Abby Burns (00:02):
From Advisory Board, we are bringing you a Radio Advisory, your weekly download on how to untangle healthcare's most pressing challenges. I'm Abby Burns. Over the past several years, we've seen large retailers like CVS, Walgreens, Walmart, even Amazon add to their care delivery footprints specifically through offering low acuity primary care services.

(00:22):
We've talked about this on the podcast before. I'll put the episode in the show notes, but it seems like the tide might be shifting. This week we're going to be talking about a question that a lot of people in and even outside the healthcare industry have been asking, including Radio Advisory listeners.

Barry Fleischer (00:36):
Hey, Radio Advisory team. This is Barry Fleischer from Shirley Ryan AbilityLab in Chicago. A big fan of the podcast. So I've been reading, like everyone else in healthcare, that Walmart is exiting the care delivery business entirely. I've always been a little intrigued by the ongoing hype that the media has around big box and online retailers trying to enter into a very complex sector that we all know.

(01:01):
How is the Advisory Board thinking about these moves in and out of our business, and what does it mean for providers and stakeholders? And most importantly, what does it mean for patients? Thanks a lot. Love your work.

Abby Burns (01:13):
Barry's talking, of course, about Walmart's announcement from late April that it's closing all 51 of its healthcare clinics and its virtual care arm. And it's not the only retailer that's pulled back on providing care delivery in the past year. Depending on where you're listening from, you might have seen some of Walgreens VillageMD clinics closing their doors in seven markets across the country. To help explain what's happening, to push past the hype, I'm turning to Advisory Board experts, Vidal Seegobin, Natalie Trebes, and Eliza Dailey. Welcome back to Radio Advisory.

Natalie Trebes (01:42):
Hi.

Eliza Dailey (01:43):
Hey, Abby.

Vidal Seegobin (01:44):
Hello.

Abby Burns (01:46):
I should say from the get-go that part of the reason we're having this conversation today is because the four of us share the opinion that the story available in the market around what happened with Walmart closing down its care delivery operations is incomplete. In other words, if our goal is to help healthcare leaders make more informed strategic decisions, we think there are additional angles or analyses that they should be taking into consideration when interpreting what this means for them.

(02:17):
But I don't want to assume that our listeners have been continuing to follow this story since the announcement back in April. So Vidal, can you give us the CliffsNotes version of what happened and what explanations have been put forth as to why?

Vidal Seegobin (02:30):
Sure. So it's important to remember first and foremost that what we're going to talk about today, which is Walmart Health's foray into the provision of healthcare, is not their first dalliance in healthcare in general. But starting in 2019 in Dallas, Georgia, Walmart opened what could be considered to be a one-stop shop for basic or primary care located in one of their retail sites.

(02:57):
The ambition was to extend that offering to 51 sites over time. And the hope was that given the proximity that Walmart had to a lot of geographies or populations, it could be a great place people could go out to seek care and get a lot of things covered pretty immediately and available and have that done so that it was easier to manage your condition, and then obviously Walmart could make money by doing that.

Abby Burns (03:24):
So pretty straightforward premise.

Vidal Seegobin (03:26):
Yeah, yeah. And I think it's both a mix of bricks and mortar offering because their footprint is pretty considerable in the United States, but they also tried to extend out some of their virtual offerings as well. And so when we're talking about primary care, we're talking about primary care services, laboratory, X-rays, ophthalmology, dentistry. So it's like a whole host of things in the lower acuity side that you could access when you were going to get groceries or get your prescription filled.

(03:54):
So in terms of what the read is or the vibe is or the take on why their retreat happened or what it means is I think first and foremost something that Eliza and Natalie and I have heard quite often is that those institutions or executives or leaders who have been operating in healthcare for a long time have known that healthcare is incredibly difficult. And so there's a little bit of a, "Hey, healthcare is hard."

(04:19):
These Johnny-come-latelys are coming to realize that healthcare is hard and we're not surprised that it's not easy to make an easy dollar on it. Second, I think, is that the realization primary care historically has been as a healthcare business offering, one that has not been a huge moneymaker to begin with in and of itself. So that being your spine of an offering in your retail setting is going to have a harder uphill climb to make money on.

