Kang declined to disclose how, exactly, they would break down the dollars). While he isn't quite sure whether this ACO program will pay dividends in 2013 - this is, after all, their first go at the new approach - Kang does see his company moving farther in this direction in years to come.

"We're interested in continuing to expand these services," he said. "Regardless of whether its within an ACO or not, I think you'll see us creating more care opportunities like this."

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Neil Irwin · January 11, 2013