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Healthcare

Lessons Learned From Walmart, Amazon, and Walgreens: Healthcare’s Retail Reset

The largest companies in the country have attempted and pulled out of healthcare endeavors. What does it mean for North Texas?
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Walmart and Amazon are known for mastering an industry and providing efficient and competitive prices for countless goods and services. While the two retail behemoths are unlikely to stay away from healthcare forever, both organizations found that offering primary care is more complex than selling consumer goods.

In April, Walmart announced that it was closing 51 health centers in five states, citing struggles with making Walmart Health profitable. The news was made more notable in North Texas because less than three weeks before the announced closure, Walmart said it had plans to open 18 health clinics in Dallas-Fort Worth and Houston. Two DFW stores were slated to open on April 23 and 24. However, just a few weeks after the announcement, Walmart said it was shuttering the entire enterprise.

Walmart is one of many mega-retailers struggling to provide the masses with primary care. In 2021, Amazon, Berkshire Hathaway, and JPMorgan Chase shut down their healthcare venture, Haven, three years after its formation. Despite the influence of some of the most influential organizations in the country and landing surgeon and author Atul Gawande as CEO, the organization was never able to meet its stated goal to “provide U.S. employees and their families with simplified, high-quality, and transparent health care at a reasonable cost.” Poor incentives, weak leverage, and the COVID-19 pandemic doomed the operation, as described in the Harvard Business Review.

Over the last couple of years, Walgreens closed 160 of its VillageMD retail clinics, and CVS closed 25 of its MInuteClinics in Los Angeles and more nationwide. Retail primary care continues to be difficult for the most prominent and wealthiest corporations already in the healthcare space.

These struggles don’t mean that retail healthcare is dead. Locally, Medical City Healthcare, Texas Health, and Baylor Scott & White have made significant moves to expand their urgent care presence in the retail space, and entities like One Medical and Oak Street Health still have a growing presence with substantial funders. However, the struggles highlight the difficulty of moving into primary care without a history in the sector.

Dr. Chris Crow, CEO of independent primary care network Catalyst Health Group, says several macro and micro factors contribute to the retailers’ struggle in the primary care space. On the micro level, he notes that these positions for providers are often temporary and not conducive to building a career. “Being a community physician is a calling, and a retail physician is a temporary job.”

The transience of the providers at these clinics also negatively impacts patients. While these clinics are conveniently located, patients often want their physician to be someone with whom they can build a long-term relationship, and the lack of provider consistency was a deterrent. If there aren’t physicians who want to work at a clinic and patients don’t want appointments, the endeavor is likely unsustainable.

On the macro side, Crow says that these companies likely learned that scaling efficiencies achieved in other markets and products was more difficult in healthcare. Because healthcare is paid by a mix of employers, individuals, and the government, and because a few insurance companies have so much market share, it is an uphill battle to push the payers to increase compensation to make the business profitable. The scale required to make Medicare or Medicaid budge on payments is nearly impossible.

When Walmart closed its clinics, a spokesperson said, “This is a difficult decision, and like others, the challenging reimbursement environment and escalating operating costs create a lack of profitability that makes the care business unsustainable for us at this time.”

High supply and labor costs are also taking their toll on all healthcare segments, and Walmart and others lacked the influence they needed to negotiate with their suppliers and employees to make retail healthcare work. “In this macro-environment, if their goal is to make earnings per share, then there are other ways to do that,” Crow says. “They decided to focus on the core business and raise retail sales.”

What We Can Learn

Crow hopes that these retail healthcare failures will highlight how difficult it is to run a primary care business. The primary care model is becoming less profitable in a fee-for-service world driven by procedures and surgeries. Crow is among the growing swell of voices arguing for a different payment model for primary care. A subscription or value-based model would incentivize quality care and avoid unneeded treatment while giving providers more consistent revenue. Crow notes that the squeeze felt by Walmart and others is also experienced by the average provider. If providers can’t make a living in communities with unfavorable payer mixes or vulnerable areas, they may leave, negatively impacting the community, patients, and future health costs for society.

In recent years, primary care’s challenges and lower salaries have made it a less desirable specialty, but the demand for primary care physicians may make it more lucrative. “Growing supply and demand issues are beginning to favor primary care, and as we become more valuable, big payers like the government or insurance companies are going to want us,” Crow says. “That scarcity will demand a higher price.”

While scarcity makes primary care more valuable, it doesn’t solve the growing physician shortage, which is only worsening. A 2021 report from the American Association of Medical Colleges found that there will be a shortage of 37,800 to 124,000 physicians nationwide by 2034. According to the Department of State Health Services, in Texas, there is likely to be a shortage of more than 10,000 physicians by 2032. Crow says the payment model is a major factor in the shortage.

The existing payment model is what brought down the retail giants’ pursuit of primary care, but a reexamination of the entrenched payment system of healthcare is a difficult ask. Still, shortages may force the issue, and Crow says a new payment model would positively impact the shortage. “As North Texas approaches 10 million people, we at Catalyst know that with respective payments, local physicians can likely treat 15 million people. Right now, with fee-for-service, we can’t care for them all,” Crow says. “With the supply and demand in North Texas, there is an unquenchable thirst for primary care.”

Author

Will Maddox

Will Maddox

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Will is the senior writer for D CEO magazine and the editor of D CEO Healthcare. He's written about healthcare…
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