With Walmart’s announcement last week that it plans to shutter its Walmart Health business, this week’s graphic takes stock of the company’s healthcare delivery journey over nearly the past two decades.
In about 2007, Walmart launched “The Clinic at Walmart,” which leased retail space to various third-party retail clinic companies, and then later health systems, to provide basic primary care services inside Walmart stores, with the ambition of eventually becoming “the largest provider of primary healthcare services in the nation.”
However, low volumes and incompatible incentives between Walmart and its contractors led most of these clinics to close over time. In 2014 Walmart partnered with a single company, the worksite clinic provider QuadMed, to launch “Walmart Care Clinics.” These in-store clinics offered $4 visits for covered Walmart employees and $40 visits for the cash-paying public. Despite these low prices, this iteration of care clinic also suffered from low volumes, and Walmart scrapped the idea after opening only 19 of them.
The retail giant’s most recent effort at care delivery began in 2019 with its revamped “Walmart Health Centers,” which it announced alongside its goal to “become America’s neighborhood health destination.”
These health centers, which had separate entrances from the main store, featured physician-led, expanded primary care offerings including X-ray, labs, counseling, and dental services. As recently as April 2024, Walmart said it was planning to open almost two dozen more within the calendar year, until it announced it was shutting down its entire Walmart Health unit, which included virtual care offerings in addition to 51 health centers, citing an unfavorable operating environment.
Despite multiple rebranding efforts, consumers have thus far appeared unwilling to see affordability-focused Walmart as a healthcare provider.
Almost two decades of clinic experimentation have shown the company is willing to try things and admit failure, but it remains to be seen if this is just the end of Walmart’s latest phase or the end of the road for its healthcare delivery ambitions altogether.
Walgreens’ decision to slash VillageMD’s clinical footprint has reverberated to the financial accounts of the primary care chain’s minority owner — Cigna.
Dive Brief:
Cigna has written off more than half of its multibillion-dollar investment in VillageMD amid the declining value of the primary care chain.
Cigna invested $2.5 billion into VillageMD in late 2022, with the goal of accelerating value-based care arrangements for employer clients by tying VillageMD’s physician network with Cigna’s health services business, Evernorth — hopefully reaping profits from shared savings as a result.
But on Thursday, Cigna wrote off $1.8 billion of that investment, citing VillageMD’s lackluster growth after its majority owner Walgreens elected to close underperforming clinics. The writedown drove Cigna’s shareholder earnings down to a net loss of almost $300 million, compared to profit of $1.3 billion in the same time last year.
Dive Insight:
Overall, Cigna’s first-quarter performance was solid, especially amid the mixed results of its insurer peers, analysts said. The Connecticut-based payer grew its revenue 23% year over year to $57.3 billion.
Yet Cigna’s bet on VillageMD is a new thorn in its side, as the investment’s value becomes increasingly bogged down by Walgreens’ operational decisions, along with broader challenges in the primary care sector.
Walgreens began closing underperforming VillageMD centers last year in a bid to force the segment to profitability, and quickly blew past its initial goal of 60 closures. Now, the retailer expects to close 160 clinics overall, majorly downsizing VillageMD’s footprint.
That decision is reverberating to the financial accounts of VillageMD’s minority owner — Cigna.
“The writedown was largely driven by some broader market dislocation that is hitting the space … as well as Village determining that they are going to pull in supply lines and constrain some of the growth in some of the new clinics that they were establishing,” CEO David Cordani told investors on a Thursday morning call.
However Cigna’s priorities for VillageMD remain unchanged, management said. Cigna is still aiming to link VillageMD’s primary care centers to its own clinical assets to build a high-quality provider network that can serve its own patients, and those of health plan and employer clients.
The partnership has already launched in four markets, and the companies plan to continue scaling, according to Cordani.
“At the macro level our strategic direction in terms of what we are seeking to innovate with Village has not changed despite the writedown of the asset,” Cordani said, though “no one likes a writedown of the asset.”
In the quarter, Cigna’s health benefits segment emerged unscathed by headwinds that buffeted other major payers: notably, spending and regulatory pressure in Medicare Advantage.
Yet the majority of Cigna’s business is with employer clients, which served as a “well-underwritten shelter from the MA storms,” TD Cowen analyst Gary Taylor wrote in a Thursday morning note.
Cigna is planning on getting out of Medicare coverage altogether, having agreed in January to sell its Medicare business to Chicago-based insurer Health Care Service Corporation. That deal remains on track, executives said, after a key waiting period for antitrust regulators to challenge the deal came and went in mid-April. The divestiture is expected to close in early 2025.
