Walmart and other retail companies' efforts to use a big box formula in healthcare have not gone as planned, The Wall Street Journal reported July 5.
Walmart announced plans to shutter all 51 health center locations and discontinue its virtual-care services in April. According to the Journal, the company was unable to establish a sustainable business model despite positive patient feedback.
Other players are also facing similar challenges. Following a series of clinic closures in multiple states, Walgreens Boots Alliance said in June it plans to reduce its stake in primary care provider VillageMD.
Walgreens Boots Alliance CEO Tim Wentworth said in a June 27 earnings call that the shift comes amid changing customer demographics and preferences, adding that 75% of the company's roughly 8,600 stores are responsible for nearly all of its retail profits.
Along with other big retailers like CVS and Amazon, companies have been pushing physician practice acquisitions. This trend peaked between mid-2022 and early 2023, according to the Journal, with 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.
In February 2023, Amazon finalized its acquisition of One Medical, giving the company access to more than 200 brick-and-mortar physicians offices and roughly 815,000 One Medical members.
According to the Journal, Amazon seems to be using a concierge approach with a monthly fee to offer services, but has "so far struggled to turn itself into a major player in healthcare." This year, it has announced plans to close some corporate One Medical offices and also eliminated a few hundred roles at One Medical and in its online pharmacy unit Amazon Pharmacy.
CVS Health is focusing on primary care.CVS closed on its $11.5 billion acquisition of Oak Street Health in May 2023.
At its peak, it seemed that primary care was to become a big-box service integrated in the shopping experience.
Craig Garthwaite, PhD, a strategy professor at Evanston, Ill. based Northwestern University, told the Journal that applying Walmart's cost-reduction strategies to healthcare is more difficult that it might seem. The high costs associated with medical professionals do not lend themselves to the economies of scale that Walmart's model requires.
Additionally, the cost of medical professionals has skyrocketed in the last year amid a severe shortage while Medicare reimbursements continue to plummet.
According to the Journal, there's still potential for profitability, but it might not be with primary care.
Walgreens' VillageMD's value-based care model includes a fixed fee per patient, but it requires substantial patient resources, which Walgreens doesn't have, according to the report. Another roadblock for Walgreens is that it doesn't have an integrated insurance company, unlike CVS' Aetna.
CVS Health was aiming to emulate the success of UnitedHealth Group, which owns Optum, the country's largest employer of physicians. But, according to the Journal, CVS' earnings have disappointed investors. In May, Bloomberg reported that CVS Health is seeking an investor to fund the expansion of Oak Street.According to the report, clinics like Oak Street tend to lose money in the first few years of operating as they acquire patients for the joint-venture.
"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," Mike Pykosz, co-founder of Oak Street and now president of healthcare delivery at CVS, told the Journal, adding that the strategy has been to gradually expand and focus on Medicare patients.