Payment Models

Closures of Walmart’s health centers reflect the widespread financial constraints in U.S. healthcare

The shutdown is the latest sign that the payment model for primary care lacks sustainability, according to industry experts.

May 7, 2024 3:37 pm

Beyond signaling a setback for retail-based healthcare disruptors, Walmart’s recent decision to close its health centers is symptomatic of issues hampering the nation’s ecosystem for primary care, industry analysts say.

The retail behemoth announced April 30 it would be closing all 51 of its health centers across five states, along with its virtual-health service.

Five years after announcing the launch of the first center, “we determined there is not a sustainable business model for us to continue,” Walmart wrote in a news release.

The company added it will release details on when each center will close and will continue to operate its 4,600 pharmacies and 3,000 vision centers. Clinical staff will serve existing patients until the centers close.

“We understand this change affects lives — the patients who receive care, the associates and providers who deliver care and the communities who supported us along the way,” Walmart wrote. “This is a difficult decision, and like [for] others, the challenging reimbursement environment and escalating operating costs create a lack of profitability that make the care business unsustainable for us at this time.”

Potential not fulfilled

The decision eliminates an option that was geared toward bringing primary care to residents of underserved markets.  

“I’ve watched with interest as Walmart has tried to figure out how to make it work for them,” said Web Golinkin, co-founder and former CEO of RediClinic, which launched in 2005 as an early example of retail-based healthcare and became a fixture at Walmart stores, among other locations.

Golinkin most recently spent more than six years as CEO of North Carolina-based FastMed Urgent Care before the company’s sale to Blue Cross NC.

“Everybody always believed, and we believed years ago, that Walmart had tremendous potential to provide its customers with easy access to primary care — particularly, although not exclusively, [in] underserved rural areas,” he said.

For the strategy to succeed, however, Walmart would have had to overcome recent systemic trends.

“Static reimbursement rates and rising labor costs are an issue that retail medicine providers, including retail-based clinic operators and urgent care operators, are facing,” Golinkin said. “That’s not something that’s unique to Walmart necessarily.”

Legacy providers are dealing with the same headwinds but generally have more margin for error.

Walmart and similar healthcare businesses are “not like big health systems where they can potentially cover losses in one area of their business [with] profits from another,” Golinkin said. “These are businesses that generally speaking treat primary care [and] acute, episodic conditions. The reimbursement rates for office visits are quite low.”

Not an isolated event

“People have pointed out that just because you can run retail outlets doesn’t mean you can run healthcare companies,” Golinkin said.

Such an assessment also could be made based on the experiences of other major retailers that have entered the healthcare space.

For example, Walgreens announced it had lost $5.8 billion in its most recent fiscal quarter, driven by losses from its investment in the VillageMD chain of clinics. About 160 of those clinics were set to be closed, with Walgreens focused on increasing profitability in select markets.

CVS Health is following through on its plan to open at least 50 Oak Street Health clinics this year as stand-alone locations and in stores. The company recently experienced a 17% drop in share value, stemming in large part from quarterly financials that described high Medicare Advantage costs.

Yet CVS may have an advantage over other retailers because of its healthcare portfolio, which includes Aetna health plans, Oak Street Health, Signify Health’s home-health and accountable care services, and advanced digital applications.

That approach contrasts with retail strategies that strictly center on primary care services.

“Ultimately, it has to link to the total cost of care,” said David Johnson, CEO of 4sight Health, an hfm magazine columnist and a member of HFMA’s Board of Directors. “All of the models where primary care is failing [are] looking at primary care as a business in isolation, not as part of a holistic, coordinated enterprise to keep people healthier and happier.”

A more viable arrangement, Johnson said, is evident in the moves being made by insurers such as Elevance Health, which last month announced a partnership with a private-equity firm to “accelerate innovation in primary care delivery, enhance the healthcare experience and improve health outcomes,” according to a news release.

Requiring a new vision

Policymakers and industry leaders should take the struggles of retail healthcare outlets as a prompt to rethink the business model for primary care, said Zeev Neuwirth, MD, a physician executive, healthcare author and podcast host.

“If you step back, you realize [Walmart] had to make a business decision based on the current legacy primary care model as it’s being reimbursed for today,” Neuwirth said. “I think the important lesson here is that we need to redefine, reorganize and resource primary care in a vastly different way if it’s going to be sustainable and successful.”

He added that Walmart’s strategy “made perfect sense from a mission perspective,” Neuwirth said. “But it’s [also] got to make sense from a business perspective, and you can’t get around that. And when you’re looking at revenue and margin per square foot, primary care does not cut it.”

Much of the problem stems from the fee-for-service payment system.

“Primary care is about proactive prevention,” Neuwirth said. “It’s about identifying care gaps, addressing the social determinants of health and assisting people with lifestyle issues. That’s the job of primary care. It’s not to do high-volume visits in order to generate revenue, or at least it shouldn’t be.”

Payment ideally would be based on a capitated model or a subscription model that’s risk-adjusted and outcomes-based, Neuwirth said. If funding is shored up via such a system, providers can invest in infrastructure and advanced digital technologies for “a new type of primary care,” he said.

That care model would “combine population health with personalization,” he added, meaning no demographic or population segment is left at a disadvantage while also ensuring individual patients receive care that is “customized to the context of their lives.”

The winds of change

If such a shift happens, the zenith of retail-based medicine may be yet to come.

“I continue to be optimistic because I think that retail medicine providers are such a critical part of our healthcare ecosystem,” Golinkin said.

“I have to believe and would like to believe that payers, starting with CMS, are going to recognize the importance of giving our citizens easier access to high-quality, affordable primary care, even if they need to shift dollars from other parts of the healthcare system,” he added. “Because a lack of access to primary care is probably the single biggest cost driver in the system, and there’s already a shortage of primary care physicians. The system cannot afford to lose these retail-based clinics and urgent care clinics and primary care practices.”

Regardless of the fate of individual entities, Johnson said, healthcare is on a path toward “democratized and decentralized distribution of whole-person health. Advanced primary care is an essential component of that.”


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