Yahoo Finance Walmart shuttering health units, including telehealth and 51 clinics
Walmart (WMT) announced it is closing down its health clinics Tuesday. The move will impact 51 locations in five states, as well as relationships with health systems, like the one penned with Florida's Orlando Health in November.
In its announcement, Walmart cited a "challenging reimbursement environment and escalating operating costs" as contributing to a "lack of profitability that make the care business unsustainable for us at this time."
The company declined to comment to Yahoo Finance on the business segment's profitability, or lack thereof. And did not have an answer as to what will happen with the newly-built clinic offices.
"We continually assess our business, once we made the decision, we moved quickly and with appropriate speed, which we believe was in the best interest of our associates, patients and communities," Walmart said in an emailed response.
A spokesperson said the locations would likely close within a 45- to 90-day time frame.
Walmart is just the latest in a string of retail healthcare pullbacks.
Walgreens (WBA) announced that it will close 160 of its VillageMD clinics and only maintain the busiest sites, just a few years after investing $5.2 billion to acquire a majority stake in the business.
And recently, UnitedHealth Group's (UNH) Optum division confirmed it was ending its telehealth services — which it started offering during the pandemic at no out-of-pocket cost to members.
Industry challenges
Craig Garthwaite, health economist and professor at Northwestern University's Kellogg School of Management, said that Walmart relied too heavily on its retail strategy in the more complex healthcare system.
The idea that "we use our scale to cut costs, deliver lower prices to gain share — that's just not going to work given the cost structure of what they were involved with here," Garthwaite said.
Even with the volume of customers Walmart has walking through its doors daily, and the various attempts to expand its health offerings over the years — including as an insurer — it couldn't crack the code.
Farzad Mostashari, CEO of value-based health company Aledade, told Yahoo Finance Walmart missed an opportunity to pivot to catering to the growing elderly population in the country. In the same way that insurers were running towards Medicare Advantage strategies in anticipation of the aging Baby Boomer population, Walmart could have deployed a strategy to provide cost-effective care.
But even if it had succeeded there, the problem with profitability in healthcare would still exist.
Sachin Jain, president and CEO of SCAN Health Group, said there's a disconnect between the healthcare business and the needs of for-profit publicly traded companies that have to think about profit and increasing shareholder value every three months.
"It raises the question of whether there is this incompatibility between building a reliable ... primary care business and the public markets in an environment where rates are declining," Jain said.
The reimbursement rates from insurers and the federal government's Medicare program have been blamed for razor-thin margins in hospitals and in physician practices.
Farzad Mostashari, founder and CEO of primary care firm Aledade, said the way retail health has tried to do healthcare doesn't make sense in a complex reimbursement world.
"There are many possible business models. The one they ended up with was the worst psosible one, which is trying to deliver primary care with a margin cheaper than its available today," Mostashari told Yahoo Finance.
Stephen Klasko, a former hospital CEO and currently at General Catalyst, told Yahoo Finance he believes this could be a lesson for other retail efforts, such as Amazon's (AMZN) One Medical.
If a newcomer to the health space isn't thinking about how to operate as an insurer or as a pharmacy simultaneously, "it just doesn't work financially," Klasko said.
Klasko said that if Walmart, with its scale and resources, could not make it, it's unlikely that retail health will ever take off.
Walmart's stock was trading down 2% Tuesday, at just above $59 per share. The company is maintaining its vision and pharmacy operations within the retail stores.
Anjalee Khemlani is the senior health reporter at Yahoo Finance, covering all things pharma, insurance, care services, digital health, PBMs, and health policy and politics. Follow Anjalee on all social media platforms @AnjKhem.
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