The waters have been rough for telehealth providers and retail clinics in the past couple years — to know that, one has to look no further than the stock prices of Teladoc and Amwell. Yet, amid this tempestuous sea, industry observers did not expect the crew of Walmart to raise the white flag of defeat on its healthcare effort.
If any company could navigate those choppy waters, many thought it would be Walmart, given how successfully the retailer has maintained its presence in so many parts of the American urban and rural hinterlands. However, on Tuesday, the Arkansas-based retail mainstay announced that it is shuttering Walmart Health division because “there is not a sustainable business model” for the venture to continue. The admission only reinforced the tired but potent cliche – healthcare is hard.
Established in 2019, the division comprises 51 retail primary care clinics across five states and a virtual care business.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
“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. This is a difficult decision, and like others, the challenging reimbursement environment and escalating operating costs create a lack of profitability that make the care business unsustainable for us at this time,” Walmart said in a statement.
Unaffected by this announcement are its nearly 4,600 pharmacies and more than 3,000 vision centers that aren’t part of the Walmart Health division.
Walmart’s decision reflects just how difficult it is to achieve profitability in the primary care and telehealth markets — and how this challenge is being exacerbated by rising healthcare costs, labor shortages and outdated business models.
Will retail entrants ever be successful in their efforts to integrate into healthcare?
A Personalized Approach to Medication Nonadherence
At the Abarca Forward conference earlier this year, George Van Antwerp, managing director at Deloitte, discussed how social determinants of health and a personalized member experience can improve medication adherence and health outcomes.
Building primary care clinics from scratch has always been a slow and capital-intensive route, pointed out Rebecca Springer, lead private equity analyst at PitchBook.
Looking from a fee-for-service lens, primary care is known to be a low-margin, volume-oriented specialty. If the provider’s goal is to take risk, it requires an “enormous up-front investment” to build a clinic footprint dense enough to really drive down healthcare costs across a population — as well as make sure that the population is large enough to be actuarially sound, Springer explained.
In her view, there are three main questions when it comes to retailers in primary care — the first one being: Will retailers be able to fully integrate and profitably run healthcare assets?
“The jury’s still out on that one,” she said. “It’s not easy, but CVS and Amazon may succeed.”
That may well be true down the road, but the evidence so far doesn’t inspire confidence in that outcome. Amazon threw in the towel on its hybrid primary and urgent care business nearly two years ago. This year, CVS Health has begun shuttering dozens of its pharmacies in Target stores, and Walgreens announced that it will close 160 of its VillageMD primary clinics.
The second question has to do with retail healthcare settings’ ability to support the kind of longitudinal patient relationships needed to succeed in value-based primary care. So far, we haven’t seen much evidence of this at scale, Springer stated.
The final question is whether retail healthcare can actually achieve a more holistic view of the patient by leveraging consumer data — and we’re “nowhere close to answering that one,” according to Springer.
She noted that Walmart’s decision to shutter its healthcare unit aligns with industry trends.
“Scaling back retail care delivery and virtual primary care has become as ‘trendy’ in 2024 as accelerating these offerings was in 2021,” she remarked.
Headwinds can be strong
Healthcare labor costs are increasing drastically, and providers are leaving the industry in droves. These circumstances restrict retailers’ ability to deliver care that is convenient and highly accessible — yet that is their key value proposition for consumers — noted Arielle Trzcinski, a principal analyst at Forrester, in an email sent to MedCity News.
“Administrative burden and costs from health insurers have also increased, with some large health systems dropping major insurers and plans in response,” she added. “Consumers are being left to search for a new provider that is in-network mid-plan year. Retailers that bill insurance are not insulated from these additional issues.”
Additionally, large health systems have more opportunities to unlock profitability in primary care than retailers do.
Primary care is often a loss leader for health systems — but this category serves a critical role as a feeder of patients to specialty care and surgical service lines. Without those higher revenue opportunities, retailers must achieve high levels of adoption and volume to achieve profitability, Trzcinski explained.
Clearly that didn’t happen at Walmart Health.
Another healthcare analyst — Kate Festle, a partner in West Monroe’s healthcare M&A group — pointed out that retail clinics tend to follow an encounter-centric model where patient interactions with the clinician are confined to the visit.
