Walgreens Boots Alliance Inc., hit by slowing profits from prescription drugs, will attach doctors' offices to hundreds of drugstores as the pharmacy chain seeks to remodel itself as a health-care provider. The largest U.S. drugstore chain by stores is pairing with primary-care provider VillageMD to open 500 to 700 clinics at Walgreens sites across the country over the next five years. Walgreens will pay VillageMD $1 billion in equity and debt over the next three years in exchange for a 30% stake in the Chicago-based startup by the end of that term. Walgreens and rival CVS Health Corp. are in a race to become go-to treatment centers , particularly for patients with costly, hard-to-manage chronic conditions. Both chains are seeking new ways to counter smaller revenue from prescription drugs, which drive the bulk of their sales. They also are battling online rivals such as Amazon.com that have drawn shoppers away from physical stores. Insurers and hospitals, meanwhile, have been expanding their clinics or buying up physicians' practices, making more primary-care doctors employees of larger companies. For example, UnitedHealth Group Inc. has acquired a network of doctor practices, surgery centers and urgent-care clinics. "We heard from patients that they trust their local doctor and they don't like changing their doctor," said Alexander Gourlay, Walgreens co-chief operating officer. "It became clear that you have to have a primary care doctor as part of the model both physically and digitally." Drugstores and doctors' practices are getting hurt by the coronavirus pandemic. Patients are putting off visits to their health-care providers for fear of catching the virus during visits. Walgreens is part of a coalition behind a new ad campaign to encourage people to return to their medical providers as the pandemic continues. Walgreens in April said store sales had begun to fall sharply following an initial surge in demand in March as Americans rushed to stock up in the pandemic's early days. The company will report financial results for its Mayended quarter on Thursday. VillageMD, a network with more than 2,800 physicians, has had a 15% to 20% drop in primary-care visits amid the pandemic, said Tim Barry, the startup's co-founder and CEO. He said the drop-off is less severe than declines of 40% or more in the broader industry. Executives from both companies said the deal was advancing before coronavirus. In adding primary-care doctors to its model, Walgreens is diverging from CVS, which has said that physicians aren't needed to create so-called health-care hubs. CVS is creating hubs inside its stores where patients would go to seek medicine, consultations and lab tests to manage chronic conditions such as diabetes and hypertension. Both drugstore giants say their ubiquity in American communities makes pharmacies a logical hub for people seeking treatment for chronic ailments, which are often exacerbated as patients struggle to take their medications regularly and adhere to medical regimens. CVS, which acquired insurer Aetna Inc. in 2018 , said its health-hub model will drive down the cost of health care, PDF GENERATED BY SEARCH.PROQUEST.COM Page 1 of 3 savings that will then be captured by its new insurance arm. It aims to have 1,500 health hubs opened by 2021. Walgreens, which has opted to partner rather than acquire insurers or other companies, said the VillageMD pairing will benefit Walgreens financially by driving up prescription sales as well as sales of related medical products as more patients visit the stores. The company also aims to make money off its 30% stake in VillageMD. Walmart Inc., the country's biggest retailer and a major pharmacy operator, is also adding medical services. The company has opened a handful of clinics with doctors and dentists that offer flat-fee primary care, such as $25 dental X-rays and $40 office visits. The company plans to expand the clinics broadly across Walmart's 4,700 U.S. stores, said Sean Slovenski, president of Walmart U.S. health and wellness in an interview. "The intent is to spread across the majority of the fleet, but the clinics won't be the same across the entire fleet," he said last October soon after the first new clinic opened in Georgia. The first locations were stand-alone clinics next to Walmart supercenters. Newer versions are inside existing stores. Critics, including some industry analysts, health-care experts and physician groups, argue that Americans aren't ready to accept their local drugstore as a trusted health provider. Some also say the depth and complexity involved in successfully treating chronic conditions can't be addressed by pharmacy chains. Health-care industry lines are being redrawn and providers are under pressure to revamp themselves. A high-profile health venture backed by Amazon, JP Morgan Chase &Co. and Berkshire Hathaway Inc. has shown little to the public three years after it was announced . The venture's chief executive recently stepped aside . Walgreens has been working with VillageMD since last year when the companies opened five joint VillageMD locations in Houston. Walgreens' Mr. Gourlay said patients' adherence to medications improved at the pilot locations, convincing the company the model should expand. VillageMD, which has bought up primary-care offices across the country, will move existing physicians into the Walgreens-adjacent clinics. The cost of a VillageMD office visit will vary based on the patient's insurance coverage and services rendered. Half the clinics will be in medically underserved areas, and will offer a sliding payment scale to uninsured patients. Walgreens said it hasn't yet set the list of planned locations.

• Identify the major problems found in the case. Ensure that you distinguish between causes and symptoms. Causes may include changing customer preferences, increased competition, etc. Symptoms include declining revenues, loss of brand equity, increased customer churn, etc.
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