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Our Take: Walmart ends its venture into health care, saying it’s ‘not sustainable’

May 06, 2024

On Tuesday, Walmart made the unexpected announcement that it will close all 51 of its Walmart Health centers and eliminate its virtual care business, saying “there is not a sustainable business model” for the company to continue offering the health care services “at this time.”

The nation’s largest retailer opened its first Walmart Health center in Georgia in 2019. At the time, Walmart’s board of directors approved plans to open 4,000 clinics within the ensuing decade.

Over the next few years, the big-box retailer gradually expanded into Arkansas, Florida, Illinois, and Texas. By late last year, there were 48 Walmart Health centers, with plans to have more than 75 up and running by the end of 2024.

In early April, the company said it was on track to open 18 centers in the Houston and Dallas-Fort Worth metro areas and four in the Kansas City area this year but had decided to postpone plans to open centers in Phoenix and Oklahoma City until early next year.

In the announcement about shutting down Walmart Health, the company said a “challenging reimbursement environment and escalating operating costs” have prevented the company from realizing the profit it needed to stay the course.

Walmart said it did not yet have a timeline for closing its health centers, though it specified that providers would continue serving patients while the clinics remain open and would be paid for 90 days. After that, eligible providers will receive transition payments, according to the announcement.

The company’s virtual care business will wind down within a year, Healthcare Dive reported, citing a Walmart spokesperson.

The centers typically offer primary care, dental care, behavioral health services, labs, and X-rays. Walmart’s pharmacy and optical care services are not part of Walmart Health and will not be affected.

In related news, Becker’s Hospital Review reported that a co-branded Medicare Advantage plan offered by Walmart and UnitedHealthcare in Georgia — UnitedHealthcare Medicare Advantage Walmart Flex — will be terminated.

Our Take: Based on the volume and content of the responses we’ve seen, Walmart’s news caught most of the health care industry off guard.

The general consensus seems to be that this latest twist is further proof of just how difficult it is to offer consumers relatively affordable primary care at scale and still make a profit.

Walmart is certainly not the only retailer in the last several years to discover this the hard way.

Walgreens has closed over 150 VillageMD locations in less than six months. Amazon made (and scrapped) several attempts to gain a foothold in primary care before shelling out $3.9 billion to acquire One Medical last year.

Also last year, CVS Health paid $10.6 billion for Oak Street Health, a value-based primary care network that primarily serves seniors. In contrast to Walgreens, CVS  still intends to open 50 to 60 new Oak Street Health clinics for seniors next year, CEO Karen Lynch told Forbes in February. But CVS has Aetna’s Medicare Advantage plans to help steer members toward the clinics.

While it’s true that rising labor costs, clinician shortages, and tighter reimbursement rates have made it more challenging for retailers like Walmart and Walgreens to profit from their primary care services, some industry analysts have pointed out that primary care, by its very nature, isn’t all that profitable.

Arielle Trzcinski, a principal analyst at market research firm Forrester, said, “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.”

Sara Vaezy, executive vice president and chief strategy and digital officer at Providence, told Fierce Healthcare: “I think [chain retailers] are just realizing that it’s not just about dipping your toe and taking your share of the $4 trillion of health care 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.”

Dr. Farzad Mostashari, founder and CEO of Aledade, shared a similar viewpoint of Walmart’s announcement on X (formerly Twitter): “This decision … says to me that the ‘milk in the back of the store’ theory of primary care ‘boxes’ did not play out in practice. I am confident that Walmart measured the impact on banana sales, and did not find justification there.”

Rebecca Springer, a lead research analyst at Pitchbook, told MedCity News that from a fee-for-service perspective, primary care is a low-margin, volume-oriented specialty. She said if the provider’s goal is to take on risk, it requires an “enormous upfront investment” to build a clinic footprint dense enough to drive down health care costs across a population.”

Springer added, “Scaling back retail care delivery and virtual primary care has become as ‘trendy’ in 2024 as accelerating these offerings was in 2021.”

Others took a big-picture view of Walmart’s decision.

For instance, in a written statement to Fierce Healthcare, Hal Andrews, CEO of Trilliant Health, a data analytics company, said, “Given their scale, it’s not very believable that Walmart ‘cannot’ operate primary care clinics profitably, which calls into question why they haven’t — lack of interest, poor execution, etc. Whatever the reason, if the largest company in the largest country in the world cannot — or won’t — operate primary care clinics profitably, it is ominous for the future of rural health care in America.”

Regarding virtual care, Trilliant’s chief research officer, Sanjula Jain, told MedCity News: “Health care 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,” adding that facilitating access doesn’t guarantee adoption.

Even well-established telehealth pioneers such as Teladoc and Amwell are struggling not to increase, but to retain, their market share. UnitedHealth Group’s Optum just announced that it’s closing the virtual care business it launched in 2021.

Consumers now have a multitude of options for accessing remote care on demand, including through Amazon Clinic. Virtual care isn’t going away, but its post-pandemic transformation is ongoing. Those most likely to succeed in this segment will offer it as a component of hybrid care solutions that provide more value for patients.

Others commenting on Walmart’s news pointed to failures within the U.S. health system.

Ann Greiner, CEO of the Primary Care Collaborative, told Fierce Healthcare in a statement that Walmart’s decision emphasizes the need for changes in reimbursement and policy to support primary care delivery. “Until policymakers can shift to a system that allows clinicians to focus on keeping people healthy instead of hunting down payment codes for every service, more and more Americans will struggle to find a usual source of care they trust,” Greiner wrote.

