Crain’s health care reporters Katherine Davis and Jon Asplund talk with host Amy Guth about how Chicago-area hospitals are coping with dwindling supply levels of IV fluid after Hurricane Helene halted production at a North Carolina Baxter plant.
Plus: Walgreens is closing stores and bleeding cash, but new CEO insists it's hitting long-term marks; Blue Cross antitrust lawsuit reaches $2.8B tentative settlement; True Value files for bankruptcy to sell itself to rival Do It Best; and Adams Street raises $1.2 billion for venture investments.
Walgreens plans to close 14% of its stores over the next three years. And I'll talk with Crane's healthcare reporters, John Asplund and Catherine Davis, about how local hospitals are coping with a shortage of IV fluid after Hurricane Helene halted production. - So what we know from Baxter right now is that they are shipping up to 60% of normal volume to their customers. So that includes health systems, as well as third party suppliers. - I'm Amy Guth and this is Crane's Daily Jist for Wednesday, October 16th. (upbeat music) When I dive deeper into the topics you've heard here, read the full stories and get access to all of Crane's award-winning coverage with a Crane's Chicago Business subscription. Crane's Daily Jist listeners can get 20% off a one-year Crane's Chicago Business digital subscription by visiting Chicagobusiness.com/jist and using promo code JIST at checkout. Once again, to redeem this offer, visit Chicagobusiness.com/jist and enter code JIST to get this deal while it lasts. (upbeat music) I'm joined by Crane's reporters, John Asplund and Catherine Davis, here to talk about how Chicago hospitals are coping with a stressed supply. After Hurricane Helene halted production of a Baxter plant in North Carolina. Welcome to the podcast, always a pleasure to have you both. I think it's actually the first time I've had you both on at the same time. - That's funny that it's taken this long to have us both on here, Amy. - I know, finally. - Happy we're doing it. - Indeed, all right, so tell me what's going on. You reported that this plant in North Carolina, this Baxter plant has closed and in particular, it's impacting IV fluid. Tell me about that. - Yeah, Baxter International is a big Fortune 500 company headquartered here in the Chicago area. But one of their key IV fluid manufacturing plants in North Carolina was recently flooded by Hurricane Helene. And so it's been shut down for a couple of weeks now and it's starting to affect hospitals across the country and the amount of IV supplies they have on hand. And we checked with some local hospitals here in Chicago and they're starting to experience a shrinking runway of those supplies. So far, they say patient care hasn't been impacted, but I think if the shortage continues and if this Baxter plant continues to remain closed, we could see shortages, true shortages in the near future. - Right, we're hearing from hospitals that they're not shut out of the supply chain but they're not receiving their whole allotments. So they're looking at conservation and watching the inventory. - Yeah, in your reporting, you noted some kind of different strategies that hospitals are taking. What stood out to you? Is it generally kind of the same protocol at all of them? Or are some of them trying different things for their particular patient base? - So what we know, we have good details coming out of Sinai, Chicago, the area's largest safety net hospital system. And like John said, they have instituted various conservation and mitigation measures to optimize the supply of 250 and then 500 IV bags that it is usually getting from Baxter. And they say, ways that they're trying to conserve supply is IV bags are commonly used for hydration. And so in cases where it's appropriate and patients can handle it, they are just switching to oral hydration methods so that they can conserve IV bags or things like blood transfusions or administering chemotherapy to cancer patients, other types of procedures where there is no other way to do that type of work. - And what have you heard from Baxter in terms of kind of timeline and replenishing supply or how they're handling distribution right now? - So what we know from Baxter right now is that they are shipping up to 60% of normal volume to their customers. So that includes health systems as well as third party suppliers. And so far, they are expecting or at least hoping to be back at nearly 100% of shipments by the end of the year. But from what we understand, there's a lot of cleanup that needs to be done at the North Cove, North Carolina plant still. And so they are hoping that health systems can get supplies from other manufacturers if they can meet the demand. But what we do know is that the Baxter plant supplied about 60% of the IV supplies to the healthcare market, making it of course the largest and a really key and important one as well. So we'll have to see if other suppliers are able to match that supply and that demand. But so far it's not looking too good. - Yeah. And in your reporting, you noted the American Hospital Association, which is based here in Chicago. And the FDA have urged the Biden administration to intervene and take some steps here to mitigate the shortage. Talk to me about that. - AHA has been working with Baxter and Health and Human Services and other federal agencies to try to mitigate the shortage. One of the things that just recently came up was on Friday the FDA issued guidance to both hospital pharmacies and outsourcing pharmacies that they could begin manufacturing fluids on the FDA's shortage list that were a result of the North Cove Baxter plant shutdown. So doesn't limit the storage of the fluids to 24 hours, but they've got to have a