In April, Walmart (NYSE: WMT) announced it would close its 51 health centers and virtual care programs, including several behavioral health programs. The company declared that its health segment simply did not offer a “sustainable business model” for it to continue.
When Walmart Health launched in 2019, it set out to expand access to care and boost price transparency – two things the behavioral health world especially could have benefitted from. And behavioral health offerings were a substantial part of what Walmart’s health care arm did.
Patients could go to a health center to access counseling for depression, anxiety, stress, grief, relationship issues, alcohol use, ADHD and other conditions. Walmart also virtually offered psychiatrist visits.
However, at the end of the day, the math didn’t work out.
“The reality is that given reimbursement rates and costs to serve, we could no longer see a path to achieving an acceptable level of profitability, and we’re committed to being disciplined with our investments,” Doug McMillon, Walmart’s CEO, said during the company’s earnings call on May 16.
Since then, behavioral health industry insiders have wondered, if Walmart, with its infinite scale, can’t crack retail health, then who can?
While Walmart is one of the first retailers to waver, it isn’t exactly alone in the graveyard of major conglomerates pinning their hopes on health care. That road is paved with the bones of Google, Berkshire Hathaway and JPMorgan, which have all set out with major plans to disrupt the health care industry only to fail to create a sustainable business model.
Walmart’s innovative pricing model, appeal to middle America and drop-in care model may have been factors in its downfall. Behavioral health especially isn’t cheap, and trying to make it so may have been a mismatch of priorities. Regardless, Walmart’s exit from retail clinics could teach the industry a lesson about what works and what doesn’t.
I recap Walmart Health’s downfall and discuss retail health care trends as part of this week’s BHB+ Update.
The promise of retail mental health
On paper, it made sense for retail clinics to provide mental health care, considering access issues have constantly plagued the industry.
Take this data point: In a recent survey from the American Psychological Association, 56% of psychologists polled said they had no openings for new patients. Of those who kept a waitlist, the average wait time was three months or longer.
Retailers, particularly ones with massive scale like Walmart, often have a large presence in rural America and are poised to fill this gap, reaching populations with a shortage of providers.
In fact, the Southeastern U.S., where the bulk of Walmart Health Centers were located, has some of the country’s highest behavioral health workforce shortages. Specifically, Walmart Health has 23 locations in Florida, 17 in Georgia, seven in Texas, three in Arkansas and one in Illinois.
But like many providers have come up against before, when caring for underserved populations, sometimes the economics don’t pan out.
“What I loved about Walmart and Walgreens (Nasdaq: WBA), just like CVS (NYSE: CVS) did with Minute Clinic … is [it] expanded care to some of the more rural and underserved communities,” Corbin Petro, founder and former CEO of digital addiction platform Eleanor Health, recently told me. “And that’s probably who will get hurt [by the closures]. This is the story of our time. Insurers won’t pay, and the math doesn’t work, so let’s look at the macro number of these clinics that get closed. I bet if you honed in on the socio-demographic characteristics of those communities, they would not be the most affluent.”
Unlike traditional providers that primarily work with payers or charge pricey out-of-pocket costs, Walmart posted its prices on billboards. When this first happened, I was one of many in the industry who thought this might signal a path toward the democratization of health care, and more power in the hands of consumers.
And to be clear, Walmart isn’t the only retailer that has implemented price transparency. CVS, for example, charges $129 for a mental health counseling session.
Concrete price lists also seemed like a healthy path forward after the disastrous rollout of the Centers for Medicare & Medicaid Services (CMS) Hospital Transparency Ruling, which often left consumers more confused than ever before.
But this price transparency may have been a double-edged sword for Walmart’s overall business model. During the five-year period Walmart operated, wage inflation hit an all-time high, and even behavioral health industry titans like Universal Health Services (NYSE: UHS) and Acadia Healthcare (Nasdaq: ACHC) struggled to recruit and retain mental health clinicians.
Charging rock-bottom prices may have been at odds with the company’s ability to retain behavioral health clinicians, especially in high–need areas. While the company never specifically named staffing as a problem, it would be hard not to factor in talent acquisition and costs.
Price transparency could have also impacted Walmart’s end game, which appears to include working with payers. It inked a deal with UnitedHealth Group (NYSE: UNH) to roll out a value-based care model at 15 Walmart locations in January 2023.
However, some pointed out that it would be hard to negotiate rates with payers that are higher than the ones listed on a billboard.
“The problem with that approach is if you post prices on the wall that are lower than you’re getting reimbursed by a health plan, … that then makes it hard for you to go from super-low cash pay to insurance reimbursable services,” Petro said.
And from the very little that Walmart has publicly said about the closure, we do know that reimbursement was a major challenge.
Reasons retail and behavioral health don’t mix
While Walmart and other retail clinics offer convenience to potential patients, that may have been a mixed blessing.
Folks come to Walmart and other retailers to fulfill their needs quickly – whether that be paper towels, a lawn mower or a health care need. In some ways, it was well-suited to an urgent care market. Grab some groceries and get that pink eye your kid picked up off the playground addressed.
Still, it’s important to note that all of Walmart Health is closing including its urgent care offerings.
But behavioral health – particularly counseling, one of Walmart’s key mental health offerings – is about relationships. Behavioral health practices work hard to sustain their client base, even prioritizing a continuum of care so that patients will stay with the operation over a more extended period and for many needs.
This paradigm seems at odds with Walmart’s quick access retail promise, in my view.
Walmart’s appeal to rural and small communities could also be an issue in behavioral health. It’s possible stigma prevented potential clients from going to Walmart Health Centers for certain conditions because they don’t want to be seen by their neighbors.
“Maybe that tells us something about how humans view health care in this country,” Petro said. “Maybe they want to go to a separate space.”
So, with all of these issues on the table, is retail behavioral health dead for everyone? Probably not.
While others like Walgreens, which announced the closure of its health centers and virtual care program in April, have also struggled, some like CVS, are still going strong with their Minute Clinics.
One of the key differences between Walmart and CVS is that the latter has a payer arm, Petro pointed out. This could help solve the reimbursement issue that Walmart struggled with.
“When you think about innovation in behavioral and primary care, is the end zone where Aetna, Cigna and Humana (NYSE: HUM) are the only ones going to see an acquisition as something that’s accretive?” Petro previously told BHB. “Part of that is probably because they control both sides. …They can lose money on those services but make it up because they drive volume to a low-cost service area. Maybe they lose a little bit of margin there, but then they make it up because they’re going to this low-cost surface area instead of a higher-cost one.”
Adding a payer arm to your services isn’t an option for most retail providers, which may mean reimbursement challenges will continue to be an uphill battle.
Conclusion
When it was announced five years ago, Walmart Health was an exciting new venture. It promised to democratize pricing and promote consumerization of health care. The services also catered to middle America, where there has historically been a dearth of providers, particularly for behavioral health.
But nearly all of Walmart’s core differentiators also contributed to its hardships. Price transparency made for a tough economical proposition. It could have also been a factor in negotiating payer rates.
Its reach into the rural U.S., while promising to fill the service area gaps, may have been a bad fit with behavioral health.
Ultimately, that’s not to say retailers won’t figure out a way to integrate health care, and particularly behavioral health care, into their offerings.
But they could learn from Walmart’s mistakes and build a more profitable venture in the future, I believe.
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