Retailers find primary care tough sledding.
By Daniel Beaird
Entities trying to disrupt the healthcare industry is nothing new. But consumerism, digital innovation, labor shortages and rising costs have driven more to enter the space in efforts to offer value-based care. These include commercial healthcare providers (CHPs) like tech companies, payers, retailers and senior-focused primary care providers.
Some of the most recognizable names in retail like Walmart, Walgreens, CVS Health and Amazon have tried to disrupt the primary care industry recently only to see considerable challenges. This year’s shortcomings were led by Walmart Health’s closing of all 51 of its primary care health centers across five states. That was a marked difference from what the retail giant said in 2023 when it announced it was expanding and would have almost 80 Walmart Health primary care centers in seven states by the end of 2024.
For those in primary care, Walmart referenced a familiar refrain – a challenging reimbursement environment and rising costs – that led to closing all of its health centers within a 45- to 90-day span from its announcement last April. Locations closed in Arkansas, Florida, Georgia, Illinois and Texas. Other retail-based CHPs saw difficulties too. Walgreens closed many of its VillageMD clinics, CVS Health cut its earnings outlook for 2024 amid spending billions of dollars on its Oak Street Health senior-based clinics and Amazon cut hundreds of roles in its healthcare division, including in its primary care company One Medical.
Walmart admitted in a press release that there wasn’t a sustainable business model for it to continue. The complexity of scaling a clinical operation proved harder than anticipated, but the big box retailer continues to operate its pharmacies and vision centers. The timing of the pandemic and rising labor costs and real estate costs, along with health insurance burdens like complex billing, prior authorizations, denials and appeals, all played a factor in the perfect storm of closures.
More primary care closures
Walgreens is considering fully selling its stake in VillageMD as the company is evaluating its options amid VillageMD’s ongoing and expected future cash requirements, Walgreens Boots Alliance disclosed in a filing with the Securities and Exchange Commission (SEC). It invested $5.2 billion to acquire a controlling stake in VillageMD in 2021, doubling its stake in the primary care provider at the time.
But it lost almost $6 billion in the second quarter of 2024 as VillageMD’s value plummeted. Like Walmart, Walgreens had originally planned to expand VillageMD with more locations inside existing Walgreens stores. It had over 200 such locations in 2023 but reevaluated its position in primary care after its healthcare division experienced $1.7 billion in operating losses.
Last fall, it announced plans to close 60 underperforming VillageMD clinics and exit five markets. But after the second quarter numbers this year, Walgreens planned to cut over 160 clinics and focus on locations in heavily populated areas where patients can be treated by a single doctor.
Positioned differently
CVS Health owns major insurance plan Aetna, and has large health services, pharmacy and wellness divisions. It’s positioned a little differently than Walmart and Walgreens. But media reports have said that CVS management has discussed the idea of breaking up the company to improve its operations, while being pushed by a major hedge fund investor. That includes its drug stores and its pharmacy benefit management company Caremark and Aetna. It also includes its clinic operator Oak Street Health, a senior-focused primary care provider that’s become a scalable model serving the over age 65 population.
CVS Health bought Oak Street Health in 2023 for over $10 billion and is rolling out a new format in U.S. markets featuring Oak Street Health clinics next to CVS pharmacies in reformatted drug stores. Oak Street Health’s success has been built around the Medicare Advantage product while also using technology in conjunction with in-person care. However, it’s faced its own challenge as it’s agreed to pay $60 million to resolve allegations that it violated the False Claims Act by paying kickbacks to third-party insurance agents in exchange for recruiting seniors to Oak Street Health’s clinics.
Retailers are learning painful lessons about the healthcare industry, according to the AHA. It’s expensive and primary care can’t be viewed as just a profit center. Providing patients high-quality primary care doesn’t leave much room for profit. Building a positive primary care relationship is key to higher quality, personalized care with early identification of risk factors for disease and coordination and continuity of care.
But CVS Health and Amazon both continue to invest in their healthcare strategies, and their healthcare aspirations extend beyond primary care. Amazon has invested heavily in the healthcare supply chain, cloud services, pharmacy and artificial intelligence (AI). It also acquired One Medical in 2023 for $3.9 billion for its primary care model, which has close to 250 clinics in over 20 U.S. markets and expanded a year after Amazon’s acquisition.
CVS Health has been an aggressive investor, but it recently announced plans to cut $2 billion in costs over the next few years due to rising medical expenses. Its health insurance subsidiary Aetna has performed poorly, including a 39% dip in second quarter operating income. But its health services sector continues to drive significant revenue with over $42 billion in the second quarter and near analyst expectations.
More than 100 million Americans lack access to primary care, according to the National Association of Community Health Centers. Addressing this group and their needs is open for disruption. But it’s difficult and it must be met where the patients are to excel. Only the most committed disruptors can succeed.
Cleveland Clinic and Amazon One Medical announce collaboration to expand access to care
Cleveland Clinic and Amazon One Medical recently announced the organizations are collaborating to deliver seamless primary and specialty care in Northeast Ohio. Amazon One Medical, a hybrid virtual and in-person primary care organization, will open its first primary care office in affiliation with Cleveland Clinic next year, offering same and next-day appointment availability, onsite lab services and wrap-around virtual care support for members.
This new relationship will ensure that patients have increased access to seamless coordinated care through Amazon One Medical’s innovative care model and Cleveland Clinic’s high-quality network of specialists, hospitals, and facilities, according to a release.
“This collaboration demonstrates a shared commitment from both organizations to meet the needs of our patients and to enhance the care we provide to our communities,” said Tom Mihaljevic, M.D., Cleveland Clinic CEO and President, who holds the Morton L. Mandel CEO Chair. “Amazon One Medical will complement our current primary care offerings, enabling patient access to essential health services.”
Amazon One Medical is designed to improve the patient experience at every touch point, including thoughtfully designed offices, convenient appointments and ample time between patients and their providers. Members also enjoy 24/7/365 virtual care services through the Amazon One Medical mobile app, including on-demand video visits, secure provider messaging, “Treat Me Now” digital assessments for common health concerns, easy vaccine and medical record access, prescription renewals and proactive reminders for follow-up care and referral needs.
“We look forward to collaborating with Cleveland Clinic to deliver a high-quality patient experience and seamless continuation of care across all settings to deliver the highest levels of health, care, and value,” said Trent Green, Chief Executive Officer at Amazon One Medical. “Teaming up with Cleveland Clinic advances our mission of improving the health care experience, bringing our human-centered and technology-powered model to individuals and employers in the greater Cleveland area.”