Introduction
There is a hard truth about retailers and blue-chip corporations attempting to conquer the healthcare
sector: not one of them has found a long-term formula for success in the retail healthcare maket.
Dana L. Jacoby, the CEO of Vector Medical Group, LLC, cited several factors related to the mistakes that
were made. They included:
- A lack of understanding about patient and provider habits.
- Many had no clear value proposition for patients and no real ability to recruit prominent or well-respected
providers. - A misunderstanding about the partnerships needed in health care and the initial investments needed
to create long-term successes as well as the fact that retail health care success requires an investment
in piloting future successes. - Health care is based on patient case studies, clinical insights and deeply seeded habits.
- Many of the retail entrants were unaware of the change management metrics and habitual change
needed to move the needle in patient care and optimal outcomes.
Analysis of the retail healthcare business model also reveals that margins can be razor-thin or non-existent.
“During COVID, innovative retail healthcare entrants enjoyed a brief blip of success when patients, or prospective
patients, would get COVID tests, vaccine therapies or virtual care through clinics that were outside
of the ‘traditional’ healthcare model,” said Jacoby. “Unfortunately, when COVID had subsided from a
full-fledged pandemic back to normal living, patients went back to their original habits. As a result, many
of the virtual and retail healthcare successes were thwarted from future growth.
“Recent entrants into health care…have quickly realized how difficult healthcare metrics are to define
for long-term success.”
Walmart
A prime example of this challenge has been Walmart’s experience in the sector. The behemoth retailer’s
massive presence in the everyday life of American consumers was never a guarantee of success.
Walmart earlier this year issued its decision to shutter 51 healthcare centers in five states. It also shut
down its telehealth operation known as Walmart Health Virtual Care. The company did not reveal the
costs involved with the closures. Reports indicate expenses in the tens of millions of dollars spent during
the past five years related to opening the primary care centers. They typically featured more than 5,000
square feet and provided mental and dental health care, primary care services, immunizations, chronic
condition management and X-rays.
“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,” Walmart executives said in
a statement. “The challenging reimbursement environment and escalating operating costs created a
lack of profitability that makes the care business unsustainable for us at this time.”
Executives at Walmart Health determined that the company was susceptible to staffing shortages
that have impacted the healthcare sector since the COVID-19 pandemic. The news represented a
dramatic reversal compared with the plans the retail giant had for health care. Walmart announced
plans in 2019 to open in-store health clinics, reportedly as many as 4,000 during the following decade.
Walgreens
But Walmart is not alone in failing to achieve success in the U.S.’ expanding healthcare market. Walgreens
is examining the possibility of exiting its 53% stake in VillageMD.
A Securities and Exchange Commission filing revealed that, “The company is evaluating ‘a variety
of options’ in light of ‘VillageMD’s substantial ongoing and expected future cash requirements.’”
Walgreens’ options regarding the primary care provider include selling all or part of its stake in VillageMD,
a restructuring or other opportunities, the company said.
The turnaround is dramatic considering a June earnings call in which CEO Tim Wentworth said Walgreens
intended to remain “an investor and partner” in VillageMD, which operates primary care clinics as Village Medical. Walgreens acquired a majority stake in VillageMD by spending $5.2 billion three years ago. This was after it spent $1 billion a year earlier for a smaller investment. Also, VillageMD last year extended its reach into urgent care and multispecialty care with an $8.9 billion purchase of Summit Health-CityMD (read about that deal on LevinPro HC here).
However, VillageMD shut down more than 150 locations this year. Walgreens had said VillageMD would
close only 60 locations as part of a $1 billion expense-reduction plan revealed following Wentworth
being named CEO.
VillageMD received $2.25 billion in senior secured credit facilities from Walgreens almost two years ago
as VillageMD completed the Summit-CityMD transaction. After loan defaults and talks with third parties
and stakeholders regarding the company’s future involvement, Walgreens announced entering into a
forbearance agreement.
The bottom line was realized at VillageMD when it posted a $6 billion loss. Jacoby commented on the
specifics surrounding the companies’ exit from the sector. For Walgreens the factors included a stock
price loss, the inability to staff clinics with providers, financial losses and overhead constraints. Walmart
Health’s situation included reimbursement challenges, provider overhead, brick-and-mortar costs and
financial losses.
CVS and Others
Also struggling in the healthcare space is CVS Health Corp. It cut its 2024 earnings outlook for the third consecutive quarter and announced plans to save $2 billion as healthcare expenses continue to skyrocket. CVS Health has started to close pharmacies in Target stores, and it has been reported that CVS’ in-store MinuteClinic, which has more than 1,100 locations, revealed that there will be dozens of clinic closings throughout New England and southern California.
Other businesses have entered the space despite the daunting challenges. Dollar General tried to
leverage its presence at three stores in Tennessee with mobile clinics offering some minor medical services.
But Dollar General shut down a pilot program with DocGo, which is a mobile care provider. The
partnership began in 2023. Dollar General had declared a goal to become a health destination.
And Amazon launched One Medical, which includes a fee of $9 per month for Prime members. However,
Google said it will not renew its contract with One Medical. The relationship had provided Google
employees with access to discounted medical care. Google had accounted for 10% of One Medical’s
revenue in 2020.
Jacoby added that future retail health care success will feature new entrants including digital wearable
companies and artificial intelligence solutions. “One of our large multi-specialty clinic clients is giving
each of their patients a complementary Fitbit to track health data while also deploying artificial intelligence
billing solutions to track remote billing and coding opportunities for the wearable virtual care,”
Jacoby said.
Looking back, what should the retailers have done to achieve success? “They should have committed
to piloting success prior to such an aggressive rollout,” Jacoby said. “They should have spent more time
interviewing key stakeholders in health care, including providers, payors, supply chain and pharma/
medical device companies to navigate their launch and scale vs. trying to overlay a retail consumer
goods model on top of healthcare expertise. [They also should have] realized that health care is a human,
capital-intensive business and scaled slowly vs. ramping up with a lot of provider headcount up
front.”
Despite the headwinds faced by retailers, Jacoby believes they may at some point have a future in the
sector. “Future winners in retail health care will require a compilation of stakeholders vs. just a siloed
minute clinic, medical practice or hospital,” Jacoby said.
“Retail healthcare players may look like they have had failures, but their entrance into health care has
provided successful intel around what works and what does not work for retail healthcare models to
thrive long-term. Even with certain divestitures within their retail models, they already own the supply
chain, analytics intel and patient purchase behavior metrics, which will ultimately lead to their long-term
success, and partnerships with others, in the space.
“With health care being nearly 20% of our GDP, companies that have insights related to patient demographics,
cost savings, habits and outcomes data will be the ones that ultimately get retail health care
‘right.’ The question is: How, ultimately, do you define ‘right’ in health care?”
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Written by Glenn Kalinoski of LevinPro HC