Cigna’s medical loss ratio — a marker of how much in premiums insurers spend on patient care — was 79.9% in the quarter, better than analysts had expected. Cigna did see higher utilization in areas like inpatient care for employer-sponsored members in the quarter, but the payer’s pricing decisions for its plans covered the trend, executives said.
Cigna cut its MLR guidance for 2024, along with raising earnings expectations. The insurer now expects an MLR between 81.7% and 82.5% this year, suggesting management is confident in their ability to control medical costs, J.P. Morgan analyst Lisa Gill wrote in a Thursday note.
CVS, which previously held the contract, cited its loss as a factor in declining revenue and income for its pharmacy benefit management business on Wednesday.
Cordani specifically called out specialty pharmacy — which already represents a major portion of Evernorth’s revenue — as an “accelerated growth opportunity” for the business.
Roughly a week ago, Evernorth announced it will have an interchangeable Humira biosimilar for $0 out-of-pocket cost for eligible patients of its specialty pharmacy arm, Accredo.
Currently, 100,000 Accredo patients use Humira or a biosimilar for the frequently prescribed immune disease drug, which has long been the top-selling drug for its manufacturer AbbVie. In addition, all of its PBM clients and patients will have access to the biosimilars, according to Cordani.
Evernorth has also taken steps to ramp up coverage of GLP-1s, expensive diabetes drugs that have soared in popularity for weight loss. In March, the company announced cost-sharing agreement for GLP-1s covered in a condition management program, to insulate health plan and employer clients from the soaring costs of the medication.
The program has seen “strong interest,” and Evernorth has enrolled more than 1 million people in it to date, Cordani said.
Walmart is closing Walmart Health and Walmart Health Virtual Care, saying the business model was not profitable nor sustainable.
The Walmart Health centers opened in 2019.
“Through our experience managing Walmart Health centers and Walmart Health Virtual Care, we determined there is not a sustainable business model for us to continue,” the company said by statement. “The decision to close all 51 health centers across five states and shut down the virtual care offering was not easy.”
WHY THIS MATTERS
Walmart said the challenging reimbursement environment and escalating operating costs created a lack of profitability.
It does not yet have a specific date for when each center will close, but would share that information “as soon as decisions are made.”
Its priority, Walmart said, was “ensuring the people and communities who are impacted are treated with the utmost respect, compassion and support throughout the transition. Today and in the coming days, we are focused on continuity of care for patients and providing impacted associates with respect and assistance as we begin the closing process of the healthcare centers.”
The clinics will continue to serve patients while they are open.
“Through their respective employers, these providers will be paid for 90 days, after which eligible providers will receive transition payments,” Walmart said.
All associates are eligible to transfer to any other Walmart or Sam’s Club location. They will be paid for 90 days, unless they transfer to another location during that time or leave the company, Walmart said. After 90 days, if they do not transfer or leave, eligible associates will receive severance benefits.
“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 said.
THE LARGER TREND
Moving forward, Walmart said it would take what it has learned to provide health and wellness services across the country through its nearly 4,600 pharmacies and more than 3,000 vision centers. Both have been in operation for 40 years.
“Over the past few years, the importance of pharmacies has continued to grow, and we have expanded the clinical capabilities of the services we provide,” Walmart said. “We continue to offer immunizations and have grown to provide testing and treatment services, access to specialty pharmacy medication and care, as well as other essential services such as medication therapy management and a variety of health screenings. With more than 4,000 of our stores in medical provider shortage areas, our pharmacies are often the front door of healthcare.”
Walmart said it plans to launch more services such as the Walmart Healthcare Research Institute and health programs to join its fresh food and over-the-counter offerings.
Among the country’s largest grocers, Walmart plans this year to introduce a line of premium food called Bettergoods to compete against Trader Joe’s and Whole Foods, according to The Wall Street Journal.
However, share prices last week fell for Walmart and Kroger after Amazon unveiled a low-cost grocery delivery program, according to Seeking Alpha. Amazon is expanding its fresh-food business through a delivery subscription benefit in the United States for its Prime members and customers using an EBT (electronic benefits transfer) card. It outlined the $9.99 monthly plan last Tuesday, according to the report. Share prices for Walmart were down 1.55% as of this morning.
On Tuesday, Walmart Health announced deals with nine-hospital system Orlando Health and Ambetter from Sunshine Health, a Centene subsidiary offering Affordable Care Act exchange plans, to become a preferred provider in the Ambetter Value Plan.
Walmart Health’s 23 Florida-based centers will provide primary care services and care coordination in a narrow-network health plan that includes Orlando Health. The Ambetter Value Plan is available in seven counties, covering the Orlando, Tampa, and Jacksonville areas.
