Why hospital executives think Walmart Health failed

Giles Bruce – Becker’s Health IT

Health system leaders told Becker’s they’re not surprised by the failure of Walmart Health given the arduous economics of healthcare and the difficulty of providing primary care at scale.

Walmart said April 30 it would be closing its 51 Walmart Health Centers and virtual care offerings five years into its foray into healthcare. The company cited the “challenging reimbursement environment” and “escalating operating costs” that left its healthcare arm unprofitable.

“Walmart, like Walgreens and Amazon and others before them, are experiencing the reality that healthcare systems have had to contend with for years,” said David Sylvan, chief strategy and innovation officer of Cleveland-based University Hospitals. “A compressed reimbursement environment, operating and supply chain inflation, and of course, increased workforce costs, have all but eroded the majority of health systems’ margins in recent years.”

However, he noted, health systems can’t merely “exit stage left” when times get tough. “We remain responsible for our patients and populations and have to increasingly adopt or design creative strategies to remain solvent and viable,” he said.

The retail giant opened its first Walmart Health Center in Georgia in 2019. The roughly 6,000-square-foot clinics, located adjacent to Walmart stores across Arkansas, Florida, Illinois and Texas, featured primary, behavioral and dental care — as well as labs, X-rays and hearing services — under one roof. Walmart Health had been two-thirds of the way through its goal of opening 75 centers before shutting down.

Walmart aimed to fill a gap in healthcare access, by locating its health centers at its stores in mostly rural areas. But hiring clinicians was likely a challenge in those communities, while fee-for-service rural primary care is a low-margin business, said Ashis Barad, MD, chief digital information officer of Pittsburgh-based Allegheny Health Network.

“Rural health is local, and trust is paramount,” he said. “Virtual health in rural environments works best with your trusted care team.”

He said the move illustrates the resurgence in healthcare of partnerships and “focused factories,” or concentrating on niche markets. “It’s hard to be everything to everyone,” he said.

“Retail generally has a razor-thin profit margin. Walmart knows that, and they need to operate it at volume,” said Kiran Avancha, PhD, chief innovation officer of Scottsdale, Ariz.-based HonorHealth. “This proves that building a cost-efficient model that can deliver high-quality care with comprehensive access at volume is quite challenging.”

Other healthcare disruptors have been scaling back recently. Optum shuttered its virtual care business in April. Amazon laid off hundreds of employees at primary care subsidiary One Medical and Amazon Pharmacy in February. Walgreens has been closing dozens of VillageMD clinics.

“When you have both payers and providers continuously focusing intense efforts and innovation on gaming the revenue cycle continuum in their own favor against the other, you’re essentially left with an industry that only moves in the direction of new dollars,” said Saad Chaudhry, chief digital and information officer of Annapolis, Md.-based Luminis Health. “This was true for telehealth for many years in the same way. Some of these new entrants into the provider space are beginning to learn this lesson the hard way.”

Still, he said he’s optimistic — “perhaps naively” so — that one of the newer players will “inevitably pull on the right levers, in the right order, and change the competitive landscape for the betterment of the most important facet of our industry: the patient.”

Richard Zane, MD, chief innovation officer of Aurora, Colo.-based UCHealth, called Walmart Health’s closing “unfortunate, but in no way even remotely surprising.”

“Theoretically, Walmart attempted to take advantage of their scale and existing bricks-and-mortar assets to deliver care to rural and underserved areas that lacked other options,” he said. “A laudable goal and needed community service, but the math of primary care is hard under any circumstances and, when combined with an underresourced population, turns out to be impossible — and math is important.”

Virtual care works well for health systems as part of a continuum of care or at systems and startups that invest in technology to drive clinician efficiency and patient engagement, said Roy Rosin, chief innovation officer of Philadelphia-based Penn Medicine. But the care model is challenged by policy uncertainty, case complexity, lack of specialty care, high labor costs and low margins.

“The market for these services looked appealing, as there’s significant demand, so many organizations got involved to the point of saturation,” Mr. Rosin said. “Until virtual care is consistently reimbursed at a competitive rate, we’ll continue to see players withdrawing from the market, even though it’s clearly important for access in both rural and urban populations facing barriers to care.”

Walmart and other retailers are learning what makes providing care at scale so difficult: “complex reimbursement models, labor gaps, cost escalation and staffing turnover,” said Chris Coburn, chief innovation officer of Somerville, Mass.-based Mass General Brigham.

“Ultimately, it makes one further appreciate the special place of academic medicine, where these same challenges have to be managed while pushing the boundaries of care through cutting-edge research, innovation and education on a much smaller footprint,” he said.

Walmart Health’s failure also shows the importance of partnering with health systems, said Michael Hasselberg, PhD, RN, chief digital health officer of University of Rochester (N.Y.) Medical Center.

While Walmart named its first health system partner, Orlando (Fla.) Health, for specialty care referrals in November, other retail healthcare disruptors, such as CVS MinuteClinic and Amazon’s One Medical, have had extensive relationships with local hospitals.

“Retail giants will continue to pursue offering clinical care services moving forward, but they cannot achieve this transformation single-handedly,” Dr. Hasselberg said. “Health systems can provide the necessary expertise in delivering high-quality care within local communities, while the retailers can provide health system incumbents with expertise in customer service and convenience.”

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