beyond use date on each of their bags. The guidance also lets the pharmacies wait on testing the product with the FDA until the manufacturer has produced 5,000 units. So that would last as long as there's a shortage situation. - Yeah, I was just about to ask that very next question of kind of our other manufacturers sort of stepping in to grab some of the market share right now and help mitigate that shortage. - It could have been a lot worse with Hurricane Milton because another IV solution manufacturer, Lee Braun, has a facility in Daytona Beach that could have been affected by Hurricane Milton, but it did not sustain a lot of damage and is back up and running. That company, which makes 20 something percent of the IV solution supply, says that it's going to increase its production both in California and in Daytona Beach. So they are going to hopefully be able to pick up some of the slack. - On that note, Amy, I'll just say, I think watching what this plant closure does to Baxter's business will be really interesting. You might recall that we covered Abbott Laboratories shutting down a Michigan baby formula plant a couple of years ago after some contamination concerns. And that significantly impacted their market share in the baby formula sector. And I think that is certainly something that investors are watching for right now is how this closure for Baxter will impact their business. The IV fluid business at Baxter brings in about a billion dollars in annual revenues. Half of those are from the US, which means most of them come from this North Carolina plant. So if they say offline for too long, the company could risk losing market share at least temporarily. And so far, investors are just sort of cautiously watching to see the business implications here. - All right, well, I'm sure there will be more to talk about with this down the line, but I appreciate you both stopping by today to give an update. Thanks so much. - Thanks, Amy, this was great. - Thanks, Amy. - Coming up, a Blue Cross antitrust lawsuit reaches a $2.8 billion tentative settlement. We'll talk about that and more right after this. (upbeat music) - Thanks for listening to Crane's Daily Gist. Remember, we provide a daily news brief that drops right in your inbox. It's our newsletter called The Crane's Morning 10. They're the 10 stories that will fuel a smarter workday. To subscribe, visit ChicagoBusiness.com/Morning10. - This is The Crane's Daily Gist with Amy Guith. - Catherine Davis reported that despite posting $3 billion in losses and announcing a plan to close 14% of its stores, Walgreens Boots Alliance CEO Tim Wentworth said the struggling pharmacy chain is meeting its goals to cut costs and refocus on its pharmacy retail routes. Davis noted that Wentworth, who has been in the top role for nearly a year, told investors that under his leadership, Walgreens has successfully built a new management team, conducted a strategic review of the entire business and cut costs by more than a billion dollars. So far, cost-cutting initiatives, which included closing stores and laying off workers, have contributed to positive cash flow for the full fiscal year ending August 31st. Davis noted that moving forward, Walgreens is focused on optimizing its store footprint and controlling operating costs. Wentworth also said he's focusing on what he described as reorienting Walgreens to its legacy business as a retail pharmacy-led company. But as Davis also noted, the business is still bleeding considerably as it reported $3 billion in losses in the fourth quarter. Those losses are related to tax charges on opioid liabilities and a write-down of an investment in a Chinese pharmacy company. Walgreens now projects earnings per share in the range of 140 to 180 in fiscal year 2025, guidance that met Wall Street estimates. Davis reported that the renewed focus on the pharmacy retail business will require Walgreens to right-size its footprint to a profitable place. Of Walgreens, about 8,000 stores, only 6,000 are profitable. A fact that's led to the decision to close about 1,200 of them over the next three years. Wentworth said the remaining 800 are still being evaluated. Walgreens will close stores with negative cash flow, ones that are underperforming and on property owned by the pharmacy chain, or have leases expiring in fiscal year 2025. Savings from store closures will be used to invest and improve the profitable remaining stores. And Walgreens says it intends to deploy workers from closing stores to other stores, or in other parts of the corporate division. Davis noted that Wentworth said he's also focusing on improving the merchandise lineup offered in stores, saying that the company is being more selective with national brands and expanding its own, and has a focus on health and wellness products as well as women's health items. Davis reported that on the pharmacy side of the business, Wentworth suggested Walgreens is getting more aggressive in a multi-year process to quote reframe its relationship with pharmacy benefit managers, middlemen between drug manufacturers and pharmacies that largely said drug prices for consumers. Pricing pressure from such PBMs have long taken its toll on Walgreens earnings. But Wentworth said the company has worked with some to bring more stability and predictability to its reimbursement, while also maintaining broad network access. As for Walgreens' healthcare unit, Davis reported that the company previously disclosed intentions to offload all or part of its majority stake in Village MD. On Tuesday, Wentworth did not provide investors with any specific timeline or plan for that goal. He did, however, say that potential sale proceeds would help further shore up Walgreens balance sheet. Crane's