(04:46):
And then of course, I mean, part of the reason why some of us were excited about Walmart's potential here was that it was an ability to be a front door for more sparsely populated or rural communities where people would be closer to a Walmart than they would be to a physician office. And if they could do that or had that, then they could have a better chance at managing their conditions more effectively.

Abby Burns (05:09):
So I want to dig into why that analysis falls short in our estimation, but first, it feels important to recognize that, one, Walmart is not the only retailer to come to market with a care delivery strategy. CVS was, I think, the first mover back in 2006. Walgreens came on a little later. Amazon was the most recent entry to the market with the One Medical deal that closed just last year.

(05:36):
But two, Walmart's also not the only retailer retrenching on its healthcare strategy. Walgreens is in the middle of closing 160 clinics. Much smaller scale, but Dollar General is also sunsetting its mobile clinic pilot that it started in Tennessee. So I want to take a step back for a second and ask you all to give some dimension to this part of the industry. Should we be thinking about all these players essentially as interchangeable?

Eliza Dailey (06:04):
Across the board with these retailers, they're all fundamentally after similar things, which is market share in primary care, to Vidal's point. But they're doing so for different reasons. And I think each one of them has actually entered primary care in different ways. So you have Walmart, who actually built their own co-located clinics within some of their larger retail hubs.

(06:28):
You have Amazon that went the buy route. So in the last couple of years, we remember their big purchase of One Medical. That was really their first foray into true brick and mortar primary care. Walgreens actually opted for the investment route. So they initially invested in VillageMD, slowly ramped up that investment over time. They now have a majority share in VillageMD.

(06:50):
And then CVS has deployed a mix of strategy. So as you mentioned, they've been in the true retail clinic presence for a while with MinuteClinic, but they also made a big purchase in the last couple of years with Oak Street. Each of these organizations have a retail clinic focused part of their business, and they also have a medical group focus part of their business.

(07:14):
So I also think that's part of the commentary that's often missing. And the news coverage is there's so much focus on their retail footprint and less so their larger medical group presence. When I say medical group, I'm talking integrated primary and multi-specialty cares, the things that you aren't delivering in a CVS or a retail hub itself.

Abby Burns (07:37):
So they're all coming at it from maybe a different angle, but sounds like they're pretty similar.

Natalie Trebes (07:42):
Well, Eliza, I was curious, would you say that they all have an equal mix of what you're calling retail clinic approach and medical group approach, or is it different across all of these different retailers?

Eliza Dailey (07:56):
I'd say it's a mix across all of them. So because CVS has been in this space the longest, they have a really robust retail clinic presence with MinuteClinic. And Oak Street is a pretty small part of their business today, but they seem to have big growth ambitions for it. Walgreens, I would actually say, is more of a 50/50 than some of these other retailers. They've had Walgreens retail clinics, but then they also have their majority investment in VillageMD.

(08:25):
They had their huge acquisition of Summit Health a couple years. They actually really do have a robust multi-specialty medical group presence as well. What I think is interesting to tease out though is when you look at the closures across Walmart, Walgreens, and CVS, they've actually all been in those retail co-located clinics. You have not seen them closing those ones that are more about integrated multi-specialty care, those medical group practices.

Natalie Trebes (08:56):
I think that gets back to the big high level fundamental question that a lot of this discussion is about, which is the economics of primary care or the business model of primary care and how do you make that work.

(09:11):
And in broad categories, that breaks down into you either need to be offering primary care that is individually profitable or makes a margin, so costs less to serve than you get for serving it, or you need to somehow pull in additional revenues to cover that cost from something else, whether it's referrals to downstream care, or potentially managing the overall cost of taking care of a population and getting some risk revenues, or even the theory of maybe I can get people to shop more for consumer goods.

(09:48):
But you'd really have to buy a lot of toothpaste for that to work. And so I think that's part of this conversation, and it probably looks different in the medical group setting versus in the retail clinic setting. But what we are asking of retail clinics is to somehow be cheaper than existing primary care, but also attractive to consumers, but also feed some other funnel there.

Eliza Dailey (10:10):
Natalie, it's interesting because I feel like you've basically just said that these are trying to run three different businesses with their retail focused primary care clinics. And I feel like CVS is the one that's a little bit different. They have a health plan. They have a PDN. Do you think that shifts the economics and which business plans are easier or harder for them?

