Our Perspective on Retail Clinics: The Closures of Walmart Health and VillageMD
In late April, Walmart announced it will close Walmart Health and Walmart Health Virtual Care, five years after launching the service. In total, 51 health centers across five states will shutter. Some challenges that Walmart Health faced include low reimbursement rates in primary care and the costliness of attracting employees for clinics in low-income, rural areas.
Walgreens’ VillageMD also shut down 160 of their primary care clinics this year after reporting a nearly $6 billion loss in the second quarter. Retailers’ decisions to close these clinics highlight the fierce headwinds they face to deliver profitable healthcare services.
On the other hand, Amazon’s One Medical is planning to expand its health clinic presence in 2024 (despite laying off hundreds of employees in February).
CVS’s Oak Street Health is also looking to expand, and there’s word on the street that they’re looking for a private equity partner to fund that growth. This appears to be a hedge against the risks associated with building out clinics. Was this driven, in part, by the actions of Walmart and Walgreens? We can’t say for sure, but it’s certainly a sign that CVS doesn’t view clinics as a sure thing, even after paying $10.6 billion for Oak Street Health just 15 months ago.
So, what does this all mean for the healthcare landscape? We don’t have a crystal ball, but here are a few potential takeaways:
Having deep pockets isn’t enough to win when it comes to providing health care services. Pharmacy and vision benefits have long fit the retail environment but delivering primary care seems to have broken the model. It also shows that disrupting the existing system may be easier said than done. It will be interesting to see what happens with Oak Street and One Medical. Will they be able to achieve critical mass or is a retreat in their future, too?
Ultimately, for-profit companies put profits first. Closing primary care locations will, undoubtedly, disrupt the primary care of those who have been relying on the clinics for care. This will certainly be detrimental to all their patients and could also dampen the enthusiasm of other players to explore the retail clinic approach – an unfortunate consequence for what is actually a compelling idea.
Reduced competition may lead to increased costs for consumers, which is the other side of this coin. Sure, it didn’t work out, but might this leave the door open for health systems to push primary costs higher? It’s hard to know for sure, but that’s often the outcome when competitors exit the market.
Adoption of telehealth could be hampered even further. The industry has been struggling ever since the pandemic started to wind down. Walmart’s decision to shutter Walmart’s Health Virtual Care could create an additional drag on consumer acceptance and utilization.
We’ll be keeping an eye on retail healthcare to see if and how these closures impact other players in the market. As we’ve noted before, 2024 is sure to be a disruptive year in the healthcare space. Being attuned to changes and ready to pivot when necessary is one way to ride the waves to come.
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