While this partnership is limited to Florida, Walmart Health operates 48 centers in five states, with plans to open dozens more locations and expand into three additional states next year.
The Gist:With a strong foothold and customer base in states that haven’t expanded Medicaid, Walmart Health centers are well positioned to be part of low-cost, narrow-network plans targeted at individuals who don’t qualify for Medicaid, or who were recently removed from the program.
While Walmart Health already works with major insurers, this first-ever network partnership with a health system is a notable step forward for Walmart, advancing its healthcare delivery business beyond meeting basic primary care needs into more complex care coordination.
While other large retail and pharmacy chains have opted to buy their way into the primary care space, Walmart is thus far building its own retail store-based clinic enterprise, with plenty of room to scale.
Walmart Health opened three new clinics in Jacksonville, Fla., starting June 6 as the company continues its push into retail healthcare, the Florida Times-Union reported.
The retail giant now has more than 30 Walmart Health centers across Florida, Arkansas, Georgia, Illinois and Texas, with plans to grow to 77 by the end of 2024 and expand into Arizona and Missouri.
Florida is one of Walmart Health’s biggest markets, with 22 coming to the state by fall 2023. They are also located in the Orlando and Tampa metro areas. They include medical, dental, vision, hearing and behavioral health services.
“With only one primary care doctor per 1,380 Florida residents, these Walmart Health centers will help address the demand for care in three major cities in the Sunshine State,” David Carmouche, MD, senior vice president of omnichannel care offerings for Walmart, said in a 2022 Times-Unionstory. “We are part of these communities, and we are excited to bring more options for in-person and telehealth care services to our neighbors. We’re making healthcare available when and where you may need it.”
Retail giant Walmart announced the 2024 opening of four new health centers in Oklahoma.
Oklahoma joins Missouri and Arizona as the third state Walmart Health will enter in 2024.
The 5,570-square-foot centers will be located next to Walmart retail locations and will include primary care, labs, X-rays, EKG, behavioral health, dental, hearing and telehealth services, according to an April 26 Walmart news release.
The health centers will use the Epic EHR system. The new locations will be in the Oklahoma City area, according to the release.
I have been both a frontline officer and a staff officer at a health system. I started a solo practice in 1977 and cared for my rheumatology, internal medicine and geriatrics patients in inpatient and outpatient settings. After 23 years in my solo practice, I served 18 years as President and CEO of a profitable, CMS 5-star, 715-bed, two-hospital healthcare system.
From 2015 to 2020, our health system team added 0.6 years of healthy life expectancy for 400,000 folks across the socioeconomic spectrum. We simultaneously decreased healthcare costs 54% for 6,000 colleagues and family members. With our mentoring, four other large, self-insured organizations enjoyed similar measurable results. We wanted to put our healthcare system out of business. Who wants to spend a night in a hospital?
During the frontline part of my career, I had the privilege of “Being in the Room Where It Happens,” be it the examination room at the start of a patient encounter, or at the end of life providing comfort and consoling family. Subsequently, I sat at the head of the table, responsible for most of the hospital care in Southwest Florida. [1]
Many folks commenting on healthcare have never touched a patient nor led a large system. Outside consultants, no matter how competent, have vicarious experience that creates a different perspective.
At this point in my career, I have the luxury of promoting what I believe is in the best interests of patients — prevention and quality outcomes. Keeping folks healthy and changing the healthcare industry’s focus from a “repair shop” mentality to a “prevention program” will save the industry and country from bankruptcy. Avoiding well-meaning but inadvertent suboptimal care by restructuring healthcare delivery avoids misery and saves lives.
RESPONDING TO AN ATTACK
Preemptive reinvention is much wiser than responding to an attack. Unfortunately, few industries embrace prevention. The entire healthcare industry, including health systems, physicians, non-physician caregivers, device manufacturers, pharmaceutical firms, and medical insurers, is stressed because most are experiencing serious profit margin squeeze. Simultaneously the public has ongoing concerns about healthcare costs. While some medical insurance companies enjoyed lavish profits during COVID, most of the industry suffered. Examples abound, and Paul Keckley, considered a dean among long-time observers of the medical field, recently highlighted some striking year-end observations for 2022. [2]
Recent Siege Examples
Transparency is generally good but can and has led to tarnishing the noble profession of caring for others. Namely, once a sector starts bleeding, others come along, exacerbating the exsanguination. Current literature is full of unflattering public articles that seem to self-perpetuate, and I’ve highlighted standout samples below.
