“Look, Ma, No Hands!” The Retail Clinic Thing Is Harder Than It Appears

May 6, 2024
Walmart’s announcement that it was abandoning its health center strategy speaks to the challenges facing the disruptors in healthcare delivery

In an indication of how challenging the primary care retail clinic landscape has become, Healthcare Innovation Senior Contributing Editor David Raths reported on April 30 that, after five years, Walmart Inc. “announced that it is closing 51 Walmart Health centers as well as Walmart Health Virtual Care. The Arkansas-based retail giant said that due to a challenging reimbursement environment and escalating operating costs, it is not a sustainable business model to continue,” he wrote, adding that “The company will continue to operate 4,600 pharmacies and more than 3,000 vision centers.”

Interestingly, as Raths noted, “As recently as last year, the division was in expansion mode. In March 2023, the organization announced it would expand to Missouri and Arizona in 2024.and open 28 new Walmart Health Center locations, nearly doubling the organization’s footprint. Walmart also had partnered with Dayton, Ohio-based CareSource, a nonprofit managed care organization, to address racial health disparities. The three-year deal planned to combine Walmart’s position as a health and wellness services provider and CareSource’s role in administration and delivery of Medicaid, Medicare, and other health plan benefits.”

Raths quoted a statement from Walmart that noted that “The decision to close all 51 health centers across five states and shut down the virtual care offering was not easy. We understand this change affects lives – the patients who receive care, the associates and providers who deliver care and the communities who supported us along the way.”

Also writing of the corporate decision on Apr. 30, Forbes’s Bruce Japsen noted that “It’s the latest blow to the retail health clinic model, with the retail giant saying it will close its 51 Walmart Health centers in five states and Walmart Health Virtual Care, which is the retailer’s telehealth business…. Walmart didn’t disclose how much the shutdown will cost the company, which spent tens of millions of dollars over the last five years opening primary care centers that were typically more than 5,000 square feet in size and included an array of primary care services, dental and mental healthcare as well as X-rays, immunizations, and chronic condition management,” he noted.

Japsen further noted that, “Just one month ago, Walmart said it planned to add 22 new locations in 2024, deepening its presence in Texas while opening new sites in Missouri. A sixth market, Arizona, was expected to see an expansion in 2025 where the company doesn’t yet operate Walmart Health facilities. But Walmart executives said the business environment became increasingly more difficult to recruit healthcare professionals and physicians amid a U.S. healthcare staffing crisis and a tight labor market.”

Meanwhile, in a report also published on Apr. 30, the New York Times’s Jordyn Holman quoted David Silverman, a retail analyst at Fitch Ratings, who noted that offering healthcare is more difficult than selling consumer goods like laundry detergent and car parts. As Silverman put it, “The attempts to enter these spaces and some of the failures of doing so really underscore the challenges and complexities of operating in the U.S. health care space.”

Holman also noted that, “In 2021, Amazon, Berkshire Hathaway and JPMorgan Chase ended their high-profile joint health care venture, which sought to explore new ways to deliver health care to their employees. In March, Walgreens said it had closed 140 of its VillageMD clinics and planned to close 20 more.”

Indeed, as Healthcare Innovation Contributing Editor Geert De Lombaerde noted on March 28, the leadership of Walgreens Boots Alliance on that date “announced that they’ve booked a $5.8 billion charge against profits because the financial performance of VillageMD, a key pillar of that healthcare portfolio, is now expected to be worse than before and because its peer clinic operators are being valued at lower multiples. Walgreens invested more than $6 billion in VillageMD via two deals in 2021 and 2022 and last year put to work another $3.5 billion when VillageMD acquired Summit Health-CityMD,” De Lombaerde noted. “The company now owns 53 percent of VillageMD, which rang up revenues of $1.6 billion in Walgreens’ second fiscal quarter—a 20 percent pro forma jump from the prior-year period. The Village leadership team has been closing clusters of its clinics and making other cost cuts in recent months to focus on a smaller number of cities where it has dense store networks. Last fall, the venture set out to close 60 of its 680 locations but in January raised that number to 160. About 140 of those closures have been completed already.”

So: clearly, all of these kinds of operations are turning out to be more difficult and complex than anticipated. I honestly think that there are two different phenomena going on here; they are separate but have totally come together in the current moment.

First, there is the difficulty of penetrating the healthcare industry from the outside. Walgreens, yes, is “healthcare,” but historically, it was drugstores. And of course, Walmart was and is discount consumer retail outlets. For decades now, entrepreneurs and large corporations outside of the healthcare delivery system have looked with saucer-like eyes on the sheer size of the nationwide healthcare delivery system, which currently consumes upwards of $4.6 trillion a year in total nationwide annual expenditures, and, according to the Medicare actuaries, is set to grow to $7.2 trillion by 2031—and have imagined wild profits, if only they could get in somehow.

But as so many corporations have found out, among them, Google, Microsoft, IBM, and the collaborative of Amazon, Bershire Hathaway, and JPMorgan Chase, executing on the promise inevitably turns out to be hyper-complex. And if a corporation does not already have consumer engagement, the challenge becomes monumental. Even now in our post-pandemic healthcare market, consumers are still at least somewhat invested in their bricks-and-mortar-based healthcare systems, with names that they know locally and trust, at least to a significant extent. Convenience is becoming a huge element, yes; but convenience alone can’t necessarily move markets, as these non-healthcare-based corporations are finding out. And that even applies to Walgreens, which, yes, in the broadest sense, is in healthcare, but only on the pharmacy side, not as an actual provider of a range of patient care services.

And the other element here is the extent to which the operational challenges endemic inside the bricks-and-mortar healthcare world are inevitably going to challenge the disruptors as they try to gain footholds in our industry. As the reports from consulting and advisory firms like Kaufman Hall continue to note, the single biggest cost headaches remain around staffing, and within that area, clinician staffing is the biggest issue—and within that area, nurse staffing remains at a near-crisis level. And so non-core entrants are inevitably going to face the same issues, and perhaps even to a greater extent, because, again, they lack long-term webs of relationships that can keep nurses in particular working inside bricks-and-mortar hospitals and health systems, even given a range of dissatisfaction-related issues. In this clinician job market, how many nurses are going to want to work in a potentially career-unstable environment, with, in some cases, potential pay cuts compared to working inside bricks-and-mortar-based health systems? There are layers of complexity there, but for the most part, the complexities still favor the bricks-and-mortar health systems over the disruptor entrants.

So yes, this all turns out to be much harder than it looks from the outside. Healthcare, as those inside it already know, is one of the most complex industries in the U.S. economy. And, as the Fitch analyst David Silverman noted to the New York Times, delivering patient care is more complex than selling laundry detergent and car parts. Well…yes.

So, who can say exactly how all this will play out over the next few years? But one thing is clear: the hasty predictions of some observers that the disruptors would totally upend healthcare very quickly, have not panned out as anticipated. That is not to say that disruptors won’t make inroads into bricks-and-mortar healthcare; they already have, to some extent. But anyone who had predicted that this would be a cakewalk, was overly confident in an area that required some reflection first.

 

 

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