Ashok Subramanian, CEO of Centivo, a health plan for self-funded employers, said in an email to MedCity News that the main takeaway from Walmart’s decision is that companies need to stop trying to layer new solutions on top of the existing system.

“Walmart highlighted a ‘broken business’ model as the reason for closing its brick-and-mortar and virtual care services,” he wrote. “What is actually broken is the entire model of financing uncoordinated, fragmented health care services at uneven prices with no correlation to quality.”

We’ll wrap this up with a comment from Derek Streat, founding CEO of DexCare, a digital access optimization platform developed by Providence’s Digital Innovation Group. Streat told MedCity News: “The fact that Walmart, atop the Fortune 100, cannot make a buck in health care should be a wakeup call for the industry at large.”

What else you need to know

A group of 22 state attorneys general sent a letter to UnitedHealth Group CEO Andrew Witty voicing their concern about Change Healthcare’s response to the Feb. 21 cyberattack. “Providers, pharmacies, and patients have reported catastrophic disruptions and wholly inadequate responses from Change Healthcare and its payor partners that either directly or indirectly rely upon Change,” they wrote, adding that “health care entities and pharmacies within our jurisdictions have indicated that they are in jeopardy of collapse.” The letter called UHG and Change’s offer of financial support “paltry” and expressed concern over the perception that UnitedHealth-owned practices may be getting favorable treatment through the financial assistance program. The AGs listed nearly a dozen actions they expect UHG and Change to take to further address the fallout from the attack and stated that the letter was not a settlement offer, nor did it waive their right to take legal actions.

Separately, in a letter to the House Committee on Energy and Commerce, the American Hospital Association wrote that 94% of hospitals responding to a survey reported being affected financially by the Change cyberattack, with more than half indicated the impact was “significant or serious.”

In other news about the cyberattack, UnitedHealth Group’s CEO Witty testified at a Senate Finance Committee hearing on Wednesday, during which Committee Chair Ron Wyden, D-Ore., said Witty “owes Americans an explanation for how a company of UHG’s size and importance failed to have multi-factor authentication on a server providing open-door access to protected health information, why its recovery plans were so woefully inadequate, and how long it’s going to take to finally secure all of its systems.” Witty said Change’s legacy systems were in need of “an extensive amount of modernization” when UHG bought the company in 2022, and the server that was attacked had “very unfortunately” not been updated. He said all external-facing systems now have multi-factor authorization and said it was the company’s belief that “claims flow” was “essentially back to normal,” which Sen. Marsha Blackburn, R-Tenn., disputed. In a statement to be delivered at the hearing, Sen. Wyden said it is “long past time to do a comprehensive scrub of UnitedHealth’s anti-competitive practices.”

CVS Health acquired Hella Health, a startup Medicare Advantage (MA) broker that offers plans from Aetna, Cigna, Humana, UnitedHealthcare, and other insurers, for an undisclosed sum from venture capital firm Cue Ball. Hella Health says its proprietary multi-payer platform makes shopping online for an MA plan easier and more convenient. The company operates in all 50 states through a wholly owned insurance agency called audomo insurance services.

CVS made the acquisition despite acknowledging during Wednesday’s first-quarter earnings call that it is facing challenges in the MA market. The company said MA-related “utilization pressures” affected its health care benefits segment (which includes Aetna), leading CVS to lower its full-year, adjusted earnings per share (EPS) guidance for the second time this year. Aetna’s first-quarter MA costs were $900 million higher than expected, and Tom Cowhey, CVS Health’s chief financial officer, said that line of business is expected to “lose a significant amount of money this year.” Aetna CEO Brian Kane said the company would prioritize “margin over membership” for its MA business in the year ahead.

Cigna wrote off $1.8 billion of its VillageMD investment — more than half of the $2.5 billion Cigna’s Evernorth subsidiary invested in VillageMD in late 2022 — after Walgreens announced in late March that it would close considerably more VillageMD locations than originally planned. Walgreens said last fall that it would shut down 60 underperforming VillageMD locations but has since closed 140 and is planning another 20 closures. Cigna CFO Brian Evanko said Thursday on an earnings call that Cigna’s value-based care strategy has not changed as a result of the impairment charge, nor has Cigna’s partnership with VillageMD, which he said has already launched in targeted geographic markets. “We will seek to build upon that early progress,” he added. With the exception of the write-off, Cigna reported strong overall results for the quarter and raised its 2024 guidance for adjusted income from operations to at least $28.40 per share.

The FDA gave the green light to Pfizer’s Beqvez, making it the drugmaker’s first gene therapy to receive FDA approval. Beqvez (fidanacgene elaparvovec-dzkt) is approved for adults with moderate to severe hemophilia B who meet certain criteria. Pfizer has priced the one-dose gene therapy at $3.5 million and will offer payers a warranty program based on the durability of patient response to the treatment. The first approved gene therapy for hemophilia B, CSL and UniQure’s Hemgenix (etranacogene dezaparvovec-drlb), has a similar list price. Pfizer said Beqvez would be available this quarter.

RUSH University System for Health is partnering with the University of Texas MD Anderson Cancer Center to create the RUSH MD Anderson Cancer Center. Patients of RUSH MD Anderson will receive care that mirrors the same protocol and treatment plans available at MD Anderson, along with the opportunity to participate in more clinical trials. RUSH is the seventh partner in MD Anderson’s network of hospitals and health systems collaborating to provide greater access to advanced cancer care.

What we’re reading

Can ACOs Flex While Supporting Specialty Care? Health Affairs, 5.1.24

An Asset Framework to Guide Nonhealth Policy for Population Health. JAMA Forum, 5.2.24

Consumers Know More About AI Than Business Leaders Think. BCG, 4.24.24

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