The Federal Government is the largest spender in the healthcare industry and therefore the most influential. Not surprisingly, congressional lobbying was intense during the last two weeks of 2022 in a partially successful effort to ameliorate spending cuts for Medicare payments for physicians and hospitals. Lobbying spend by Big Pharma, Blue Cross/Blue Shield, American Hospital Association, and American Medical Association are all in the top ten spenders again. [3, 4, 5] These organizations aren’t lobbying for prevention, they’re lobbying to keep the status quo.
Concern about consistent quality should always be top of mind. “Diagnostic Errors in the Emergency Department: A Systematic Review,” shared by the Agency for Healthcare Research and Quality, compiled 279 studies showing a nearly 6% error rate for the 130 million people who visit an ED yearly. Stroke, heart attack, aortic aneurysm, spinal cord injury, and venous thromboembolism were the most common harms. The defense of diagnostic errors in emergency situations is deemed of secondary importance to stabilizing the patient for subsequent diagnosing. Keeping patients alive trumps everything. Commonly, patient ED presentations are not clear-cut with both false positive and negative findings. Retrospectively, what was obscure can become obvious. [6, 7]
Spending mirrors motivations. The Wall Street Journal article “Many Hospitals Get Big Drug Discounts. That Doesn’t Mean Markdowns for Patients” lays out how the savings from a decades-old federal program that offers big drug discounts to hospitals generally stay with the hospitals. Hospitals can chose to sell the prescriptions to patients and their insurers for much more than the discounted price. Originally the legislation was designed for resource-challenged communities, but now some hospitals in these programs are profiting from wealthy folks paying normal prices and the hospitals keeping the difference. [8]
“Hundreds of Hospitals Sue Patients or Threaten Their Credit, a KHN Investigation Finds. Does Yours?” Medical debt is a large and growing problem for both patients and providers. Healthcare systems employ collection agencies that typically assess and screen a patient’s ability to pay. If the credit agency determines a patient has resources and has avoided paying his/her debt, the health system send those bills to a collection agency. Most often legitimately impoverished folks are left alone, but about two-thirds of patients who could pay but lack adequate medical insurance face lawsuits and other legal actions attempting to collect payment including garnishing wages or placing liens on property. [9]
“Hospital Monopolies Are Destroying Health Care Value,” written by Rep. Victoria Spartz (R-Ind.) in The Hill, includes a statement attributed to Adam Smith’s The Wealth of Nations, “that the law which facilitates consolidation ends in a conspiracy against the public to raise prices.” The country has seen over 1,500 hospital mergers in the past twenty years — an example of horizontal consolidation. Hospitals also consolidate vertically by acquiring physician practices. As of January 2022, 74 percent of physicians work directly for hospitals, healthcare systems, other physicians, or corporate entities, causing not only the loss of independent physicians but also tighter control of pricing and financial issues. [10] The healthcare industry is an attractive target to examine. Everyone has had meaningful healthcare experiences, many have had expensive and impactful experiences. Although patients do not typically understand the complexity of providing a diagnosis, treatment, and prognosis, the care receiver may compare the experience to less-complex interactions outside healthcare that are customer centric and more satisfying.
PROFIT-MARGIN SQUEEZE
Both nonprofit and for-profit hospitals must publish financial statements. Three major bond rating agencies (Fitch Ratings, Moody’s Investors Service, and S & P Global Ratings) and other respected observers like KaufmanHall, collate, review, and analyze this publicly available information and rate health systems’ financial stability.
One measure of healthcare system’s financial strength is operating margin, the amount of profit or loss from caring for patients. In January of 2023 the median, or middle value, of hospital operating margin index was -1.0%, which is an improvement from January 2022 but still lags 2021 and 2020.
Erik Swanson, SVP at KaufmanHall, says 2022,
“Is shaping up to be one of the worst financial years on record for hospitals. Expense pressures — particularly with the cost of labor — outpaced revenues and drove poor performance. While emergency department visits and operating room minutes increased slightly, hospitals struggled to discharge patients due to internal staffing shortages and shortages at post-acute facilities,” [11]
Another force exacerbating health system finance is the competent, if relatively new retailers (CVS, Walmart, Walgreens, and others) that provide routine outpatient care affordably. Ninety percent of Americans live within ten miles of a Walmart and 50% visit weekly. CVS and Walgreens enjoy similar penetration. Profit-margin squeeze, combined with new convenient options to obtain routine care locally, will continue disrupting legacy healthcare systems.
