Walmart's healthcare strategy took an abrupt turn Tuesday, as the company announced plans to shutter all clinics and stop virtual care services.
Industry watchers say Walmart's decision to close all 51 centers isn’t surprising, given the steep challenges retailers face to profitably deliver healthcare services.
Related: Walmart Health to close all clinics, end virtual care
Retailers have increasingly disrupted the healthcare industry over the last few years, investing billions of dollars into convenience-based services, touting them as a better alternative to traditional providers.
The disruptors have found healthcare to be very different from retail.
Walgreens-backed VillageMD has shuttered about 150 primary care clinics this year, including some locations that closed less than a year after opening. Walmart had opened new clinics in Texas as recently as April.
Despite their competitors' setbacks, CVS and Amazon are moving ahead with clinic expansion plans.
"Healthcare as retailing seemed to be a good idea, but nobody has been able to make it work at large scale," Erik Gordon, an assistant professor at the University of Michigan's Ross School of Business, said in an email. "[Walmart executives] are realists. The problems with the concept wouldn't be cured by closing just some of [the clinics]."
Primary care, in particular, comes with its own set of issues. It is generally less expensive to deliver primary care, but those services come with low reimbursement rates, making it difficult to turn a profit.
In Walmart’s case, its focus on serving customers in low-income, rural areas likely exacerbated the challenges by making talent acquisition more costly, said Craig Garthwaite, strategy professor and healthcare director at Northwestern University’s Kellogg School of Management. High concentrations of Medicare and Medicaid patients can add to the reimbursement pressure.
“There’s no end of [executives] who have come in and said, ‘I think the problem in healthcare is that my genius and my business acumen hasn’t been applied to it yet,’” Garthwaite said. “They quickly find out that healthcare just is a very hard business to work in. It’s very complicated.”
Retailers have tried to attract patients by marketing themselves as a more convenient and affordable option.
Walmart touted the benefits of its virtual care platform and attached health centers to its stores. VillageMD also leaned heavily into the co-location strategy, rolling out hundreds of primary care clinics attached to Walgreens pharmacies. CVS is piloting its own version of co-location.
Arielle Trzcinski, principal healthcare analyst at consulting firm Forrester, said Walmart failed to portray healthcare services as a core component of its sprawling business. Many consumers still weren't aware of what healthcare services Walmart offered.
“They had a considerable amount of clinics, but they didn’t necessarily move beyond that, and they didn’t make a big investment or a big jump to say, ‘We’re putting a stake in the ground and we’re making a commitment here,’” Trzcinski said. “How do [retailers] make it more accessible and just part of the things that you already have to raise awareness, but also lower the entry barriers for consumers to adopt those services?”
Trzcinski praised Amazon's strategy to incorporate its healthcare offering into Prime membership, making it more prominent to consumers in a way that Walmart did not.
Some retailers continue to invest in the space despite setbacks.
Amazon acquired primary care provider One Medical in a $3.9 billion deal in early 2023 and is on track to add about 15 clinics to its current list of 200 locations this year, said CEO Trent Green. It also plans new partnerships with health systems.
A year ago, CVS bought primary care provider Oak Street Health in a $10.6 billion deal. It plans to open 50 to 60 Oak Street locations this year, which would bring the count to at least 250 clinics.
"CVS remains determined to make it work," Gordon said. "If it does, it will own a large market, but if it doesn't figure out what went wrong at Walgreens and Walmart, we'll see another big writeoff and change of CEOs."
