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Walgreen ties growth to 'several thousand' work health clinics
Bloomberg News
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Published: 7/1/2009 1:01 PM

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Walgreen Co., the second-largest U.S. drug-store chain, may open "several thousand" work-site health clinics in coming years to tap into the $7.3 billion market for employer-provided care, a company executive said.

Walgreen, which currently has 373 employer-sponsored workplace clinics, will slow retail store expansion to focus in part on the initiative, Peter Hotz, president of Walgreen's Take Care Employer Solutions Group, said yesterday in a telephone interview. The facilities provide primary-care physicians, nurse practitioners, nutritionists and other services, he said.

"We are absolutely looking at this as a business unit that's going to be sizeable, that's going to be accretive, that's going to be tangible," Hotz said.

By expanding its Take Care unit, Walgreen is betting that it will be in a position to benefit from companies' efforts to trim health-care costs. Workplace clinics may shave a company's medical expenses by 30 percent and may serve 10 percent of the U.S. population under 65 in the next six years, according to a study by consulting firm Fuld & Co.

Walgreen, based in Deerfield, gained 4 cents to $29.44 at 12:47 p.m. in New York Stock Exchange composite trading. Before today, the stock had risen 19 percent this year.

In May 2008, Walgreen purchased workplace health providers I-trax Inc. and Whole Health Management LLC. The workplace businesses were rolled into its existing in-store medical services business under the name Take Care Health Systems. The work-site clinics range in size from one to 50 employees and may comprise pharmacies, physical therapy, exercise facilities and nutritionists, Hotz said.

Walgreen expects to break out sales and profit from the Take Care unit in financial statements within the next 18 months, Hotz said. It receives management fees that are on average 30 percent more than staffing costs, he said.

The company is the largest provider of workplace health clinics, with a 20 percent market share, according to Michael Ratcliffe, a consultant who studies job-site clinics for Cambridge, Massachusetts-based Fuld.

The biggest threat to Walgreen's dominance may come from hospitals looking to provide the same service, Ratcliffe said.

"If hospitals get into the area, it will be an easier sell to employers than it would be for Walgreen," he said.

The clinics may help Walgreen nab sales from other drug- store chains, such as Wal-Mart Stores Inc. and CVS Caremark Corp., as employees who can fill their prescriptions at work forgo other retailers, Hotz said.

They also give Walgreen a "place at the table" when companies make healthcare decisions, which may steer additional business to its drug stores, specialty pharmacy and drug infusion business, he said.

Wal-Mart's business model for filling prescriptions in stores provides customers with "one-stop shopping and the convenience to mark more items off their list," said Christi Gallagher, a Wal-Mart spokeswoman. Michael DeAngelis, a CVS spokesman, didn't immediately return a call seeking comment.

Energy services provider McDermott International Inc., based in Houston, has used Walgreen for employees in Lynchburg, Virginia, for the past three years. It's expanding the partnership to its Babcock & Wilcox division in Barberton, Ohio, said Dan Helman, the company's director of environmental health and safety.

Walgreen will provide a primary-care physician, a nurse practitioner, a small pharmacy and physical therapy for 2,200 employees at a plant that does nuclear power research for the U.S. government, he said. The clinic will open in mid-July and is Walgreen's largest new facility this year.

"With health-care costs rising, we at least are seeing some reduction in our premiums and direct costs," Helman said.

Other Walgreen customers include Qualcomm Inc., Goodyear Tire & Rubber Co., Walt Disney Co., and Toyota Motor Corp.

"On-site clinics and the companies that manage them offer a very efficient channel to link into these programs, which today are virtually untapped," Fuld's Ratcliffe said.