Beleaguered pharmacies chart a risky transformation

Why it matters: The retail pharmacies are making huge investments in providing more and more health care services, all while contending with growing competition from other retail giants and digital upstarts like Mark Cuban's drug company

• But it's not clear when these efforts to "transform" how health services are provided will pay off for the companies, or if they will meaningfully lower costs for consumers or make it less frustrating to access care. And the companies have even scaled back some efforts amid financial pressure.

The big picture: Companies like CVS Health, Walgreens, Rite Aid and Walmart are pitching themselves as a more convenient option for patients than traditional providers, having spent billions to build out their offerings.

• In more and more stores, customers can get a range of care: primary, specialty, behavioral and even dental services.
• The pharmacy chains have launched digital tools for easier scheduling, and pharmacists in some areas now offer wellness screenings, diagnosis and prescribing for certain conditions, and connections into clinical trials.
• They're also leaning into mail-order drugs, as Amazon and Walmart test drone delivery to grab a larger slice of that business.
• As CVS last week unveiled plans to make drug costs more predictable at checkout, it also announced a rebrand of its health offerings as "CVS Healthspire" — an indication of the company's ambitions to tie those services together.
• Traditional players like hospitals and physician groups are closely watching their moves. Consulting firm Bain & Company estimates new primary care models from nontraditional players such as retailers could capture as much as a third of the U.S. primary care market by 2030.

What they're saying: Part of the pharmacy chains' big bet on health care is tied to an "existential" question about their future, said Peter Bonis, chief medical officer at consulting firm Wolters Kluwer Health.

• Evolving consumer preferences, more competition from online players and the decline in COVID-related business are contributing to the pharmacy chains' troubles.
• "The retail setting itself and prescription medications have been a really challenging business for a long, long time," Bonis told Axios. "This is a journey that's been bumpy and it's going to continue to be bumpy."

Situational awareness: It's been an especially challenging year for the pharmacy chains.

• CVS Health and Walgreens recently announced plans to scale back their primary care initiatives, as they look to slash costs and close underperforming stores. Rite Aid declared bankruptcy this fall.
• Some have struggled with labor shortages and were recently hit with walkouts of pharmacy staff, who raised safety and quality concerns.
• Online competitors like Amazon and Mark Cuban's Cost Plus Drugs have made it harder for pharmacy chains to rely on products sold at a loss to drive traffic into their stores, said Nathan Ray, who leads health care mergers and acquisitions for West Monroe.

Zoom in: The pharmacy chains have spent years trying to control a bigger part of the health care business.

• Take CVS Health, for instance. It owns the nation's largest pharmacy benefit manager and scooped up health insurance giant Aetna a few years ago.
• An Aetna patient might be steered to get care at one of CVS' Health Hubs or Oak Street Health primary care clinics — which CVS acquired for over $10 billion this year — and then pick up their drugs at a CVS pharmacy.
• And retailers are also looking to connect their pharmacy customers back to their retail offerings. Executives at Walmart Health and Kroger Health have described a future in which health care providers at their locations can diagnose a patient with diabetes, get them medication and advise them on healthy diet options — all without leaving their stores.

Reality check: All this change is primarily oriented toward improving the customer experience and making health care more convenient. It's not clear it can overcome health care's biggest cost and access headaches.

• The transformation in some cases has been slow. Walgreens, after undergoing a major leadership shakeup this fall, tapped a longtime health care executive as CEO to expand that business.

What's next: A big question is how these legacy brands not typically known as health care providers can differentiate themselves in the eyes of consumers.

• Experts say they expect the pharmacy chains to keep adding on services, such as programs to manage popular new anti-obesity medications, dental care or still-controversial cancer screening blood tests.
• If these organizations can create a smoother, more integrated system, it could ultimately help patients use more health care without increasing costs, West Monroe's Ray said.
• "I think that the whole thing gets smoother. It's going to be more digitalized ... it's going to be a more of a cohesive experience," Bonis said. "They're not nearly there yet, in my view, but they'll get there."