Should retailers have second thoughts on primary care?

Even after retailers have spent billions of dollars investing in primary care, they are finding some challenges.

Walgreens has announced the closure of 60 of its VillageMD clinics, including all of its Florida clinics, Healthcare Dive reports. Walgreens has also closed its VillageMD clinics in Indiana, and the company said it’s focusing clinics in higher performing markets. Walgreens operates more than 600 clinics nationwide.

This month, CVS announced it is closing 25 of its MinuteClinics in the Los Angeles area, the Orange County Register reports. CVS bought Oak Street Health, which operates primary care clinics in 21 states, in a $10.6 billion deal last year.

Both retail chains say they are still committed to primary care, and they’ve invested heavily in their efforts. Still, Hal Andrews, president and CEO of Trilliant Health, noted the difficulties involved, and from his perspective, the companies seemed “lukewarm” on primary care at the JPMorgan Healthcare Conference in January.

“If you go to JP Morgan and tell everybody at JP Morgan that you're either closing clinics or you're pausing investment … or you're going to keep what you have, but you're not really going to focus on that as a strategy, I think that suggests some sort of secondary thinking after the fact,” Andrews says.

Andrews has previously voiced skepticism about the payoff of retailers investing heavily in primary care. In a recent conversation with Chief Healthcare Executive®, he explains why it’s not going to be easy for the non-traditional players in primary care.

“I'm not personally surprised at the outcome,” Andrews says. “Because I've actually operated primary care practices and specialty practices. And primary care is a really hard business model.”

Even for organizations with great markets and a high percentage of patients with commercial insurance, Andrews says, “Primary care is just not a high margin business.”

“It's a lot closer to grocery store margins, than it is to surgery center margins, or pharmaceutical margins,” he says.

For organizations to succeed with primary care in a value-based care model, Andrews says they need to have sufficient scale or they will have problems.

“The common thread of everybody who is successful at value-based care in a primary model is the aggregation of commercial lives,” Andrews says. “And so to be successful, you had to have 50,000, or 75,000, or 100,000 lives. And that was enough to have a population to manage, but also to be able to negotiate against the downstream providers for an advantageous rate.”

“If you look at the recent vintage of primary care based models, you would see … there'd be 30 clinics in 20 states with 1,400 patients each. And there's just not enough scale for the math to work,” Andrews says. He pointed to the announced closure of some Walgreens clinics.

CVS maintains a commitment to its primary care strategy. In an interview with Forbes earlier this month, Karen S. Lynch, chief executive officer of CVS, says the company still plans to open 50 or 60 clinics this year.

CVS, which owns Aetna, can utilize the insurer to spur customers to Oak Street clinics. In a Feb. 7 earnings call, Lynch noted that the number of Aetna members enrolled in Oak Street clinics has doubled.

Walgreens seems to be taking a more cautious track. In a January earnings call, Timothy C. Wentworth, CEO of Walgreens Boots Alliance, noted the company is aiming to “optimize” the footprint of its clinics and exit “nonstrategic markets.”

“Work is underway to implement targeted marketing efforts, leveraging Walgreens' expertise and patient touch points, and we expect benefits over time as we learn and further develop our provider-based risk strategy,” Wentworth said in the call.

VillageMD, which is backed by Walgreens Boots Alliance, purchased Summit Health-CityMD in an $8.9 billion deal in November 2022.

Amazon and Walmart have also invested in primary care offerings. Amazon purchased One Medical, which offers primary care and virtual care, in a $3.9 billion deal, and members of Amazon Prime have received discounts. Walmart has been rolling out more clinics in several states, and plans to operate more than 75 by the end of 2024.

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Andrews sees Amazon as focusing on more urban markets in primary care, while Walmart is focusing on more rural areas. Andrews notes he’s actually received pitches about One Medical’s services.

“I think (Amazon) will continue in urban markets and Walmart will continue to grow steadily in the rural markets,” Andrews says.

Walmart is sticking with its retail model as opposed to a value-based care approach, Andrews says. And while CVS and Walgreens have tremendous scale, Walmart is in an entirely different category, Andrews notes.

“Walmart is amazing at real estate, and they're amazing at understanding their consumers,” Andrews says.

Walmart also hasn’t rushed too quickly into primary care by trying to open up hundreds of clinics.

“They've gotten to be who they are by being prudent and disciplined,” Andrews says. “And I don't expect that to change.”