The big new threat facing Walgreens and Blue Cross in Illinois
Healthcare powerhouse CVS Health is making a play for more business in Illinois, setting up a showdown with local giants Walgreens and Blue Cross and Blue Shield of Illinois.
With more than 9,900 retail stores, 23 million people in its health insurance plans and pharmacy benefit management services covering 105 million, the self-styled “healthcare innovation company” offers a wider array of services than less-integrated rivals.
Now CVS, which merged with health insurer Aetna in 2018, is expanding in Illinois through government-run health insurance programs and medical clinics in its drugstores. By steering members toward its pharmacies and clinics, CVS gains more control over patient outcomes and costs. And as the Woonsocket, R.I.-based company steps up its presence here, it will put pressure on Deerfield-based Walgreens and Chicago-based Blue Cross, which historically have dominated in their home state.
“Illinois is really Walgreens’ home turf, and it’s a little bit challenging for a competitor to get in,” says Syed Husain, managing director at advisory firm PJ Solomon’s pharmacy and health care practice. “CVS always had a presence, but what happened with the Aetna acquisition—and ultimately (last year’s acquisition of a Medicaid managed care company in Illinois)—is, now there’s a reason to expand and maybe substantiate the presence a little more.”
Nationally, CVS is the largest pharmacy chain and the sixth-largest health insurer by market share. But in Illinois it trails Walgreens, which has 183 more stores in the state, and Blue Cross, which controls the vast majority of the local health insurance market. According to the latest data from the National Association of Insurance Commissioners, CVS ranks third in Illinois with 12% of the market, just behind UnitedHealth Group with 12.3%.
But under CEO Karen Lynch, previously Aetna’s president, CVS is focusing more on its health insurance segment—and particularly how that business works in tandem with the company’s other assets.
“That combination of consumer-centrism is really something that should be able to set CVS apart from some of its peers, even in similar business lines,” says Morningstar analyst Julie Utterback.
Aetna’s health plan covering Illinoisans who are eligible for both Medicare and Medicaid benefits has grown 27% year over year to nearly 9,500 members, or 15% of the market, the latest state data shows. But enrollment is expected to balloon starting next month, when Aetna’s plan becomes the first in Illinois to expand into all 102 counties. Corey Taliaferro, Aetna Better Health of Illinois’ executive director, predicts the expansion will double enrollment to 18,000.
On another front, Aetna entered Illinois’ Medicaid managed care program late last year after acquiring the Medicaid—as well as Medicare Advantage—business of Centene. The move comes three years after the state narrowed the number of payers participating in the program, forcing Aetna to exit.
“From Aetna’s perspective, this was a terrific opportunity to get a little more of a footprint on the payer side and help drive some traffic to their physical footprint on the pharmacy side,” Husain says.
Even though Medicaid has the lowest margins, many insurers are beefing up their offerings as the Biden administration expands access to the health insurance program for the poor and disabled. From January 2020 to May 2021, enrollment in Illinois’ program increased 25% to 2.6 million members, according to state data.
The company also aims to enter Affordable Care Act exchanges next year in up to eight states “where we believe we can make a meaningful impact and maximize returns with our first-ever Aetna-CVS branded offerings,” Lynch said during the latest earnings call.
Following significant losses, Aetna stopped selling Obamacare plans in Illinois and other states in 2017.
CVS spokesman Charlie Rice-Minoso declines to say whether the company plans to rejoin the Illinois marketplace. But during the earnings call, Daniel Finke, president of the company’s Health Care Benefits segment, said the ability to “connect our strategies around the use of CVS assets”—such as MinuteClinics and HealthHUBs—is a factor in selecting the states.
When deciding which markets to enter, Aetna is likely to consider the 16 states, including Illinois, where it already offers Medicaid plans, says Ari Singh, a senior research analyst at investment management firm Neuberger Berman. Singh says he expects that individuals who enroll in the impending exchange plans will be encouraged to get care at CVS clinics, either through low or no copays.
Aetna’s focus on government-sponsored health insurance in Illinois could eat into Blue Cross of Illinois’ membership. Meanwhile, Aetna can offer incentives to steer health plan members toward its CVS pharmacies and clinics, boosting retail and pharmacy sales while also giving the company’s insurance arm more control over patients’ medical costs. Lacking retail clinics of its own, Blue Cross has less influence over the medical costs its insurance plans are on the hook to cover.
Blue Cross didn’t respond to a request for comment.
On the retail side, CVS is launching 1,000 clinics nationwide with expanded medical services, including preventive care, diagnostic testing and behavioral health. Of the 871 HealthHUBs that have opened, 35 are in Illinois, including eight in the Chicago area, Rice-Minoso says, declining to say whether additional locations are expected to open in the state.
As CVS launches its HealthHUBs, archrival Walgreens Boots Alliance is opening primary care clinics of its own. Walgreens recently made a big bet on an integrated pharmacy and primary care model, investing $1 billion to put up to 700 VillageMD clinics in its stores in the next four years. The company is in the midst of opening 40 of the clinics, but none are in Illinois.
Walgreens says its “payer agnostic” approach expands the range of choices available to customers. Noting Walgreens has “proudly served Chicago and Illinois communities since 1901,” company spokesman Phil Caruso says the pharmacy chain has a network of payers and providers, as well as partnerships with hospital systems like Advocate Aurora Health and clinical laboratory services firm LabCorp, that enable it to give patients access to the services they need.