Natalie Trebes (10:34):
Definitely yes. It's a huge outstanding question, but I think it's important to appreciate the scale of those other businesses you rattled off there. Like health plan, PBM, those are each respectively about a third of CVS' entire revenue streams. And so they are not simply a retailer that has other things going on in healthcare. They are a health plan, a PBM, and a retailer in roughly equal proportions. And so they're fundamentally going to be different from the others.

Eliza Dailey (11:06):
I think that's actually true for many of these players. Many of them are pharmacies first, and so they also have these really robust large pharmacy businesses as well.

Abby Burns (11:16):
So what you're saying is when it comes to their healthcare plays, there are a lot of pieces of overlap across these players, but there's not necessarily one business model, or we can't paint them essentially with a broad brush. Is that fair?

Eliza Dailey (11:34):
Yes.

Vidal Seegobin (11:34):
Yeah.

Abby Burns (11:35):
So let's stick with Walmart for a minute. We started off this conversation by saying that we feel like the coverage of what happened with Walmart is incomplete. Natalie started to get at a little bit of the nuance that digs a level deeper into why. This is our chance to rewrite some new headlines, add some more rigor into what we think has been missing from the analysis of what happened. Where would you start?

Vidal Seegobin (11:58):
I think that the interesting take is these retailers who have built a business that is not exactly a super generous margin, right? It's like Walmart averages about a 3% margin, but they are able to be successful precisely because they are so excellent at product management, inventory, and flow. So they are just exceptional at this product management business.

(12:21):
And what I think we found is despite the fact that they have footprint, despite the fact that they have size, despite the fact that they have access to capital that is necessary but insufficient to transitioning into a service-based model, that is still going to probably generate you a 3% margin if you're doing a good job.

(12:39):
So I think that that's part of the story I would say, and I would just like to couch it, and I think Natalie will talk more about this because she feels much more strongly about this than I do, but Walmart Health looked on the surface like a smart move. The ability to be close by, the ability to be someplace you were going on a regular basis I think was a plausible business model that I thought had a pretty good chance of succeeding.

Abby Burns (13:03):
That's what we see a lot is healthcare is so complex. People are underestimating the complexity of the healthcare industry. Is that true?

Natalie Trebes (13:11):
So these are people who are extremely experienced, some coming from health plans, some coming from health systems. I believe a couple from Walmart are coming from Highmark Health. These folks are very experienced healthcare leaders. It is not their first rodeo when it comes to these challenging cross-subsidy problems or economics problems. And so in my view, it's not that all of a sudden Walmart woke up and got into healthcare and staffed it with Walmart executives who are used to doing consumer retail.

(13:43):
It is that they brought in healthcare executives who are experienced being in traditional healthcare spaces. And I think the question is, how much latitude and investment did they give them relative to the other very real retail pressures that Walmart had? Let's not forget about inflation and the economy and everything else going on. And did they get to have enough bargaining power?

(14:08):
Because I think one of my questions about healthcare economics is, what is your threshold that you need to be big enough to be able to get the economics to work for you versus pilots? I think pilots are really hard to pull off in care delivery.

Abby Burns (14:25):
It's not a matter of inexperienced executives. It's not just that healthcare is too hard, and that was surprising. There's an economics element to this, a funds flow problem. Are there other factors aside from the fund flow of it all that made this model challenging?

Eliza Dailey (14:44):
I would say two other things come to mind for why this maybe didn't pan out for Walmart and some of the other retailers. One is they have really extensive footprints. 90% of the US population lives within 10 miles of a Walmart. 78% of Americans live within five miles of a Walgreens. You could assume that that really extensive brick and mortar footprint would translate to consumer access, people seeking out care, et cetera.

(15:16):
I think this goes to show that if you build it, they still may or may not come. And that is something that incumbents have been dealing with for a while as they've been deciding and making really strategic bets in terms of where they're placing certain facilities and clinics within their footprint in their market. The other thing that I would mention is it's really hard to take a point solution and turn it into an ongoing patient relationship or care continuity.