Providers generate profits when patients access care. Additionally, “easy” profitable outpatient care can and has switched to telemedicine. Kaiser-Permanente (KP), even before the pandemic, provided about 50% of the system’s care through virtual visits. Insurance companies profit when services are provided efficiently or when members don’t use services. KP has the enviable position of being both the provider and payor for their members. The balance between KP’s insurance company and provider company favors efficient use of limited resources. Since COVID, 80% of all KP’s visits are virtual, a fact that decreases overhead, resulting in improved profit margins. [12]
On the other hand, KP does feel the profit-margin squeeze because labor costs have risen. To avoid a nurse labor strike, KP gave 21,000 nurses and nurse practitioners a 22.5% raise over four years. KP’s most recent quarter reported a net loss of $1.5B, possibly due to increased overhead. [13]
The public, governmental agencies, and some healthcare leaders are searching for a more efficient system with better outcomes
at a lower cost. Our nation cannot continue to spend the most money of any developed nation and have the worst outcomes. In a globally competitive world, limited resources must go to effective healthcare, balanced with education, infrastructure, the environment, and other societal needs. A new healthcare model could satisfy all these desires and needs.
Even iconic giants are starting to feel the pain of recent annual losses in the billions. Ascension Health, Cleveland Clinic, Jefferson Health, Massachusetts General Hospital, ProMedica, Providence, UPMC, and many others have gone from stable and sustainable to stressed and uncertain. Mayo Clinic had been a notable exception, but recently even this esteemed system’s profit dropped by more than 50% in 2022 with higher wage and supply costs up, according to this Modern Healthcare summary. [14]
The alarming point is even the big multigenerational health system leaders who believed they had fortress balance sheets are struggling. Those systems with decades of financial success and esteemed reputations are in jeopardy. Changing leadership doesn’t change the new environment.
Nonprofit healthcare systems’ income typically comes from three sources — operations, namely caring for patients in ways that are now evolving as noted above; investments, which are inherently risky evidence by this past year’s record losses; and philanthropy, which remains fickle particularly when other investment returns disappoint potential donors. For-profit healthcare systems don’t have the luxury of philanthropic support but typically are more efficient with scale and scope.
The most stable and predictable source of revenue in the past was from patient care. As the healthcare industry’s cost to society continues to increase above 20% of the GDP, most medically self-insured employers and other payors will search for efficiencies. Like it or not, persistently negative profit margins will transform healthcare.
Demand for nurses, physicians, and support folks is increasing, with many shortages looming near term. Labor costs and burnout have become pressing stresses, but more efficient delivery of care and better tools can ameliorate the stress somewhat. If structural process and technology tools can improve productivity per employee, the long-term supply of clinicians may keep up. Additionally, a decreased demand for care resulting from an effective prevention strategy also could help.
Most other successful industries work hard to produce products or services with fewer people. Remember what the industrial revolution did for America by increasing the productivity of each person in the early 1900s. Thereafter, manufacturing needed fewer employees.
PATIENTS’ NEEDS AND DESIRES
Patients want to live a long, happy and healthy life. The best way to do this is to avoid illness, which patients can do with prevention because 80% of disease is self-inflicted. When prevention fails, or the 20% of unstoppable episodic illness kicks in, patients should seek the best care.
The choice of the “best care” should not necessarily rest just on convenience but rather objective outcomes. Closest to home may be important for take-out food, but not healthcare.
Care typically can be divided into three categories — acute, urgent, and elective. Common examples of acute care include childbirth, heart attack, stroke, major trauma, overdoses, ruptured major blood vessel, and similar immediate, life-threatening conditions. Urgent intervention examples include an acute abdomen, gall bladder inflammation, appendicitis, severe undiagnosed pain and other conditions that typically have positive outcomes even with a modest delay of a few hours.
Most every other condition can be cared for in an appropriate timeframe that allows for a car trip of a few hours. These illnesses can range in severity from benign that typically resolve on their own to serious, which are life-threatening if left undiagnosed and untreated. Musculoskeletal aches are benign while cancer is life-threatening if not identified and treated.
Getting the right diagnosis and treatment for both benign and malignant conditions is crucial but we’re not even near perfect for either. That’s unsettling.
In a 2017 study,
“Mayo Clinic reports that as many as 88 percent of those patients [who travel to Mayo] go home [after getting a second opinion] with a new or refined diagnosis — changing their care plan and potentially their lives. Conversely, only 12 percent receive confirmation that the original diagnosis was complete and correct. In 21 percent of the cases, the diagnosis was completely changed; and 66 percent of patients received a refined or redefined diagnosis. There were no significant differences between provider types [physician and non-physician caregivers].” [15]
The frequency of significant mis- or refined-diagnosis and treatment should send chills up your spine. With healthcare we are not talking about trivial concerns like a bad meal at a restaurant, we are discussing life-threatening risks. Making an initial, correct first decision has a tremendous influence on your outcome.
