Walgreens and VillageMD: Why the Primary Care Bet Failed

Walgreens' VillageMD bet failed because store traffic could not fill primary-care clinics fast enough to make capitated Medicare Advantage economics work, and Walgreens opened hundreds of clinics and paid about $8.9 billion for a fee-for-service specialty group before the model had proved itself. When Medicare Advantage costs rose and CMS cut risk scores in 2023–24, the losses arrived all at once. Walgreens recorded about $12.4 billion of pre-tax impairments in fiscal 2024 and about $3.0 billion more in fiscal 2025 (reported).

The plan had been announced with confidence. In October 2021 Walgreens paid about $5.2 billion to take roughly 63% of VillageMD and set a goal of 1,000 "Village Medical at Walgreens" clinics by 2027. By the time Sycamore Partners took Walgreens private in August 2025, about 90 co-located clinics remained (Forbes, reported), and VillageMD was separated to be sold in pieces.

What was VillageMD?

VillageMD was founded in 2013 by Tim Barry, a former health-plan executive, Clive Fields, a Houston primary-care physician, and Paul Martino, who had spent about three decades at Cigna and Anthem. It started in the conference room of Fields's Houston clinic with about $4 million from angels, friends and family. The model was a management services organization for independent practices: VillageMD supplied data, care coordinators, technology and payer contracts, and physicians shared in the savings from value-based contracts.

Its analytics showed that a small group of frail seniors, especially those with heart failure and COPD, drove a large share of hospital admissions, so it built care management and home visits around them. Venture rounds from Oak HC/FT ($36 million, 2015), Athyrium ($80 million, 2018) and Kinnevik ($100 million, 2019) followed. By 2019 VillageMD was a mid-sized value-based care company in a crowded field with Oak Street Health, ChenMed, Aledade and Privia.

Retail changed its trajectory. VillageMD pitched Walgreens a clinic of about 3,000 square feet next to a store, with about nine exam rooms, a lab and a clinical pharmacist on the team. After a Houston pilot in late 2019, Walgreens committed $1 billion in July 2020.

What was the Walgreens–VillageMD strategy?

Walgreens' pharmacy margins were shrinking, and its rivals were integrating. CVS owned Aetna and Caremark; UnitedHealth's Optum employed tens of thousands of physicians. Walgreens owned stores and pharmacists, and wanted a care business.

The co-location thesis claimed three advantages. Patient acquisition: about 75–80% of Americans live within about five miles of a Walgreens (company figure), so store traffic and pharmacy customers could feed clinic panels cheaply. Pharmacy integration: prescriptions filled next door, with a pharmacist on the care team, could improve adherence and generate dispensing revenue. Real estate: under-used store space could be converted for less than a new clinic.

Why did the clinics lose money?

The core problem was time. A new primary-care clinic follows a J-curve. It takes years to fill a physician's panel, and a clinic paid by capitation earns its best margins only once its senior patients' conditions are documented and their care is managed, often three to five years in.

The book's stylized full-risk center makes this concrete. A first-year patient brings $1,000 a month of capitation, because diagnoses are not yet documented, and costs $950 in medical care, leaving $50 of medical margin that the $45 care-team cost almost consumes. By the fourth year the same patient brings $1,100 and costs $860. The example center turns EBITDA-positive only in year four, needs about $10.1 million of funding at the trough, and has not paid back by year eight. Opening hundreds of centers at once multiplies the trough.

The store did not shorten the curve. Walgreens' later chief executive, Tim Wentworth, said in 2024 that openings had slowed partly because operators could not fill patient panels (Forbes, reported). Independent analysts noted that store traffic skewed toward younger, commercially insured or uninsured patients seeking convenience, while the economics depended on enrolling Medicare Advantage seniors in long-term relationships. Earlier research had warned that convenience clinics add visits rather than replace them: one estimate found about 58% of retail-clinic visits for low-acuity conditions were new use (Ashwood and colleagues, Health Affairs, 2016, reported). The clinics also needed physicians during a severe primary-care shortage.

Chapter 6 of the book puts it plainly: the retailers assumed foot traffic and brand trust would fill panels and that clinic visits would lift pharmacy sales, and both effects were small.

Why was the Summit Health–CityMD deal a mistake?

In January 2023 VillageMD closed its ~$8.9 billion purchase of Summit Health–CityMD. The rationale was to add specialists, to keep referrals inside a value-based network, and urgent care as a front door. But Summit and CityMD were overwhelmingly fee-for-service businesses serving commercially insured patients in the New York area. They added revenue and goodwill and diluted the value-based model.

