In a hit to its healthcare segment, which has a home care component, Walgreens Boots Alliance disclosed last week it incurred a major charge related to VillageMD and is closing 160 VillageMD clinics.

“As Village prioritizes density in their highest opportunity markets, they decided in January to exit a total of approximately 160 clinics, inclusive of the 60 that had been previously communicated,” Walgreens CEO Tim Wentworth said in a fiscal second quarter earnings call on Thursday. “As of today, they have already exited 140 locations.”

During the quarter, the company assumed a $5.8 billion after-tax non-cash goodwill impairment charge related to its investment in VillageMD. The charge dragged down the company’s net profit in the quarter, which suffered a loss of $5.9 billion. That compares to net earnings of $703 million in the year-ago quarter. Second-quarter sales increased by 6.3% from the year-ago quarter to $37.1 billion.

Still, the company touted the first-ever quarter of positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in its healthcare segment. VillageMD helped contribute to this growth,

“VillageMD’s actions to accelerate profitability, including recent rightsizing of their cost structure, optimizing their clinic footprint, and growing patient panels are driving improvement in adjusted EBITDA,” Wentworth said. “Full risk lives grew by 19% year-on year in the second quarter.”

Other company executives were bullish on VillageMD.

“During the first half of fiscal ‘24, we have seen positive financial impacts from the recent actions taken by VillageMD management team to accelerate profitability,” said Manmohan Mahajan, global chief financial officer. “We believe the focused approach on improving performance in core markets, as well as rightsizing the cost structure, will provide VillageMD a platform for future growth.”

Pandemic pullback?

The move to downsize VillageMD likely is an aftereffect from the pandemic, a period in which retail clinics thrived because they shifted resources away from hospitals and emergency rooms, which were contending with high numbers of COVID-19 cases, according to Andre Ulloa, a partner and executive adviser with M&A Healthcare Advisors.

“What we saw happen was these testing locations,” he told McKnight’s Home Care Daily Pulse. “And from an M&A and financial perspective, we saw a lot of people making a lot of money on these testing locations with all the government subsidy and all the monies that were coming in that didn’t have to get paid back and covering costs and all that. So we ended up getting these businesses that we knew were going to be obsolete.”

Still, there was a hunch even as the pandemic was subsiding that clinics like VillageMD could be a viable alternative to the urgent care clinic model, he said.

“I think they said maybe we can enhance the look feel and the services provided by an urgent care and repackaged as this clinic clinical space,” he said. “And then you see an uptick in those transactions over 2021 and 2022 and 2023 because a lot of folks were like, this could be a viable alternative especially if the government does provide some level of adequate subsidy for these services.”

Walgreens has been pushing to develop its healthcare segment in recent years, both in expanding VillageMD and buying a majority stake in Carecentrix, a home-centered platform that coordinates the delivery of durable medical equipment and home infusion. Paul Martino, the co-founder and chief strategy officer of VillageMD, said in 2021 that Walgreens’ $5.2 billion investment in VillageMD would open the door to home care and revolutionize primary care.