Sleeping in your own bed is nice but secondary to obtaining the best outcome possible, even if car or plane travel are necessary. For urgent and elective diagnosis/treatment, travel may be a
good option. Acute illness usually doesn’t permit a few hours of grace, although a surprising number of stroke and heart attack victims delay treatment through denial or overnight timing. But even most of these delayed, recognized illnesses usually survive. And urgent and elective care gives the patient the luxury of some time to get to a location that delivers proven, objective outcomes, not necessarily the one closest to home.
Measuring quality in healthcare has traditionally been difficult for the average patient. Roadside billboards, commercials, displays at major sporting events, fancy logos, name changes and image building campaigns do not relate to quality. Confusingly, some heavily advertised metrics rely on a combination of subjective reputational and lagging objective measures. Most consumers don’t know enough about the sources of information to understand which ratings are meaningful to outcomes.
Arguably, hospital quality star ratings created by the Centers for Medicare and Medicaid Services (CMS) are the best information for potential patients to rate hospital mortality, safety, readmission, patient experience, and timely/effective care. These five categories combine 47 of the more than 100 measures CMS publicly reports. [16]
A 2017 JAMA article by lead author Dr. Ashish Jha said:
“Found that a higher CMS star rating was associated with lower patient mortality and readmissions. It is reassuring that patients can use the star ratings in guiding their health care seeking decisions given that hospitals with more stars not only offer a better experience of care, but also have lower mortality and readmissions.”
The study included only Medicare patients who typically are over 65, and the differences were most apparent at the extremes, nevertheless,
“These findings should be encouraging for policymakers and consumers; choosing 5-star hospitals does not seem to lead to worse outcomes and in fact may be driving patients to better institutions.” [17]
Developing more 5-star hospitals is not only better and safer for patients but also will save resources by avoiding expensive complications and suffering.
As a patient, doing your homework before you have an urgent or elective need can change your outcome for the better. Driving a
couple of hours to a CMS 5-star hospital or flying to a specialty hospital for an elective procedure could make a difference.
Business case studies have noted that hospitals with a focus on a specific condition deliver improved outcomes while becoming more efficient. [18] Similarly, specialty surgical areas within general hospitals have also been effective in improving quality while reducing costs. Mayo Clinic demonstrated this with its cardiac surgery department. [19] A similar example is Shouldice Hospital near Toronto, a focused factory specializing in hernia repairs. In the last 75 years, the Shouldice team has completed four hundred thousand hernia repairs, mostly performed under local anesthesia with the patient walking to and from the operating room. [20] [21]
THE BOTTOM LINE
The Mayo Brother’s quote, “The patient’s needs come first,” is more relevant today than when first articulated over a century ago. Driving treatment into distinct categories of acute, urgent, and elective, with subsequent directing care to the appropriate facilities, improves the entire care process for the patient. The saved resources can fund prevention and decrease the need for future care. The healthcare industry’s focus has been on sickness,
not prevention. The virtuous cycle’s flywheel effect of distinct categories for care and embracing prevention of illness will decrease misery and lower the percentage of GDP devoted to healthcare.
Editor’s note: This is a multi-part series on reinventing the healthcare industry. Part 2 addresses physicians, non-physician caregivers, and communities’ responses to the coming transformation.
Walgreens’ growing U.S. healthcare segment is continuing to bolster the retail health chain’s financial performance. The business, which includes value-based provider VillageMD, recorded $1.6 billion in sales in the second quarter, an increase of $1.1 billion from last year.
VillageMD sales were up 30%, including a boost from its recent acquisition of medical group Summit Health. Specialty pharmacy Shields Health Solutions grew sales 41%, while at-home care provider CareCentrix’s sales were up 25%.
Thanks in part to a jump in revenue in its healthcare segment, Walgreens’ results beat Wall Street expectations even as profit declined more than 20% amid lower COVID-19 vaccine volumes and test sales, higher salary costs, opioid litigation charges and costs associated with its $3.5 billion investment in its Summit acquisition.
Dive Insight:
Walgreens has been working to expand its business scope beyond pharmacies to more consumer-centric healthcare, and has acquired a number of companies to build out its growing U.S. healthcare division.
In its earnings results for the second quarter ended Feb. 28, the business reported gross profit of $32 million, as income from Shields and CareCentrix was offset by VillageMD expansion costs. VillageMD added 133 clinics compared to the second quarter last year.
“With the closing of VillageMD’s acquisition of Summit Health, [Walgreens] is now one of the largest players in primary care,” CEO Roz Brewer said in the company’s earnings release on Tuesday.
VillageMD also acquired a Connecticut-based medical group in March for an undisclosed amount. That group, called Starling Physicians, operates more than 30 primary care and multi-specialty practices across the state.