(15:49):
I think there's lots of people who probably still get their flu shots and their COVID tests and their antibiotics from CVS and Walgreens and some of these other retailers. There are still patients engaging with their services, but it's really hard to turn that into a true longitudinal patient relationship. And we know how hard it is for anyone to disrupt that patient relationship.

(16:18):
And I think this goes to show that the incumbents are still coming out on top here. They still really are the ones that have won the patient relationship in primary care.

Abby Burns (16:29):
That's a perfect transition because I want to move us into what some of these moves, Walmart's move out of care delivery, the Walgreens closures, what they mean for everybody else in healthcare. At the end of the day, another well-capitalized, consumer centric primary care disruptor, competitor, call it what you want, has pulled themselves out of the game. I have to imagine that a lot of incumbent providers, health systems, independent medical groups, are feeling pretty happy about this. But Vidal, what are the reactions that you've been getting from provider leaders?

Vidal Seegobin (17:06):
So part of the issue is there was a hope in some ways that savvier systems could partner with these other primary care entrants as a way of offloading a responsibility to someone else who could potentially do it cheaply and more effectively, right?

Abby Burns (17:26):
Oh, interesting.

Vidal Seegobin (17:27):
So I had had a couple of conversations be like, does this mean that we can outsource primary care to X retailer?

Abby Burns (17:33):
To Natalie's point, the economics of primary care are pretty challenging.

Vidal Seegobin (17:37):
Right. What this highlights for everybody, I think, is the both disconnect between the criticality, but difficult to make profitable primary care. We know that we all need it. Either if you're running a fee for service business where you need referrals or you're running a total cost of care business where you need diversion and care management, both of those paths require primary care.

(17:59):
And if Walmart is finding that in this environment it's difficult to make a business out of it, then that's a problem for everyone in healthcare and patients, top line patients, providers as well. Eliza, you've been part of a team that's thinking a lot about practice access. So I think the other thing that's been a real challenge that we've heard from health systems writ large is that we are not hitting our market expectation when it comes to having patients seeing a physician or a nurse practitioner or whatever they need for their primary care needs.

(18:33):
And so if another potential option like Walmart goes offline, that only increases the pressure that we have on our existing provider infrastructure to meet the rising and continuing to rise needs of patient populations.

Eliza Dailey (18:48):
The other thing that I would add there is whether they were in your market and were treated or whether they've never been in your market at all, these retailers, especially the ones that offer immediate access or digital access, have fundamentally shifted consumer expectations. So even though they may be "out of the primary care business" for now, I still think their influence and fingerprints are all over it. And that is something that incumbents will need to respond to and deliver on.

Natalie Trebes (19:20):
I'm also glad you said out of the primary care business, because that's the other big headline is that we keep talking about retails getting out of healthcare. And let's not make any mistakes, they're all pharmacies. I think we've said that a couple times. They have a huge presence in healthcare. They have for a very long time. It's literally why they ever even thought they should even get into primary care, retail care delivery.

(19:47):
And so I don't want us to lose sight of the fact that they are very much still in healthcare and pharmacy transactions are much more frequent than most of our clinic visits or procedures. They are recurring. They have patient relationships that do develop over time in some form. They have the most real-time data when it comes to thinking about how are we managing an overall patient's health and what's going on with them.

(20:13):
So they offer a lot of insights. And I don't want to lose sight of the fact that I think they still have a lot of room to make plays in the pharmacy space. And I think we saw that with Walgreens recently investing in a major specialty pharmacy play to help health systems.

Abby Burns (21:33):
How should incumbents in healthcare be thinking about retail-based care delivery in their competitive assessments?

Vidal Seegobin (21:44):
If 2024 is a year where many different health systems and providers have seen a positive movement in their financials and their balance sheets and their volumes, even if their margins aren't where they would want them to be, there is a reality that when it comes to healthcare and the decision being oriented around trust, providers, incumbent health systems with a brand that's operated in the community for a long time do have the default relationship.

(22:15):
So there is something there that is clearly competitive advantage for them if they're thinking about other insurgents trying to take their business, and something they have to think about when their real competitor, who they often think about as being the hospital across the street, you have to think a little bit about the currency of whose relationship with the population or the patient population is stronger.

