Large retailers have poured billions of dollars into healthcare services, with executives promising big gains in market share and profitability—but some of those efforts are not going according to plan.
On Friday, Rosalind Brewer stepped down as CEO of Walgreens Boots Alliance, and Ginger Graham, lead independent director, took on the role of interim CEO. Brewer, who joined Walgreens in March 2021, was an integral part of the company's shift beyond its stores and traditional pharmacy services and oversaw multibillion-dollar investments into the strategy starting mere months after her arrival.
Walgreens isn't the only disruptor finding healthcare tricky to tackle. The low-margin industry, emerging from the COVID-19 pandemic, is presenting challenges across the board with rising expenses, labor shortages and disappointing reimbursement rates.
Despite those challenges, retailers are not shying away from healthcare services.
Here’s what you need to know about retailers' investments in the space.
What investments are Walmart, CVS, Amazon and others making in healthcare services?
The chains have had their eye on healthcare services for several years.
Walgreens has spent more than $17 billion to invest in, or acquire, four companies in the last couple of years—specialty pharmacy company Shields Health Solutions, primary care provider VillageMD, at-home care platform CareCentrix and multispecialty provider Summit Health-CityMD.
CVS Health acquired Aetna in a $70 billion deal in 2018. Then-CEO Larry Merlo called the transaction a “new day in healthcare” and “a transformative moment for our company and our industry.” CVS most recently closed its $10.6 billion acquisition of Oak Street Health, a primary care provider.
Amazon acquired online pharmacy service PillPack for roughly $750 million in 2018. Since then, the online retailer has made additional investments in pharmacy, digital health and employer-based health plans, with mixed results. Earlier this year, it acquired One Medical, another primary care provider. One Medical CEO Amir Dan Rubin last week announced his decision to step down.
Walmart Health launched in 2019, opening its first community health center in Dallas, Georgia. Walmart, which also has made multiple investments into digital health, continues to expand the physical footprint of its health centers and plans to have more than 75 locations by the end of 2024.
Dollar General launched three mobile health clinics in Tennessee this year.
Best Buy Health has three focus areas: wellness at home, aging at home and care at home. It deploys Geek Squad agents to help patients with the technology and wants to expand its partnerships with providers and payers.
Why do retailers like healthcare?
Retailers are adding services such as primary care, pharmacy and clinical trials to diversify their portfolios, boost revenue and stay competitive.
VillageMD, for example, has rolled out more than 200 Village Medical primary care clinics co-located with Walgreens pharmacies to gain market share and increase collaboration between doctors and pharmacists to improve patient experience. Earlier this year, Kroger Health established a clinical trial network and began recruiting participants for a cancer study.
Healthcare is becoming a more consumer-centric industry, as patients shop around for more quality care at lower prices. At the same time, traditional providers have failed to fully implement value-based care models and left service gaps in rural and/or low-income communities. These market dynamics created room for retailers—already well-versed in catering to consumers—to step in and provide services.
Are traditional health systems worried?
Health systems are starting to pay more attention to disruptors. They are no stranger to competition from similar organizations, but market entrants present new challenges. Retailers are leveraging brand power, multiple business lines and technological investments to gain an edge.
Kaiser Permanente CEO Greg Adams in April called its Risant Health venture a “counterbalance” to disruptors, as it seeks to acquire smaller health systems and build a national value-based care network.
"We've got technologies changing healthcare. We've got retail. I mean, healthcare is going through certainly the most significant transformation in my career,” Adams said.
What are the results of these investments?
Retailers are seeing a mixed bag of results.
Amazon is looking to reap rewards from the recent launch of telehealth service Amazon Clinic, which is expanding to all 50 states and Washington, D.C. The company started a generic drug subscription service, RxPass, earlier this year, following the rollout of its online pharmacy in 2020.
Amazon disbanded a healthcare partnership with J.P. Morgan Chase and Berkshire Hathaway in 2021, and in late 2022, shut down Amazon Care, a medical service it sold to employer health plans.
Turnover in Walgreens' C-suite, including James Kehoe’s resignation as chief financial officer in August, plus its U.S. healthcare's operating losses of nearly half a billion dollars in the first nine months of its 2023 fiscal year, show possible cracks in Walgreens’ larger plan. Analysts think Brewer’s exit after less than three years is at least partially tied to the company’s disappointing financial performance.
Are investors on board?
Investors are watching retailers’ healthcare investments closely, and in some cases, don't appear to be confident in the strategies.
Walgreens share price has s plummeted 39% year-to-date.
CVS shares are down 29% year-to-date, with the latest drop occurring as Blue Shield of California, a $24 billion health plan, announced a partnership with Amazon Pharmacy, Mark Cuban Cost Plus Drug Company and others. The partnership shifts some of Blue Shield’s business away from CVS Caremark, previously its sole pharmacy benefit manager.
What are disruptors trying next?
Despite challenges, retailers continue to invest in healthcare.
VillageMD, for example, plans to reach 1,000 co-located clinics by 2027. Most recently, it closed an $8.9 billion acquisition of Summit Health-CityMD, further solidifying its expansion into urgent and specialty care. VillageMD CEO Tim Barry said in January the company’s “ultimate goal” is to become a multispecialty provider.
CVS bet big on primary care by acquiring Oak Street Health, which has plans to nearly double its number of clinics to 300 by 2026, CVS Health CFO Shawn Guertin said during a call with analysts.