sister publication Modern Healthcare reported that the Blue Cross Blue Shield Association and its 33 member companies will pay $2.8 billion and change the way they operate under a tentative settlement reached with a collection of providers. Modern Healthcare reported that the multi-pronged settlement would end a 12-year legal battle concerning allegations that the companies and the Chicago-based Nonprofit Association violated the Sherman Anti-Trust Act of 1890 by colluding to suppress competition and lower reimbursements. It also would change the company's blue card program system for dealing with out-of-network patients. Modern Healthcare also noted that the settlement must be approved by Judge R. David Proctor of the U.S. District Court for the Northern District of Alabama Southern Division. Reporting also noted that litigation over the blue's plan's conduct started in 2012 in a case filed by a chiropractor in Alabama who challenged an alleged agreement among the member companies not to sell insurance in each other's service areas. 19 other lawsuits filed by small providers from hospitals and systems were eventually consolidated into a single complaint. According to the settlement memorandum filed on Monday, the 33 independent blues, the Nonprofit Association and the providers reached an agreement on October 4th after nine years of negotiations. The proposed settlement is national and would apply to any provider who treated a Blue Cross member from July 2008 to October 4th of this year and agrees to be part of the agreement. Modern Healthcare also noted that the settlement reserves $100 million to notify providers about and enforce the settlement's terms. Plain tips attorneys would receive up to $700 million. Healthcare facilities would get 92% of the remaining $2 billion in funds and healthcare workers will receive the remaining 8%. The settlement would also lift an association rule that limits the hospitals that blues plans can contract with to those that are within or contiguous to their service area, which was often a single state. The settlement would allow hospitals to contract directly with blues plans across state lines to treat out-of-state patients with the health insurance and that would expand the contracting ability of more than 500 hospitals, also according to the memo. The agreement also would require the 33 blues and the association to create a single cloud-based platform for their blue card system, which providers can use to track claims, ask questions, and submit prior authorization requests, among other things. The plans also must adhere to uniform prompt payment when paying blue cards claims, according to the memo, and a committee would monitor compliance with the settlement terms for five years. True Value Company filed for bankruptcy in Delaware on Monday as it seeks to sell its business to Hardware Rival, Do It Best Corporation. Bloomberg reported that the Chicago-based home improvement company will continue to operate under Chapter 11 protection with Do It Best, providing a so-called stalking horse bid, meaning that it's subject to better offers should any materialize that according to a company statement. The bidder offered to pay $153 million in cash according to the bankruptcy filing. In the filing, the company said it faced significant liquidity challenges and hired who'll hand Loki and May as financial advisor to review options. Bloomberg noted that True Value is the latest firm seeking Chapter 11 protection as inflation impacts household spending for discretionary goods in the US. Home, clothing, and hobby store chains dominate the list of distressed retailers, according to Moody's ratings. Bloomberg further noted in reporting that True Value is seeking to use its cash collateral to support the business through the sale process, and it has received a commitment from Do It Best to provide additional capital. The company serves a network of 4,500 independently owned and operated retailers. Bloomberg also noted that the company has estimated liabilities between $500 million and $1 billion, and assets between $100 million and $500 million, according to the Chapter 11 filing. Private equity firm Acon Investments purchased a stake in True Value in 2018. Private investment firm, Adam Street Partners, raised $1.2 billion for three of its venture capital funds. Crane's Mark Weinrod reported that the Chicago-based company said the capital raise exceeded its target, growing more than 40% from its previous target. Weinrod reported that the money will be spread across three of Adam Street's funds. Its venture innovation fund four, Leaders Fund Two, and Adam Street Venture Select Fund 2023. It declined to say how much each fund will receive. Adam Street, which has more than $60 billion in assets under management, said the capital raise was oversubscribed. Weinrod reported that venture capital investments have slowed during the past two years as high interest rates have raised costs. But the Federal Reserve's recent 50 basis point cut in rates boosted hopes of increased activity in the sector. Weinrod also noted that a year ago, Adam Street Partners closed its 2023 Global Fund program with $820 million in committed capital. (upbeat music) That's Crane's Daily Just For Now. Check in on our continuous news feed at ChicagoBusiness.com. Thanks so much to both of today's guests, Crane's reporters, John Asplund and Catherine Davis. You can follow all of our conversations on Apple Podcasts, Spotify, or wherever you like to get your audio on demand. Don't forget to subscribe and please rate and review Crane's Daily Just. Our show is produced by Todd Manley at Earsight Studios. I'm Amy Gooth. Thanks so much for listening, and I'll meet you right back here next time.
