Walmart aimed to leverage its retail success formula in the healthcare sector, however, the experiment did not go as planned, The Wall Street Journal reported July 5.
In April, Walmart said it would be closing its 51 health centers across five states and discontinuing its virtual-care services. Despite positive feedback from patients who appreciated the convenience of these clinics, Walmart could not establish a sustainable business model, resulting in financial losses, the Journal reported.
Walmart is not the only major player rethinking its approach to healthcare. In June, Walgreens Boots Alliance said it plans to reduce its stake in VillageMD, a primary care provider, as part of a broader turnaround strategy. This decision follows a series of clinic closures by Walgreens, reflecting a larger trend of big companies pulling back from the healthcare sector.
Over the past few years, large retailers, private equity firms and insurers have aggressively pursued acquisitions of physician practices. According to the Journal, this trend peaked between mid-2022 and early 2023, marked by Amazon's $3.9 billion acquisition of One Medical, Walgreens' $9 billion investment to expand its medical practices and CVS Health's $10.6 billion purchase of Oak Street Health. At the time, it seemed that primary care was poised to become another big-box service seamlessly integrated into the shopping experience.
However, this vision has proved challenging to realize.
"Primary care is hard," Stephanie Davis, an analyst at Barclays, told the Journal.
Additionally, Craig Garthwaite, PhD, a strategy professor at Evanston, Ill. based Northwestern University, highlighted the difficulty of applying Walmart's cost-reduction strategies to healthcare. The high costs associated with medical professionals, such as family physicians and nurse practitioners, do not lend themselves to the economies of scale that Walmart excels at in retail, according to Dr. Garthwaite.
These ventures also faced poor timing. The cost of employing medical professionals has surged in the wake of the pandemic, exacerbating an already severe shortage. Concurrently, government reductions in Medicare payments have squeezed reimbursements, further complicating the financial viability of these healthcare initiatives, according to the Post.
Despite these setbacks, there is still potential for profitability in the healthcare sector, though it might require a different approach. Large hospital systems have long used primary care as a gateway to higher-margin services, directing patient traffic within their networks. This strategy, while lucrative, has often resulted in increased healthcare costs without necessarily improving patient outcomes, according to the report.
Walgreens' VillageMD is exploring a value-based care model, in which physicians are incentivized to keep patients healthy, earning a fixed fee per patient. However, this approach demands substantial financial resources, which Walgreens lacks, according to the report. Parker Snure, an analyst at Raymond James, told the Journal that the lack of visibility and marketing for VillageMD locations illustrates the challenges in building patient awareness and engagement.
Unlike CVS, which owns insurance company Aetna, Walgreens does not have an integrated insurance component, limiting its financial synergies, according to the report. CVS' acquisition of Oak Street aimed to replicate the success of UnitedHealth Group, which has long integrated healthcare provision and insurance. However, CVS' recent earnings have underwhelmed investors, prompting it to seek private equity partners to fund Oak Street's expansion.
Mike Pykosz, co-founder of Oak Street and now president of healthcare delivery at CVS, emphasized the importance of gradual growth and focusing on Medicare patients in underserved communities.
"If it were easy to provide higher-quality care and take on costs, we wouldn't have the problems with healthcare we have in this country," he told the Journal.
Another model gaining traction is the subscription or concierge approach, in which physicians charge a flat monthly fee for enhanced services, similar to Costco's membership model. Amazon is exploring this through One Medical, potentially using healthcare as a loss leader to bolster its Prime offerings. While Amazon has struggled to establish a significant presence in healthcare, its approaches and vast resources make it a formidable contender, according to the report.