Starling “will contribute heavily to revenue and EBITDA growth in the second half of 2023,” said Walgreens CFO James Kehoe on a Tuesday morning call with investors. “Overall, the primary care business and the specialty care business is doing really, really well.”
Despite the recent deals, Walgreens is moving beyond its peak investment period in healthcare, management said on the call. VillageMD, for example, plans to concentrate growth and investments in specific markets where it can be “hyper-relevant” moving forward, according to Walgreens President John Standley.
In healthcare, as in life, people devote a lot of time and attention to the way things should be. They’d be better off focusing on what actually could be.
As an example, 57% to 70% of American voters believe our nation “should” adopt a single-payer healthcare system like Medicare For All. Likewise, public health advocates insist that more of the nation’s $4 trillion healthcare budget “should” be spent on combating the social determinants of health: things like housing insecurity, low-wage jobs and other socioeconomic stresses. Neither of these ideas will happen, nor will dozens of positive healthcare solutions that “should” happen.
When the things that should happen don’t, there’s always a reason. In healthcare, the biggest roadblock to change is what I call the conglomerate of monopolies, which includes hospitals, drug companies, private-equity-staked physicians and commercial health insurers. These powerful entities exert monopolistic control over the delivery and financing of the country’s medical care. And they remain fiercely opposed to any change in healthcare that would limit their influence or income.
This article concludes my five-part series on medical monopolies with an explanation of why (a) “should” won’t happen in healthcare but (b) industrywide disruption will.
Why government won’t lead the way
With the U.S. Senate split 51-49 and with virtually no chance of either party securing the 60 votes needed to avoid a filibuster, Congress will, at most, tinker with the medical system. That means no Medicare For All and no radical redistribution of healthcare funds.
Even if elected officials started down the path of major reform, healthcare’s incumbents would lobby, threaten to withhold campaign contributions (which have exceeded $700 million annually for the past three years) and swat down any legislative effort that might harm their interests.
In American politics, money talks. That won’t change soon, even if voters believe it should.
American employers won’t lead, either
Private payers wield significant power and influence of their own. In fact, the Fortune 500 represents two-thirds of the U.S. GDP, generating more than $16 trillion in revenue. And they provide health insurance to more than half the American population.
With all that clout, you’d think business executives would demand more from healthcare’s conglomerate of monopolies. You might assume they’d want to push back against the prevailing “fee for service” payment model, replacing it with a form of reimbursement that rewards doctors and hospitals for the quality (not quantity) of care they provide. You’d think they would insist that employees get their care through technologically advanced, multispecialty medical groups, which deliver superior outcomes when compared to solo physician practices.
Instead, companies take a more passive position. In fact, employers are willing to shoulder 5% to 6% increases in insurance premiums each year (double their average rate of revenue growth) without putting up much or any resistance.
One reason they tolerate hefty rate hikes—rather than battling insurers, hospitals and doctors— involves a surprising truth about insurance premiums. Business leaders have figured out how to transfer much of their added premium costs to employees in the form of high-deductible health plans. A high deductible plan forces the beneficiary to pay “first dollar” for their medical care, which significantly reduces the premium cost paid by the employer.
Businesses also realize that high deductibles will only financially burden employees who experience an unexpected, catastrophic illness or accident. Meaning, most workers won’t feel the sting in a typical year. As for employees with ongoing, expensive medical problems, employers typically don’t mind watching them walk out the door over high out-of-pocket costs. Their departures only reduce the company’s medical spend in future years.
Finally, businesses know that employee medical costs are tax deductible, which cushions the impact of premium increases. So, what starts as a 6% annual increase ends up costing employees 3%, the government 1% and businesses only 2%. In today’s strong labor market, which boasts the lowest unemployment rate in 54 years, businesses are reluctant to demand changes from healthcare’s biggest players—regardless of whether they should.
Leading the healthcare transformation
If there were a job opening for “Leader of the American Healthcare Revolution,” the applicant pool would be shallow.
Elected officials would shy away, fearing the loss of campaign contributions. Businesses and top executives would pass on the opportunity, preferring to shift insurance costs to employees and the government. Patients would feel overwhelmed by the task and the power of the incumbents. Doctors, nurses and hospitals—despite their frustrations with the current system—would want to take small steps, fearful of the conglomerate of monopolies and the risks of disruptive change.
To revolutionize American medicine, a leader must possess three characteristics:
Sufficient size and financial reserves to disrupt the entire industry (not just a small piece of it).
Presence across the country to leverage economies of scale.
Willingness to accept the risks of radical change in exchange for the potential to generate massive profits.
Whoever leads the way won’t make these investments because it “should happen.” They will take the chance because the upside is dramatically better than sitting on the sidelines.
