By: Jonah Smithson
At a quick glance, the potential of retail health clinics have tons of potential—who doesn’t want affordable, convenient and easy to access care? The problem is that no one has figured out a way to financially sustain the model – at least without connectivity to the broader healthcare continuum. Prior to 2024 (and even into early 2024), all it took was a simple Google search to find plenty of announcements from big-box retailers outlining planned expansions of their healthcare options (Walmart Health, Walgreens and VillageMD, CVS Minute Clinic). Now about a year later, it seems clear that whatever financial return or strategic benefits retailers hoped to gain from these expansions have not come to fruition. Walmart completely closed its Walmart Health operations, Walgreens has continued to close VillageMD locations, and CVS whose Minute Clinics seemed to be the industry gold-standard is walking back its retail health offerings. Notably, both CVS and Walgreens have seen significant C-suite exits as their retail offerings failed to meet investor expectations. Clearly, the retail healthcare experiment of the early 2020s is over and the financial model must be revisited. The clinics were [or should have] never expected to generate margin on their revenues alone—maybe breakeven at best. Therefore, whatever increased traffic (if that was the goal) at the stores and pharmacies has not been enough to offset the losses.
For years, health systems have expanded primary care, often at a loss, by viewing it as a funnel towards specialty and higher complexity/procedural care which (ideally) would offset the loss. Under the continued assumption that retail health clinics would operate at a loss, the only way to rationalize the investment would be to be able to capture the financial upside of the higher complexity care identified in the clinics in a fee-for-service environment or recognize savings from a shared risk or population health arrangement. Certainly, retailers were unsuccessful on this front, and their divestiture is leaving a huge gap for traditional players (health systems, physician groups, etc.) to take advantage of.
As health systems continue to look for ways to creatively expand their primary care footprint amidst healthcare clinician shortages across the nation; perhaps a high-throughput, low acuity clinic could help expand access and create stickiness for patients who at the time don’t want or need a visit to a doctor’s office. A critical barrier for retail healthcare will always be its limited scope and consequently limited ability to generate revenues substantial enough to sustain itself. While there are limitations based on clinician credentials/education/training and location, the other scope limiter is patient trust and for what they are or aren’t willing to use retail healthcare. These headwinds make the financial rationalization for retail healthcare in a fee for service model increasingly difficult. From a value-based perspective, retail health clinics offer a low-cost touchpoint with patients, which could mean low-cost care and expanded access if triaged correctly. To be financially rationalized, retail healthcare needs to decrease the overall per unit cost of care. So, either the retail health clinics must ‘decant’ certain services from higher cost clinics, or keep patients who don’t need a full clinic visit away from the higher cost platform entirely— while providing a limited of services. There could be value to payors to invest in retail care platforms at a loss if the additional benefits to members are good enough to keep members in the plan, expand membership, and/or justify higher premium dollars.
At this point, the retail healthcare opportunities are all theory with no current case studies to point to that ‘got it right’. However, with so many non-traditional players leaving the space right now, it’s opening the door for the traditional players to step in and think creatively. Thinking cohesively about your system’s healthcare offering and developing service line connections between locations will help to bolster patient loyalty, brand recognition, and enhanced service. The turnover in this subsector of the industry, despite its continued interest, is signaling that it’s just a matter of time until someone figures how to properly leverage the platform.