The timing was poor. The deal closed just before Medicare Advantage cost trends turned in mid-2023 and as interest rates were rising. It was financed with about $3.5 billion from Walgreens and about $2.5 billion from Cigna, plus debt, on a growth plan that soon stopped. After Summit, most of VillageMD's revenue came from a business with different economics from the one Walgreens had bought into.

How did Medicare Advantage changes hit VillageMD?

From mid-2023 Medicare Advantage utilization rose faster than plans had priced. In 2024 CMS began phasing in its V28 risk model, which removed about 2,000 diagnosis codes it judged discretionary and cut risk scores for many plans and risk-bearing groups. Rate notices tightened.

Every risk-bearing primary-care company felt it. agilon health collapsed, Cano Health went bankrupt in February 2024, and CVS later impaired Oak Street. For VillageMD, which had promised returns built on the capitation economics of 2021, the gap between the formula and the cost closed while hundreds of clinics were still in the expensive early years of the J-curve. Our explainer on how Medicare Advantage plans make money explains the formula that moved under it.

How did the unwinding play out?

The retreat began in late 2023. VillageMD closed about 60 clinics that year and about 160 in 2024 (reported), exited Florida, Indiana, Rhode Island and other markets, and co-founder Tim Barry stepped down in November 2024. Walgreens moved from equity holder to senior secured lender, with about $3.4 billion owed to it as of February 2025 (reported), so in any sale it would recover its loans before equity holders such as Cigna. Cigna's cumulative loss reached about $2.7 billion.

When Sycamore closed its take-private of Walgreens on 28 August 2025, VillageMD became a standalone business. Harbor Health bought 32 Texas clinics in September 2025 and agreed in October 2026 to buy 27 more in Houston. On 21–22 October 2026 Horizon Blue Cross Blue Shield of New Jersey agreed to buy Summit Health's New Jersey operations, pending. A federal judge also let part of a securities suit against Walgreens over clinic-opening statements proceed in January 2026 (reported).

Did any retailer get primary care right?

Walgreens was not alone. Walmart announced in April 2024 that it would close all 51 of its health centers. Amazon took a different path: it bought One Medical, a membership practice with a roughly $199 annual fee and a strong consumer brand, for about $3.9 billion, closing in February 2023, and kept it intact. One Medical had never made a profit as a public company, losing about $254.6 million in 2021, so Amazon's bet is not yet proven either. But it bought an operating model with patients attached rather than trying to build hundreds of clinics from store traffic.

The value-based companies that held up best were asset-light enablers of independent practices, such as Aledade and Privia, which is close to where VillageMD began in 2013.

Which factor of the Care Equation did VillageMD fail?

The Care Equation argues that a healthcare business needs care that works, a payer with a renewing budget, an affordable route to that payer, and proof. The factors multiply.

VillageMD's care was plausible, and Medicare Advantage was a willing payer. Walgreens' bet was on the third factor: that store distribution would reach patients more cheaply than anyone else could. It did not. The clinics' patient-acquisition advantage proved small, while the cost of physicians, space and the early-year losses of capitation proved large. Then the second factor weakened, as the Medicare Advantage formula paid less for the same patients after V28. The book's summary of the retail wave is that the retailers bet distribution through their stores would make up for an imperfect payer, and it did not.

A fourth-factor problem sat underneath. There is no peer-reviewed evaluation showing that the co-located model produced better outcomes or lower costs than standalone primary care. Walgreens set a 1,000-clinic target before the model had shown it could earn money at scale.

What are the lessons?

Prove the cohort before you scale the count. Mature-clinic margins, time to break-even by opening year and panel size per clinician reveal what company totals hide.

Distribution is only an advantage if it reaches the payer's member. Store foot traffic reached convenience shoppers. The money was in seniors enrolled in Medicare Advantage.

Do not buy a different business to fix the first. Summit–CityMD added fee-for-service revenue and goodwill to a value-based thesis that was already behind plan.

Price policy risk into capitation. Revenue that depends on a risk-adjustment formula is exposed to every model change. The book's comparison of fee-for-service vs value-based care explains why, and the broader map is in how the healthcare industry makes money.

The takeaway

Walgreens tried to buy its way from dispensing margins into value-based primary care and spent about $9.7 billion learning that a pharmacy's foot traffic is not a Medicare Advantage panel. The clinics needed years to mature, the Summit deal changed what VillageMD was, and the payment formula tightened before the bet could pay off. The write-downs that followed were among the largest in US care delivery. For why primary care attracts so much capital and returns so little, read Chapter 6, Physicians and Outpatient Care.