(22:36):
But that's an advantage that exists, but you shouldn't necessarily take for granted. And I don't necessarily know if just because of this particular instance of a couple of retailers and their varied plays found that they couldn't make the current economic environment work for primary care, doesn't mean that another version, perhaps a more chatbot AI-powered version, isn't better at some larger subset of the primary care population for which low-acuity, rapid-access, accessibility, and transparency are the things that they care about.

(23:07):
It's not the entire primary care population that you have to address, but it's another part. So there's advantage incumbents, but not necessarily guaranteed forever advantage to incumbents. And so I think they have to think a little bit about how they take advantage of it at this moment.

Abby Burns (23:23):
Yeah, capitalize on it. Don't grow complacent because of it.

Vidal Seegobin (23:25):
Agreed.

Eliza Dailey (23:27):
The other thing that I would mention is most of this conversation has been focused on retailers and their activity in primary care. They're not the only ones that have been trying to move into this space. There's a lot of health plans that have been buying up and investing in primary care as well. Even private equity is shifting our focus more to primary care. So even if retailers may be retrenching in relative terms, there's still a lot of other folks that are trying to make moves and turn a profit in primary care.

Abby Burns (24:04):
In other words, retailers getting out of primary care delivery doesn't mean that health systems or independent medical groups are the only game in town.

Eliza Dailey (24:13):
Exactly.

Abby Burns (24:14):
We've covered a lot. Where to from here? What are you all keeping your eye on moving forward?

Eliza Dailey (24:21):
So I don't want to over index on any one player, but the one retailer who we haven't really talked about today is Amazon. And so I am really curious what they're going to do across the next year. I will say compared to some of the other retailers we talked about, they have very favorable economics in the One Medical model.

Natalie Trebes (24:44):
And no bricks and mortar.

Eliza Dailey (24:45):
Exactly. They, I think, fundamentally have a different calculus there, but we've seen that they are very willing to quickly close down and divest businesses if they aren't profitable. So I don't think Amazon is at all representative of some of the dynamics at play and what the future holds for primary care, but I definitely will be watching them to see what happens.

Natalie Trebes (25:13):
And One Medical makes me think about primary care segmentation because they had a very unique customer base they went after and focused on employers a lot. In the vein of incumbent health systems should not get complacent, I'll be watching to see how they approach the growing scrutiny from employers and Medicare Advantage, but also how they need to specialize and segment for those respective patient segments, coverage segments.

Vidal Seegobin (25:44):
And the last thing I would just say is I tend to bias myself towards the health system perspective, and I think the interest and/or fear around these retailers was that they would potentially be an opportunity for additional funneling of patients who I could treat or could existing referral patterns that I would rely on as a health system. That said, I think, and again, this is always a hat tip to Eliza's work.

(26:10):
She and her team is looking at referral patterns and network integrity, and I think that there is real opportunity for your average health system, regardless of whether a retailer is in your market, to be thinking a lot more about how you are maximizing access and referral with the partnering doctors you've got. So that's the thing I'd be watching this year for incumbents to be thinking about what is the thing I should be doing effectively to be succeeding in the 2024-2025 period.

Abby Burns (26:37):
Well, Vidal, Natalie, Eliza, thanks for coming on Radio Advisory.

Eliza Dailey (26:42):
Thank you.

Vidal Seegobin (26:42):
Thank you.

Abby Burns (26:48):
I hope this conversation helped put in context some of the moves we're seeing from retailers in and out of healthcare. What I heard from Vidal and Natalie and Eliza is that while retailers might be pulling back from primary care delivery, that doesn't mean they're out of healthcare altogether, and it doesn't mean incumbent providers can be complacent.

(27:06):
Thanks to Barry Fleischer for leaving us the voicemail we shared at the beginning of the conversation. We hope to hear from more of you. Because remember, as always, we're here to help.

(27:35):
If you like Radio Advisory, please share it with your networks, subscribe wherever you get your podcasts, and leave a rating and a review. Radio. Advisory is a production of Advisory Board. This episode was produced by me, Abby Burns, as well as Chloe Bakst and Atticus Raasch.

(27:48):
The episode was edited by Katy Anderson with technical support provided by Dan Tayag, Chris Phelps, and Joe Shrum. Additional support was provided by Carson Sisk, Leanne Elston, and Erin Collins. Special thanks to Barry Fleischer. We'll see you next week.