Retailers aren’t ready to walk away from healthcare services just yet.
This year has seen a series of missteps. Walgreens-backed VillageMD reversed its rapid expansion of primary care clinics and closed more than 150 locations. Amazon cut hundreds of jobs in its One Medical and pharmacy businesses. Dollar General ended a pilot program for mobile health clinics. Walmart shut down its Walmart Health unit and closed all 51 clinics in June.
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The developments have left some industry watchers skeptical about whether the retail clinic concept is viable.
But the experimentation continues. Some retailers — including CVS and Walgreens — are attempting to find a profitable niche in value-based care, despite historically low reimbursement rates.
“Getting the patients in and having them come in and see the doctor twice a quarter and managing their chronic illnesses and all that stuff — we do think that works to some degree,” said Parker Snure, senior research associate at financial services company Raymond James. “The care model is probably a nine out of 10, but we think the business model is probably a five out of 10.”
CVS is one retailer that continues to forge ahead with primary care expansion, growing its clinical footprint through Oak Street Health, which it purchased in 2023 for $10.6 billion.
Oak Street has opened 10 clinics within existing CVS stores and six stand-alone locations in 10 states during the last eight months. The primary care provider plans to open another 18 clinics within CVS stores and approximately 20 stand-alone clinics by the end of the year. The Oak Street clinic within the CVS storesoften takes over much of the retail space.
At one CVS store in Chicago, a spacious lobby and seating area have replaced dozens of shelves lined with products. The drive-thru pharmacy has a separate entrance but connects to the seating area, where Oak Street representatives are on hand to teach customers about clinical resources.
The bags of potato chips and rows of candy are gone. In the back corner, a few remaining shelves are stocked with health-related products such as vitamins, bandages and over-the-counter cold medicine.
Oak Street has a 12-year track record of operating primary care clinics, and Mike Pykosz, president of health care delivery for CVS Health, said sticking with a tested value-based care model is what sets CVS’ strategy apart.
Oak Street focuses on treating Medicare-eligible older adults in low- to moderate-income urban areas across Texas, Illinois and New York, among other markets. Many of its 270,000 patients suffer from chronic illnesses.
“What you need to do is not a secret, but actually being able to do it and being able to execute it is very difficult,” Pykosz said. “I think one of the challenges a lot of groups have had is they’re kind of trying to live in all worlds. … We never tried to build a model that worked in fee-for-service.”
CVS also may have an advantage because of its Aetna insurance subsidiary, which offers a built-in customer base. Health plan giant UnitedHealthcare, the largest employer of physicians and owner of dozens of practices, is another example of that strategy.
Insurers can connect patients with retail-based physician practices and specialty care, which would deepen members' relationships with the companies while also helping payers control the costs of care.
“It’s … hard to influence the decision-making of a patient when you’re not having a physician or clinician relationship with them,” said Stephanie Davis, managing director of healthcare technology and distribution at investment bank Barclays.
At Walmart, the company is tapping into an insurer’s resources to fill empty clinic space in its stores.
In July, insurer Humana said its CenterWell health services unit will offer value-based senior care at 23 supercenters in Georgia, Missouri and Florida, starting next year. Mercy Primary Care also has agreed to lease former clinic space in three Arkansas supercenters.
The now-defunct Walmart Health unit ran into the kind of trouble that CVS is looking to avoid. Walmart tried to accommodate a broad array of patients covered by a range of health plans, said Jack Slevin, a health services equity research analyst at investment bank Jefferies.
“It’s interesting to see that Humana thinks the same location has value for a different approach,” Slevin said.
Jeff Goldsmith, president of consultancy Health Futures, said Walmart’s new lease agreements are a way of shifting its operating losses to someone else.
Meanwhile, Walgreens tried to lean into value-based care for seniors by taking a majority stake in VillageMD, but it aggressively added clinics before knowing the strategy would work, Slevin said. Ongoing cost-cutting initiatives across the company have limited the capital Walgreens can put behind VillageMD, he added.
Walgreens said in June it wants to continue investing in VillageMD but reduce its stake in the primary care provider.
A VillageMD spokesperson said there are no imminent plans to close additional primary care clinics.
The spokesperson said expansion plans are still underway for multispecialty provider Summit Health-CityMD, which VillageMD purchased in early 2023 for $8.9 billion. The transaction was a bet on multispecialty and urgent care, both of which tend to be more profitable than primary care.
Amazon has been relatively tight-lipped about its plans for primary care company One Medical, which it purchased in early 2023 for $3.9 billion. One Medical CEO Trent Green said in April the provider opened 15 offices during the 12 months ended in February and planned to open more later this year. A One Medical spokesperson declined to provide an update on those plans.
In December, Kroger began offering senior care at eight The Little Clinic sites in Atlanta. A spokesperson said Kroger continues to ramp up marketing efforts for those services.
Correction: An earlier version of this story referred to Mike Pykosz as Oak Street CEO.
