Walmart is closing its network of health clinics after failing to make them profitable, in a major setback for the retail giant’s push into healthcare.
Walmart Health launched as a one-store pilot in Georgia in 2019, and has since grown to 51 centers in five states, along with a virtual care offering. Yet the network has shown recent signs of trouble: Earlier this month, Walmart decelerated its expansion plans for the centers, which offer inexpensive, fixed-cost medical services like primary and dental care.
Walmart is now closing the clinics entirely due to a challenging reimbursement environment and escalating operating costs resulting in a lack of profitability, according to a Tuesday press release.
“Through our experience managing our centers and virtual care offering, we’ve determined this is not a sustainable business model for us,” a Walmart spokesperson said.
It’s a strategic turnaround for Walmart, which has invested heavily in expanding the network and even explored acquiring provider practices to bolster its primary care capabilities.
However, Walmart was unable to overcome operational challenges. In 2019, Walmart’s board of directors approved plans to open 4,000 clinics by 2029, but the retailer quickly fell behind projections due to the complexity of scaling the clinical operation, according to Business Insider. Walmart disputes Business Insider’s reporting.
Walmart likely fell victim to a number of pressures facing provider practices right now, including steep labor and real estate costs, according to Arielle Trzcinski, a healthcare analyst at market research firm Forrester.
Rising administrative burden created by insurance companies, including complex billing processes, prior authorizations, denials and appeals may also have been a factor, she said. And, growth in the cost of doing business hasn’t been met with a commensurate increase in reimbursement for providers.
“If you’re not getting to scale, and driving adoption in each of these centers, and reaching a certain volume threshold, it won’t be profitable,” Trzcinski said. “I think they looked at the challenging headwinds and said, ‘This is not where we want to place our energy right now ... This is not an area that is core to the future of our business.’”
Still, Walmart closing the business entirely is “surprising,” according to the analyst.
As for Walmart stepping out of virtual care, telemedicine is also facing pressures coming out of the COVID-19 pandemic, which drove demand for virtually delivered care and kicked off a tsunami of investment in the services.
However, demand (and investment) has fallen, and a number of recent signals suggest newer providers are losing interest while virtual care companies scramble to adjust to a changing market. UnitedHealth’s health services subsidiary Optum recently said it was exiting the virtual care business, while virtual care giant Teladoc ousted its longtime CEO.
The closures will allow Walmart to refocus on its existing pharmacy and optical care businesses, and on expansion into other healthcare products and services like clinical trials, the Walmart spokesperson said.
Walmart has no specific timeline for the clinic closures, but the centers will continue to serve patients “until further notice,” while Walmart Health Virtual Care will wind down over the next year, according to the spokesperson.
A competitive market
Walmart is the latest company to mosey into healthcare services in recent years that’s come up against unexpected challenges as it jockeys for a slice of the $4.5 trillion sector.
Retailer Walgreens has also struggled to harmonize the size of its medical networks with the demand of building and operating the clinics. Despite acquiring a number of provider groups after gaining control of its primary care operator VillageMD, Walgreens recently pivoted to closing underperforming stores.
Similarly, Amazon shut down its fledgling primary care business in 2022 after failing to get buy-in from corporate customers.
Still, a number of retail health giants continue to invest heavily in brick-and-mortar medical facilities, aiming to create a ubiquitous front door to the healthcare system for consumers — and direct their spending to subsidiaries for related needs like pharmacy, urgent care or medical devices.
Despite its own setbacks, Amazon purchased primary care chain One Medical early last year for $3.9 billion and continues to invest in partnerships and novel membership offerings to drive volume.
Health insurers have also been active in snapping up primary care providers, aiming to increase members’ access to preventative care and avoid worse health outcomes (and higher costs) down the line. In addition, if those primary care providers are owned by the insurer, it gets to essentially pay itself for providing care.
CVS purchased value-based medical network Oak Street Health early last year for $10.6 billion and has since built a number of clinics in new and existing markets. Humana has also announced aggressive expansion plans for its value-based medical network for seniors this year.
The insurers are racing to catch up with UnitedHealth, which currently employs one-tenth of all physicians in the U.S. The healthcare behemoth has quietly grown its network of physician practices through a series of acquisitions over the past decade, which has swelled UnitedHealth to such a size that Congress and antitrust regulators are taking renewed notice.
However, the end of Walmart Health illustrates that size alone is not a recipe for success in providing health services, according to Forrester’s Trzcinski. Walmart is the largest retailer in the U.S., with revenue of $648 billion in its most recent fiscal year.
Despite building out the clinics, Walmart didn’t invest in driving adoption, including through digital health and customer experience, Trzcinski said. That caused it to fall behind other retailers that are surging ahead, such as Amazon and CVS.
Walmart shuttering its own centers could be an opportunity for those players to open centers in markets previously serviced by Walmart Health, though it’s too early to say whether those areas are attractive — especially after Walmart couldn’t reach profitability there, Trzcinski said.
Employees affected by the closures are eligible to transfer to another Walmart or Sam’s Club location and will receive severance if they are let go, according to the release.
Providers working at Walmart Health locations will continue to serve patients while those clinics remain open, and will receive transition payments if they depart after 90 days.
Editor’s note: This story has been updated with additional response from Walmart.
