Sometimes, industry news breaks that is both shocking and not surprising at the same time. That happened this week when Walmart Health announced a major change to its retail health strategy. Specifically, ending primary care services.
Along with Amazon Health, Walmart was one of the big, original “disruptive” forces to traditional healthcare. This decision obviously casts doubt over the future of that space. Yet, this is no time to back away from innovation or efforts to improve the patient experience. It’s not a time for anyone to declare “victory.”
Victory over what anyway? Patients are losing access to primary care at time when that is already a huge societal problem. There are no winners in that outcome. Smart healthcare leaders will keep going full speed ahead on making care better and more accessible for those we serve.
Why did this happen?
In a March 2020 blog post, I wrote the following about Walmart’s announcement to aggressively expand into primary care:
“These clinics will have to be profitable and only Walmart knows how long, and just what it will take, to get there. This is not an altruistic effort and a healthy margin will be required to make it worth the effort for them to keep these going in the long run.”
The long run turned out to be about four years.
To many of us with long careers working in healthcare, Walmart’s announcement was shocking, but it’s actually not surprising for several reasons.
Walmart believed it could use its financial scale and retail locations to offer convenient, low-cost services to patients in mostly rural and underserved areas that lacked adequate primary care services. It was a compelling proposition, but not without clear challenges.
The simplest answer to what happened to the company’s vision is probably the most likely. Primary care is a low-margin service with very high labor and supply costs. It’s tough to do well and make it sustainable.
Primary care is a challenging fit for retailers who prefer high-margins and have historically been able to tap into a readily available, low-skilled workforce to meet labor needs.
Walmart’s statement makes that clear:
“The challenging reimbursement environment and escalating operating costs create a lack of profitability that make the care business unsustainable for us at this time.”
In short, Walmart realized that profitability wasn’t going to happen and cut its losses.
Traditional health providers have struggled with this situation for at least the last two decades. There was much speculation that retailers like Walmart might be able to finally crack the code. In this instance, that proved very wrong.
Nevertheless, to see Walmart Health close everything at once was a genuine surprise.
A slowdown in growth wouldn't have surprised me. I constantly wondered about low profit margins and staffing costs every time I saw news about a new Walmart Health expansion. The math for expenses versus revenues just didn’t pencil out to me.
What are healthcare leaders saying?
This news was the talk of social media throughout the week. Some accused healthcare leaders of celebrating. I don’t see it that way.
For years, we’ve heard that the disruptors have keen insights into consumer behavior that would fix all the problems plaguing traditional care delivery models. When concerns were raised about the challenges inherent to healthcare, they were waived away.
Another item I included in my blog from 2020:
"We're going to have a consumer revolution in retail for point of care," John Sculley on Feb. 26 told CNBC Make It. "Why? Because if the Walmart tests are successful, and I suspect they will be, people will be able to go in and get these kinds of health services at a lower cost than if they had health insurance."
It all sounded so easy, but the revolution isn't happening - at least for Walmart.
Overall, I don’t think people are celebrating the news. Yet, it does validate how challenging healthcare can be – even for the most sophisticated, consumer-driven companies.
This article from Fierce Healthcare shares a variety of perspectives, including from Providence's chief strategy and digital officer, Sara Vaezy:
“… low acuity types of services, whether in the primary care or virtual care space, have relatively low barriers to entry. A lot of folks can get involved in them and they can seem relatively commoditized. And then they're competing with each other, and with us, as large health systems, for the right clinical talent and the right administrative talent to really operate these organizations to their full potential”
“I think they're just realizing that it’s not just about dipping your toe and taking your share of the $4 trillion of healthcare spending in this country. It’s a lot more nuanced and complicated than that. When they don't have a continuum of care to connect the patients to, it doesn't really work from a numbers perspective.”
In the same article, Forrester Principal Analyst Arielle Trzcinski added:
“In what was already a tall order, additional headwinds have only increased in the last couple of years … primary care is often a loss leader for larger health systems but serves a critical role as a feeder of patients and customers for specialty care and procedures. Without those higher revenue opportunities, retailers must achieve high levels of adoption and volume to unlock profitability.”
Both are saying the same thing I have been thinking for years: the math just doesn't compute. Profitability was going to remain elusive. So, Walmart pulled the plug.
What comes next?
Walmart will close all its health care clinics across the country. The change will impact 51 health centers across five states and shut down Walmart’s virtual care offering as well. The company will continue to operate nearly 4,600 pharmacies and more than 3,000 vision centers.
A timeline for when things will shut down has not been released, but already we’re seeing employees post about the unwinding on social media. Patient concerns will follow.
Walmart acknowledged those impacts in its statement,
“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 … our priority will be ensuring the people and communities who are impacted are treated with the utmost respect, compassion and support throughout the transition.”
Sadly, this abrupt shutdown means the immediate access to primary care will suffer in many communities. A big question is how much this could help other providers shore up their own primary care services. Almost all health systems have more openings for primary care providers than they can fill.
That could be a bit of a silver lining.
👇💡 The key takeaway
This will probably not be the last news like this given how challenging the primary care space is proving to be for disruptors. Solutions that address the issues of access and pricing that spelled the end of this venture for Walmart Health won’t be easy to come by. It’s a long game, and we’re seeing who is most serious about playing it.
Healthcare is hard. Healthcare disruption is harder.
Note: Parts of this blog post – authored by me – were first published here by the Society for Healthcare Strategy and Market Development (SHSMD).