A lot has been written about the recent closure of Walmart Health, which shuttered all 51 Walmart Health Centers and sold off its virtual care business, as well as the news that Walgreens-backed VillageMD is closing nearly 50% of its clinics. Both of these big pullbacks came as somewhat of a surprise, given that both companies had previously shared their plans to continue their expansions into healthcare delivery in the months leading up to their closure announcements.
Some health systems may find themselves wondering if the retreat of both Walmart and Walgreens proves that primary care delivery is just too hard for disruptors to find success. And some in the Southeast, particularly in Florida where both companies operated multiple clinics that are now closed, may even feel a slight reprieve from the competition for consumers in their markets.
Although it’s true that these newer healthcare delivery entrants have both struggled, traditional provider organizations should not assume that healthcare is too difficult to disrupt, or that retail disruptors will continue to fail in the future.
There are a few important reasons why health systems shouldn’t fall into the trap of thinking that retail healthcare disruptors will continue to fail:
- Retail healthcare disruptors with an insurance component are showing more promise. Both Walmart and Walgreens (at least currently) lack a major component that can make a primary care business model more successful: neither owns an insurance company nor has real access to premium risk beyond what they can negotiate with payers for. But this is not the case for all major retail disruptors.
For example, CVS owns health insurer Aetna and has been able to structure lower cost health plan offerings, especially in the Medicare Advantage (MA) market, that leverage its retail store-based clinics, including its HealthHUBs. In 2023, CVS acquired Oak Street Health, a large network of primary care clinics primarily used by seniors, and, in contrast to Walgreens and Walmart, has recently said that it plans to open 50-60 more clinics in 2025. CVS CEO Karen S. Lynch has pointed to how the company can structure benefit designs to drive Aetna MA patients into Oak Street Health centers. But CVS is not immune from investor scrutiny of its healthcare ambitions, and is reportedly looking for a private equity partner to fund Oak Street’s future growth.
Over the years Walmart has flirted with acquiring a health insurance company (rumors usually pointed to Humana), and in 2022 it inked a major, 10-year contract with UnitedHealth Group (UHG), which many thought would lead to cost-sharing incentives for UnitedHealth plan members to use Walmart Health Center facilities. However, this contract did not deliver this vision in time, and the closure of Walmart Health also brought an end to Walmart’s co-branded MA plan with UHG, which was part of the contract.
In a noteworthy new development, Humana’s CenterWell healthcare services arm announced in July a deal with Walmart to lease 23 former Walmart Health Center locations to open new CenterWell Senior Primary Care and Conviva Care Center-branded primary care clinics in six metro areas across Florida, Georgia, Missouri, and Texas. By steering its Medicare Advantage beneficiaries toward these centers, Humana may find more success than Walmart at these locations next to Walmart Supercenters. - Retail healthcare disruptors without an insurance component can create other revenue streams beyond the cash-pay business. Although it increasingly accepted insurance, Walmart primarily operated its Health Centers as a cash business, providing low-price services that consumers could pay for out-of-pocket. It struggled to generate the volume of patients needed to make revenue exceed the expense of running and staffing them with physicians. But this kind of business model is not the case for other major retail disruptors that lack an integrated payer.
For example, Amazon has largely pinned its healthcare delivery strategy on its 2023 acquisition of One Medical, which is a membership-based primary care practice. This subscription approach, also known as a concierge model, generates a monthly or annual flat fee on top of individually billing patients’ insurers for care services. Amazon is now trying to cross-sell One Medical membership to its huge base of 180 million U.S. Prime members. In late 2023, it began offering One Medical membership, which includes nationwide on-demand virtual care at no additional cost, to Prime members for only $9 per month or $99 dollars per year. As of spring 2024, One Medical is planning to add new clinics and expand into new markets.
Its future success may depend on how many individuals it can get to sign up, as the future of its employer contracts—which were a significant driver of its growth, pre-Amazon acquisition—may be shaky. Case in point: Google, which made up roughly 10% of One Medical’s revenue before it was acquired by Amazon, just announced in July that it will not renew after its current contract expires at the end of 2024. Google had offered its employees free or discounted memberships to One Medical, and even hosted some One Medical clinics in Google offices. - Retail healthcare disruptors that fail can still come back. Walmart and Walgreens have both revenue and physical footprints that dwarf even the largest health systems. Although they can be held accountable by shareholders for accused healthcare missteps, they have access to capital and plenty of motivation to leverage their loyal consumer base to compete for a share of the growing healthcare delivery market.
Walmart especially has proven that it’s not afraid to experiment with healthcare in different ways, even if it means failing. Walmart Health Centers were the retail giant’s latest effort at health care delivery, after having tried at least two major iterations of in-store care before that, neither of which reached their lofty expansion goals and both of which were unceremoniously scrapped (for more on Walmart’s healthcare delivery journey, see our recent infographic).
A tangential bit of interesting Walmart history: the company’s trial-by-error business approach doesn’t just apply to healthcare. Back in the mid-1980s, Walmart didn’t sell groceries. It began its expansion into grocery by experimenting with a new, proof-of-concept store format that combined general merchandise with grocery for the first time. It joint-ventured with a grocery chain, as well as other businesses, to create indoor, mall-like stores called Hypermart USA. It opened four of these huge stores, but at more than 220,000 square feet, customers found them too large and difficult to navigate. Walmart quickly pivoted its plan to opening the first Walmart Supercenter in 1988, which also included groceries but used a floor plan in the 125,000 square foot range. The rest is history, as Walmart currently has more than 3,400 Supercenters nationwide and is now the largest grocery store chain in the county, accounting for more than one-quarter of all U.S. grocery sales. Today, nearly 60% of all Walmart sales are in food/grocery.
Closing thoughts
Although it may seem like the competition for consumers has lessened with the recent closure announcements from both Walmart and Walgreens-backed VillageMD, it’s important for traditional healthcare providers to stay the course on their consumer-centric strategies. They can’t ignore the consumer demands that disruptors are trying to meet: easier, more convenient access, at more transparent, if not also lower, prices. This should be a goal shared by all in healthcare delivery.
Meeting these growing consumer demands will also increase consumer loyalty and allow systems to capture a greater percentage of their patients’ healthcare spend (also known as “share of wallet;” click here for more on consumer-centric metrics). Health systems focused on access improvement across the care spectrum have the added ability to also reduce care fragmentation for their patients, thereby tying a higher-quality patient experience to a stronger business of healthcare delivery.
