Walmart shutters 51 health centers and ends virtual care service

Walmart’s experiment in the muddled healthcare sector ended abruptly Tuesday (April 30) when the retailer reversed course and announced it is closing healthcare centers and ending its virtual care service.

The 51 Walmart Health centers are across five states, including two in Northwest Arkansas and one in Fort Smith. A timeline for closing was not disclosed.

Walmart launched its health centers in 2019 and said the five-years brought meaningful lessons, pivoting, and trying to evolve ways to help customers better navigate primary care. However, the “challenging reimbursement environment and escalating operating costs” made the venture unsustainable for the retail giant.

Walmart said all employees impacted by the clinic closures can transfer to another job or leave the company. After 90 days, eligible employees will receive severance benefits if they do not transfer or leave.

“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 noted in a corporate news release. “This is a difficult decision, and like others, the challenging reimbursement environment and escalating operating costs create a lack of profitability that makes the care business unsustainable for us at this time. Our priority will be ensuring the people and communities who are impacted are treated with the utmost respect, compassion and support throughout the transition. We do not yet have a specific date for when each center will close but will share as soon as decisions are made.”

Company officials said the retailer’s 3,000 vision centers and 4,600 pharmacies will not be impacted by the move. The pharmacist’s role will continue to evolve and include more primary healthcare responsibilities, such as building upon vaccinations, testing, treatment options, medication therapy management and health screenings.

Walmart is one of many retailers that have tried unsuccessfully to enter the healthcare arena. Walgreens and CVS each announced clinic closures in recent months.

Scott Benedict, CEO of retail consultancy Benedict Enterprises in Northwest Arkansas, said he was surprised Walmart pulled the plug after five years of investment and several starts and stops. He said the decision likely came from the top to cut the losses and move on. That was the play with the e-commerce ventures acquired by then-Walmart.com CEO Mark Lore, who left the company in January 2021. It was also Walmart’s action to shutter small stores it opened in rural towns between 2011 and 2014 under Bill Simon, then-CEO of Walmart U.S., who left Walmart in August 2014.

The then new CEO, Doug McMillon, ended the retailer’s Express formats in early 2016 because they needed help to keep replenished and could not generate the volume required to justify the overhead.

MANAGEMENT TURNOVER
Walmart has failed to have consistent management leading its healthcare business vertical. Dr. Soujanya (Chinni) Pulluru oversaw the clinics and virtual care for just 16 months, quietly exiting Walmart in August 2023. Tuesday, she had a post on social media that read:

“Today is a sad day. I’m saddened by the news. The immense talent and passion you brought to your roles aren’t defined by today. We served thousands of patients and helped many communities who desperately needed it. Your work made a difference and paved the way for a future where healthcare is more accessible and transparent. Your work is not in vain. There are many positive lessons here for the healthcare world to learn from. Please know that I’m here to help in your journey. My thoughts are with the immensely talented Physicians, Dentists, APPs, Behavioral Health specialists, and leaders who poured themselves into this effort.”

Pulluru is the co-founder of My Precious Genes, a genetic counseling firm. She was preceded at Walmart by Dr. Cheryl Pegus, who joined the company in December 2020 to head up the retail giant’s health and wellness division. She has since exited the company to take a position at JP Morgan’s healthcare division.

Pulluru is the latest in a string of departures at the healthcare division. Before hiring Pegus, Sean Slovenski held that post from July 2018 to mid-2020, when he exited the company to become the CEO of startup BioIQ. Within 15 months, he had jumped ship again to become CEO of benefits manager Avesis. When Slovenski left Walmart in mid-2020, other healthcare executives also followed. Karim Bennis, chief operating officer for Walmart Health & Wellness, chief medical officer Thomas Van Gilder, and chief wellness officer Phil Suiter also resigned.

Retail insiders attributed Walmart Health’s turnover to its off-and-on direction. At one time, Walmart said it planned to have 4,000 healthcare clinics. Virtual health, too, showed promising benefits. But with just 51 clinics open, the retailer said it has not found a way to make the operation sustainable.

SUPPLY CHAIN CHALLENGES
David Dobrzykowski, a professor of supply chain management at the University of Arkansas, has studied and written about the healthcare supply chain and retailers like Walmart, who have tried to penetrate the complicated healthcare business.

Dobrzykowski said he had hoped Walmart could make the clinics work, given the retailer’s scale and proximity to rural and under-served areas. He told Talk Business & Politics several factors likely caused Walmart to abandon the healthcare clinic business.

He said Walmart and other retailers who have tried to offer primary healthcare find that the volume-based selling that works for their retail business doesn’t translate to face-to-face primary health care.

“Walmart relies on volume and gets by on low margins,” he said. “It can negotiate the best wholesale prices with its suppliers and resell at a lower everyday price model. But healthcare clinics are traditionally a loss-leader for healthcare providers.”

He said Walmart was constrained by the set number of hours a doctor or physician’s assistant could see patients. One or two doctors per clinic can’t see enough patients to justify their salary and overhead costs. Also, the reimbursement rates for services are fixed, and Walmart cannot raise prices, even if their costs go up.

Dobrzykowski said telemedicine was one way Walmart hoped to expand capacity so doctors could see more patients. But even more was needed to generate sufficient income for the business. He also said Walmart, as a standalone primary care business, could not benefit from revenue sharing downstream for specialty care referrals or hospitalization.

“When Walmart partnered with Orlando Health just five months ago, I thought perhaps they had figured out a way to benefit from being part of broader healthcare solutions,” Dobrzykowski said. “When, for example, Mercy Primary Care can send a patient to a specialist, they receive more payment, and if the patient needs surgery or testing, that’s additional income. Walmart has not been able to benefit from sending patients to specialists or hospitals. Partnerships were one way they could have participated in downstream revenue sharing.

“I am sad that Walmart could not make it work, but not altogether surprised,” he added. “They spent considerable time and money navigating the regulatory environment to even try to Walmart Health clinics, and they hired insurance experts to lead the division for a while to procure the right relationships for reimbursements. They then turned to healthcare providers to oversee the venture.”