Why Retailers are Backing Out of Healthcare
Implications for the Future of Traditional Healthcare Providers
Three Major Retailers Began Healthcare Operations
In recent years, some drugstores decided to experiment with the combination of product and service. The idea was to make healthcare more accessible for people. Someone could walk into a store to pick up necessary homecare or grocery items for the week, while also attending to their medical needs during the same trip.
Walmart, Walgreens, and CVS were some of the major retailers that began taking part in this experiment. Walmart launched Walmart Health in 2019, with the goal of delivering affordable healthcare to its customers. This launch included the opening of 51 health centers that focused on medical, dental, and behavioral health services across five states, along with virtual care options.
CVS created MinuteClinic facilities to branch out its healthcare operations. The first locations opened in the Midwest, and have since expanded across the country. Services here include family healthcare that is overseen by nurse practitioners. The business model for MinuteClinic locations is to meet consumers’ demand by offering accessible medical care that is high quality.
Walgreens began its expansion into the medical segment by acquiring VillageMD in 2021. The firm invested more than $10 billion in this acquisition in order to begin the development of doctor-staffed clinics at its pharmacies. This trade granted Walgreens a stake of more than 60% in VillageMD, which operates the clinics.
Development of Retail Health Clinics
Walmart
In launching Walmart Health, Walmart’s goal was to create a super center for healthcare, such as primary care and dentistry, by adding clinics to its retail stores. The firm also announced it would include transparent pricing with its health model, which meant the price of its services would be added to its website for customers to view.
The first of these clinics opened in Georgia in 2019, with expansions as far as Arizona occurring in 2023. Walmart Health’s model was attractive to customers at first because it was a subscription service that wasn’t reliant on insurance; however, as the clinics continued to be developed, it transitioned into a more insurance-based model. The shift to a new model was due to the company stating that the subscription service was not meeting the goal of Walmart Health. There were too many differences between the Walmart Health model and the Walmart stores. This shift is one reason that could have dissuaded customers from seeking out health clinic services here.
After five years of operation, Walmart Health made an announcement in April 2024 that it would be closing all 51 of its health centers, as well as its virtual care option. The company decided that its clinic operations were not a sustainable business model. It also stated that the escalating operating costs to continue Walmart Health created a lack of profitability that made its healthcare business unsustainable. Upon announcing the closure of Walmart Health, the company declined sharing possible losses of the closed clinics.
Walgreens
Apart from Walgreens’ notable acquisition of VillageMD, the company also partnered with Pearl Health in 2023 to aid its retail healthcare model. Pearl Health is a tech company that aims to provide insightful solutions to healthcare. Its model is based on primary care physicians transitioning away from value-based payments in order to reduce the cost of care for patients. Pearl Health stated that the goal of this partnership was to allow Walgreens to reach communities faster, as well as create affordable care options for patients in those communities.
Despite Walgreens adding VillageMD and Pearl Health to its healthcare expansion, these plans have not been successful for the retailer. During fall 2023, Walgreens announced it plans to close 60 underperforming clinics operated by VillageMD, and it will also exit five markets. These closures are the result of a $1 billion cost-cutting initiative under Walgreens CEO Tim Wentworth.
Although the company saw revenue growth in its U.S. Healthcare division, which includes VillageMD, the unit reported an $83 million adjusted operating loss. Walgreens now aims to create more profitable growth and improve cash management through a focus on providing patients with the best value possible. The firm’s closures reflect broader strategic shifts as the company seeks to align its cost structure and improve profitability in the drugstore segment.
CVS
CVS began its transition into retail healthcare by opening MinuteClinic. The goal of this business model was to mimic the services Urgent Care provides, but at a fraction of the cost. It included virtual care, as well as services like lab tests, vaccinations and prescribing medications.
MinuteClinic developed more locations than Walmart and Walgreens, with 1,100 locations throughout the country. However, this venture is starting to close down clinics, similar to Walgreens and Walmart. So far this year, CVS has announced that several MinuteClinic facilities will shut their doors. In just the Los Angeles area, 25 locations will be closed. A spokesperson stated that these closures will support future growth and create the next evolution of community health destinations for the company. After these closures, CVS will now align its practices to ensure it is meeting the needs of its consumers and patients.
Factors contributing to the struggles for MinuteClinic properties include issues with patient referrals, long wait times, and misdiagnoses, leading to dissatisfaction among patients. Some patients have reported being directed to emergency rooms for conditions that could have been treated in the clinics, resulting in frustration and additional costs.
Traditional Medical Locations Remain Resilient
These retailer experiments only solidify that healthcare remains strongest in dedicated medical facilities, rather than stores that focus on the product over service.
Medical office buildings have always performed strongly as this sector consistently notes positivity, even amid economic headwinds. These locations draw in investors with long-term leases, high occupancy, and stability. During the first half of this year, properties on average sold for $288 per square foot, which is 42% above non-traditional medical offices that sold for $202 per square foot. Phoenix led the nation in total investment, with $373 million in its trailing four-quarter investment volume as of the first quarter. Atlanta and Washington, D.C. followed, at $366 million and $346 million, respectively.
After the challenges in expanding to retail, most primary care will continue to be delivered where it always has. 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.
Although CVS, Walgreens, and Walmart have historically aided the traditional healthcare industry by providing a convenient place for consumers to fulfill prescriptions, pick up over-the-counter medications, and other medical household items, the challenges these retailers faced while attempting to compete with the traditional healthcare delivery model indicate primary care must be delivered where it always has—at healthcare and medical facilities. Healthcare systems and operators have decades, if not centuries, of proven expertise, established synergies with other existing operators, and a proven track record of delivering high-quality care within their local communities that will continue for years to come.