The likely winner: American retailers
Amazon, CVS, Walmart and other retail giants are the only entities that fit the revolutionary criteria above. In healthcare’s game of monopoly, they’re the ones willing to take high-stakes risks and capable of disrupting the industry.
For years, these retailers have been acquiring the necessary game pieces (including pharmacy services, health-insurance capabilities and innovative care-delivery organizations) to someday take over American healthcare.
CVS Health owns health insurer Aetna. It bought value-based care company Signify Health for $8 billion, along with national primary care provider OakStreet Health for $10.6 billion. Walmart recently entered into a 10-year partnership with the nation’s largest insurance company, UnitedHealth, gaining access to its 60,000 employed physicians. Walmart then acquired LHC, a massive home-health provider. Finally, Amazon recently purchased primary-care provider One Medical for $3.9 billion and maintains close ties with nearly all of the country’s self-funded businesses.
Harvard business professor Clay Christensen noted that disruptive change almost always comes from outsiders. That’s because incumbents cling to overly expensive and inefficient systems. The same holds true in American healthcare.
The retail giants can see that healthcare is exorbitantly priced, uncoordinated, inconvenient and technologically devoid. And they recognize the hundreds of billions of dollars of revenue and they could earn by offering a consumer-focused, highly efficient alternative.
How will the transformation happen?
Initially, I believe the retail giants will take a two-pronged approach. They’ll (a) continue to promote fee-for-service medical services through their pharmacies and retail clinics (in-store and virtual) while (b) embracing every opportunity to grow their market share in Medicare Advantage, the capitated option for people over age 65.
And within Medicare Advantage, they’ll look for ways to leverage sophisticated IT systems and economies of scale, thus providing care that is better coordinated, technologically supported and lower cost than what’s available now.
Rather than including all community doctors in their network, they’ll rely on their own clinicians, augmented by a limited cohort of the highest-performing medical groups in the area. And rather than including every hospital as an inpatient option, they’ll contract with highly respected centers of excellence for procedures like heart surgery, neurosurgery, total-joint replacement and transplants, trading high volume for low prices.
Over time, they’ll reach out to self-funded businesses to offer proven, superior clinical outcomes, plus guaranteed, lower total costs. Then they’ll make a capitated model their preferred insurance plan for all companies and individuals. Along the way, they’ll apply consumer-driven medical technologies, including next generations of ChatGPT, to empower patients, provide continuous care for people with chronic diseases and ensure the medical care provided is safe and most efficacious.
Tommy Lasorda, the long-time manager of the Los Angeles Dodgers, once remarked, “There are three types of people. Those who watch what happens, those that make it happen and those who wonder what just happened.”
Lasorda’s quip describes healthcare today. The incumbents are watching closely but failing to see the big picture as retailer acquire medical groups and home health capabilities. The retail giants are making big moves, assembling the pieces needed to completely transform American medicine as we think of it today. Finally, tens of thousands of clinicians and thousands of hospital administrators are either ignoring or underestimating the retail giants. And, when they get left behind, they’ll wonder: What just happened?
The conglomerate of monopolies rule medicine today. Amazon, CVS and Walmart believe they should rule. And if I had to bet on who will win, I’d put my money on the retail giants.
CVS Health is close to a deal to acquire primary care provider Oak Street Health for around $10.5 billion, including debt, marking the latest move among major healthcare stakeholders in acquiring primary care companies, the Wall Street Journal reports.
According to people with knowledge of the matter who spoke to the Journal, the two companies are discussing a deal in which CVS would acquire Oak Street for a price of around $39 a share. If the deal goes through, it could be announced as soon as this week.
According to the Journal, “the Oak Street acquisition would further the company’s long-term shift to broaden into businesses beyond retail pharmacy by adding doctors who can more fully manage patients’ care.”
Oak Street has more than 160 centers across 21 states and focuses mainly on caring for patients enrolled in Medicare. The company, which is based in Chicago, was founded in 2012 and specializes in caring for patients under value-based care arrangements.
Aetna, which is owned by CVS, has a growing Medicare Advantage business that would likely tie in with Oak Street’s clinics, which care for about 159,000 patients under value-based arrangements, the Journal reports.
The move is the latest among major healthcare stakeholders acquiring primary care companies. In September 2022, CVS announced an $8 billion deal to acquire home healthcare company Signify Health.
Meanwhile, Amazon in July 2022 announced a $3.9 billion deal to acquire primary care company One Medical, Humana in September 2022 announced its intention to spend up to $550 million to purchase 20 CenterWell Senior Primary Care clinics, and Walgreens Boots Alliance in November 2022 announced a roughly $9 billion deal to acquire Summit Health.
HENRY KOTULA 