By Heather LandiApr 30, 2024 4:15pm
Walmart’s plan to close down its medical clinics in five states underscores the major challenges retail players face in their aim to “disrupt” primary care, healthcare leaders say.
Walmart is shuttering all 51 of its Walmart Health centers along with its virtual care services, the retail giant announced Tuesday morning.
“Through our experience managing Walmart Health centers and Walmart Health Virtual Care, we determined there is not a sustainable business model for us to continue,” company executives announced in a press release.
Walmart Health launched in 2019 and has since expanded to 51 facilities in five states.
Company executives said the decision to close all Walmart Health centers and shut down the virtual care offering “was not easy.”
“This is a difficult decision, and like others, the challenging reimbursement environment and escalating operating costs create a lack of profitability that make the care business unsustainable for us at this time,” executives wrote.
Walmart did not share a specific date for when each center will close.
The move is a dramatic turnaround from the retailer’s previously announced plans to expand its health clinics. Earlier this month, Walmart Health announced plans to open a new clinic in Houston, Texas, though headwinds have forced the company to push back the opening of clinics in certain regions until early 2025.
The retail giant said a year ago that it intended to nearly double its footprint by the end of 2024, opening 75 locations by the end of the year. However, a Walmart spokesperson told Fierce Healthcare in early April that pressures related to construction resources led it to pump the brakes on six health centers planned for the Phoenix region and four in Oklahoma City, delaying them to the beginning of next year.
That said, Walmart said it was still on track to open the planned 75 locations by early 2025, the spokesperson said last month.
The move comes as other retailers struggle with primary care businesses. Walgreens is scaling back the footprint of its primary care clinic chain VillageMD. The drugstore chain is in the process of shuttering 160 VillageMD locations.
VillageMD has already exited 140 locations and has exited or already notified patients that it is exiting Florida, Indiana, Chicago, Boston, Rhode Island and Las Vegas, Walgreens CEO Tim Wentworth told investors during the company’s fiscal 2024 second-quarter earnings on March 28. Walgreens reported a steep quarterly loss in Q2, reflecting a nearly $6 billion write-down in the value of its investment in VillageMD.
The retail pharmacy operator invested $1 billion in VillageMD in 2020 and then sunk $5.2 billion into the primary care company in 2021, making it the majority owner with a 63% stake.
Over the past five years, retailers like Walgreens, Walmart and CVS along with online retailer Amazon have been aggressively expanding their reach into healthcare to provide medical services. With their sights set on “disrupting” primary care, these companies touted more convenient access to care and affordable services.
Amazon bought One Medical in a $3.9 billion deal in 2022 while CVS picked up senior-focused Oak Street Health for $10.6 billion in 2023. CVS also bought home health and technology company Signify Health.
These deals helped to advance these companies’ push into value-based care.
But retailers are facing headwinds in their efforts to put a dent in the primary care space, noted Forrester Principal Analyst Arielle Trzcinski. “In what was already a tall order, additional headwinds have only increased in the last couple of years,” she said.
Like other brick-and-mortar providers, retailers face rising labor costs and clinician shortages along with tighter reimbursement rates from insurers, Trzcinski said.
“Primary care is often a loss leader for larger health systems but serves a critical role as a feeder of patients and customers for specialty care and procedures. Without those higher revenue opportunities, retailers must achieve high levels of adoption and volume to unlock profitability,” Trzcinski said.
“The news is a significant setback for retail health players, some of whom are now realizing that delivering retail-driven primary care may not be economically viable and certainly isn’t causing the disruption in local healthcare markets that many predicted,” said Rajiv Leventhal, Emarketer senior analyst, in an emailed comment.
As chain retailers offer more low acuity care services, it can create more fragmentation and siloed patterns of care, noted Sara Vaezy, executive vice president and chief strategy and digital officer at Providence.
“These low acuity types of services, whether in the primary care or virtual care space, have relatively low barriers to entry. A lot of folks can get involved in them and they can seem relatively commoditized. And then they’re competing with each other, and with us, as large health systems, for the right clinical talent and the right administrative talent to really operate these organizations to their full potential,” Vaezy said in an interview.
“I think they’re just realizing that it’s not just about dipping your toe and taking your share of the $4 trillion of healthcare spending in this country. It’s a lot more nuanced and complicated than that. When they don’t have a continuum of care to connect the patients to, it doesn’t really work from a numbers perspective,” she said.
Health systems offer primary and urgent care services along with access to specialty care that provides an integrated care experience and builds a longitudinal relationship with patients.
Vaezy contends that the most effective long-term strategy in healthcare is incumbent healthcare organizations collaborating with tech companies, digital health startups, big chain retailers and other players. These partnerships can help to provide care continuity for patients, she noted.
While Walgreens is scaling back clinics and Walmart is getting out of healthcare completely, CVS and Amazon are maintaining their growth plans. CVS chief executive officer Karen Lynch told Forbes in February the healthcare giant is sticking with its expansion strategy for Oak Street Health to open 50 to 60 clinics for seniors next year.
Amazon’s One Medical is building out its employer relationships and signing more health system partnerships. The primary care provider inked a major partnership with Health Transformation Alliance, expanding access to its services to 67 employers and nearly 5 million employees. CommonSpirit Health’s Virginia Mason Franciscan Health is teaming up with One Medical to provide specialty care to the online retailer’s primary care patients. It’s one of about 18 health system partnerships.
One Medical also is working with Hackensack Meridian in New Jersey to open multiple locations over the next several years.
“Given their scale, it’s not very believable that Walmart ‘cannot’ operate primary care clinics profitably, which calls into question why they haven’t – lack of interest, poor execution, etc.” said Hal Andrews, president and CEO of healthcare data analytics company Trilliant Health, in a written comment provided to Fierce Healthcare. “Whatever the reason, if the largest company in the largest country in the world cannot – or won’t – operate primary care clinics profitably, it is ominous for the future of rural healthcare in America.”
Trzcinski also noted that Walmart’s exit from primary care clinics could have a significant impact on patients in rural areas. “As medical deserts continue to expand, other retailers operating in healthcare should take action now to reassure patients of their long-term strategy to protect customer retention,” she said.
John August, program director of healthcare labor relations at Cornell University’s School of Industrial and Labor Relations, said he expects the healthcare consolidation trend to continue.
“Reimbursement rates have been flat and will continue to be, but my view is that this is less about reimbursements and more about profitability. Increased costs for staffing and retention of employees are driving consolidation in all sectors of healthcare. This dynamic is what recently drove Walgreens and Rite-Aid to close a number of their retail pharmacies,” August said in an emailed comment.
Walmart will no longer operate health centers but will continue to provide health and wellness services across the country through its nearly 4,600 pharmacies and more than 3,000 vision centers, the company said. Walmart said it has expanded the clinical capabilities of its pharmacies and touted the presence of its stores in medical provider shortage areas, often serving as the “front door of healthcare.”
Walmart said its optical business is growing and recently expanded with more than 200 vision centers along with new tech-enabled optical tools, like virtual try-on capabilities.
“We will continue to innovate as we grow our core businesses and launch even more services like the Walmart Healthcare Research Institute and health programs to join our fresh food and OTC offerings in helping our customers live better,” Walmart executives said.
Walmart Health shutting down, along with virtual care services (fiercehealthcare.com)