That model can work among healthy populations, but it is less effective for chronic condition management that requires higher-touch, asynchronous communication between visits, Festle said.
“Investment in care coordination technologies is possible but expensive — representing another cost dilemma for retailers focused on margin expansion,” she remarked.
Primary care and telehealth are unforgiving markets
Similarly to the retail healthcare market, the telehealth market hasn’t fared very well this year. Just a week ago, Optum disclosed its plans to shut down its virtual care unit. And two of the country’s largest telehealth providers — Teladoc Health and Amwell — have both enacted major rounds of layoffs this year.
These events, along with the Walmart news, reflect the realities of the total addressable market for telehealth, which is “effectively zero,” said Sanjula Jain, Trilliant Health’s chief research officer.
“Healthcare operators tend to adopt the ‘if we build it, they will come’ mentality but that has not panned out when it comes to telehealth utilization,” she declared.
Companies that want to enter the healthcare delivery market need to know that facilitating access does not guarantee adoption, Jain added. She noted that this false notion is why we continue to see supply exceed demand.
According to the fundamentals of economics, prices get lower when supply exceeds demand. In some instances, lower prices can create more demand — but that has not proven to be the case in the telehealth market, Jain pointed out.
Old models simply don’t work
Admitting that Walmart’s business model is not sustainable underscores a larger issue plaguing the U.S. healthcare system, said Monica Cepak, CEO of Wisp, a telehealth provider that offers upfront pricing instead of working with insurers.
“Walmart shuttering its in-store clinics and discontinuing its telehealth program emphasizes the challenging reimbursement environment and escalating operating costs many healthcare providers are struggling with today,” she stated. “In doing this, Walmart is loudly saying that these existing business models are not profitable.”
Ashok Subramanian — CEO of Centivo, a health plan for self-funded employers — sees things differently.
To him, the main takeaway from Walmart Health’s shutdown is that companies need to stop attempting to layer new solutions on top of the existing system. This approach will never be an effective way to deliver coordinated care or truly improve access, he wrote in an email.
“Walmart highlighted a ‘broken business’ model as the reason for closing its brick-and-mortar and virtual care services. What is actually broken is the entire model of financing uncoordinated, fragmented healthcare services at uneven prices with no correlation to quality,” he explained.
What does this mean for the future of retail healthcare?
Going forward, large retailers will likely start thinking about their role in healthcare in a much more employer-focused manner, predicted Springer of Pitchbook.
Just as retail interest in primary care clinics helped drive investment in the space a few years ago, she thinks there will soon be growing investment in employer-facing solutions for primary care, chronic condition management and benefits navigation.
“[Employers] have national, diverse employee populations, and like all, employers are facing rising healthcare costs. If you can solve it for your employees, maybe you can roll it out to other employers too. This is the direction Amazon seems to be taking, and Walmart also has a nationwide program for its employees with Included Health that has seen some early success,” Springer remarked.
Included Health is a benefits navigation startup that sells its platform to employers. Robin Glass, the company’s president, wrote in an email that she doesn’t think the Walmart news represents a bad moment for telehealth or primary care providers. Instead, she thinks the news is “a clear signal of an appetite to clear the way for a new chapter of modern healthcare.”
Ideally, this new era will be characterized by less commodity solutions and a deeper focus on longitudinal support for patients, Glass wrote.
“This is good news for consumers, clinicians and for companies like us who’ve been building a more robust and holistic modern healthcare experience -— one that goes beyond being convenient and transactional to highly personalized and seamlessly connected to all of healthcare’s highest-quality resources and settings.”
Another healthcare leader — Derek Streat, CEO of DexCare, a startup offering health systems a platform to help them coordinate and manage digital care — noted that the Walmart news is a cautionary tale of the complexities that affect the country’s “fragile” healthcare system.
This delicate system will be pressure tested as more people live with chronic conditions, physician burnout reaches crisis levels, more Americans reach the age of 65, Streat explained.
To get ahead of these challenges, healthcare providers must move away from a fragmented view of care and toward a predicted model, he declared. This approach must be backed by technology that can manage how, when and where care is accessed, he added.
“The fact that Walmart, atop the Fortune 100, cannot make a buck in healthcare should be a wakeup call for the industry at large. The hurdle is not technology, but changing how we operate,” Streat said.
Photo: ComicSans, Getty Images
