SUPERNEWS

Macro

Walmart Shuts Health Centers Amid $4.5Tn Market Struggle

Walmart closes 51 health centers, highlighting the tough challenges retail giants face in America's $4.5 trillion healthcare market.

By Mackenzie Crow

ᐧ

5/2, 00:17 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
Amazon.com, Inc.
CVS Health Corporation
UnitedHealth Group Incorporated
Walgreens Boots Alliance, Inc.
Walmart Inc.
article-main-img

Key Takeaway

  • Walmart closes its healthcare centers and telehealth operation, highlighting the challenges in disrupting the US's $4.5tn healthcare market.
  • The decision reflects issues like "challenging reimbursement environment" and "escalating operating costs," impacting profitability.
  • Unlike Walmart, companies with large health insurance divisions, such as UnitedHealth, may better capture the growing value-based care market.

Retail Giants' Healthcare Ambitions

Retail behemoths like Amazon, Walgreens, CVS, and Walmart have aggressively entered the healthcare sector, eyeing a slice of the estimated $4.5 trillion the US spent on healthcare services in 2022. This move was driven by the sector's lack of pricing transparency and inefficiencies, presenting an opportunity for disruption. Retail executives envisioned lower healthcare costs for consumers alongside market share and profit growth for their shareholders. However, Walmart's recent decision to close its healthcare centers and telehealth operations highlights the formidable challenges in transforming America's complex healthcare landscape.

Walmart's Healthcare Retreat

Walmart announced the closure of all 51 of its health centers and its telehealth business, citing "escalating operating costs" and a "challenging reimbursement environment" as key reasons. This decision marks a significant retreat from its ambitious plan to open over 75 health clinics by the end of 2024, aimed at leveraging its vast store footprint to offer affordable healthcare. Despite the closures, Walmart's shares remained relatively stable, indicating that the financial impact of this move might be limited. However, this development raises questions about the viability of retail-led healthcare ventures, especially in a market characterized by high capital requirements and thin profit margins.

The Broader Impact on Retail Healthcare Ventures

Walmart's exit from healthcare services is a cautionary tale for other retailers venturing into this space. The challenges faced by Walmart, such as labor cost inflation, low reimbursement rates, and complex billing negotiations with insurers, are not unique and reflect broader industry hurdles. Walgreens' $6 billion impairment charge on its investment in VillageMD and its subsequent clinic closures further underscore the difficulties retailers face in making healthcare ventures profitable. Despite these setbacks, the shift towards value-based care in the US, which rewards doctors for patient health outcomes rather than service volume, continues to attract investment from retailers, health insurers, and private equity firms alike.

Street Views

  • Hal Andrews, Trilliant Health (Neutral on the retail health sector):

    "Their thin margins are similar to that of grocery stores."