Why drugstores stand to gain from Obamacare
The major drugstore chains want to be more than your corner pharmacy. They have come to play a central role during flu season. Now, they look to do the same when millions of Americans gain health coverage through the Affordable Care Act.
"The way they are going to do that is by helping encourage people who are currently uninsured to enroll for the exchanges and hope that that ultimately turns into higher script utilization in their stores," said analyst Ross Muken with ISI Group.
Walgreen's executives expressed cautious optimism about the potential impact of new insurance enrollment during their fourth-quarter earnings conference call Tuesday, the first morning of ACA open enrollment.
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Kermit Crawford, Walgreen's president of Pharmacy, Health and Wellness, said staff in stores would be approaching uninsured pharmacy customers about getting covered.
"We certainly have our pharmacists and all of our people prepared to ask questions as members, and those who are impacted, come into our stories," he said. "We think we're going to play a key role."
Analysts estimate that 5 million to 12 million uninsured Americans could be enrolled in coverage over the next six months, between the government insurance exchanges and the expansion of Medicaid eligibility under ACA.
Turning uninsured customers into patients with coverage could result in a bump in profits from the drugstore chains' core business of filling prescriptions.
But for Walgreen's and CVS, another big opportunity for expansion may lie just beyond the pharmacist's counter, with their in-store clinics.
"I think in general, their ability to play in more parts of Obamacare is key," Muken said.
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Walgreen's has nearly 400 clinics in its stores nationwide, while CVS Caremark operates more than 650 in-store clinics and intends to more than double that by 2017.
So far, the clinics have not been a profit driver for the drugstore giants, but analysts say that could change in 2014. Coverage for millions of newly insured begins Jan. 1, which could these people will find themselves needing care in the thick of cold and flu season when doctor's offices are mobbed.
"When a number of people come into the system, it tends to stress the provider networks, meaning there are only a finite number of primary care physicians to care for all these people," said Les Funtleyder, investment strategist with Poliwogg.
Funtleyder said he expects clinics could be especially attractive for those who enroll in lower-cost health insurance plans, for routine screenings for chronic illnesses such as diabetes, high-blood pressure, and high cholesterol.
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"They tend to be a little bit less expensive, and so if a clinic happens to be in your network, especially if you're under one of the higher deductible plans, your first stop may be a clinic at a pharmacy," he said.
Near-term, the drugstore chains face some pretty tough sales comparisons, after a very strong and early start to flu season last year. A slower start and lower sales volumes in the current quarter could weigh on shares.
Walgreen President and CEO Greg Wasson told analysts he's looking at Obamacare with a longer-term viewpoint.
"Next year is going to be hard to tell," he said. But over the long-term, Wasson said, "we think it's going to be a big benefit."
—By Bertha Coombs. Follow her on Twitter: @coombscnbc.