The Pull-Back Strategy of Village MD
The March 2024 announcement from Walgreens Boots Alliance to scale back nearly half of its VillageMD clinics has sent shockwaves through the retail healthcare field. This pull-back, coupled with similar moves by Walmart and hints of caution from other retailers like CVS Health, raises serious questions about the long-term viability of the entire model.
When we first covered the retail healthcare space back in late 2022, the message from many industry experts was that retail healthcare was here to stay. But now, with the recent news of Walgreens planning to close 160 VillageMD clinics across several states, we can’t help but to wonder – has retail healthcare passed its peak?
Walgreens’ initial vision for VillageMD was ambitious, involving a vast network of co-located clinics within their pharmacies, aiming to offer convenient primary care access to people across the United States. However, the reality hasn’t lived up to the initial promise.
Walgreens’ executive vice president of healthcare services, John Standley, told Reuters, “The decision to exit certain markets was not easy, but it allows us to focus our resources on the markets where we see the greatest potential for growth.”
This strategic retreat is likely driven by a combination of factors, including disappointing financial performance and a shift in priorities towards core pharmacy operations and cost-cutting measures.
Beyond VillageMD: A Retail Healthcare Reckoning?
The VillageMD situation isn’t an isolated event. It’s become increasingly clear that integrating healthcare services into retail environments presents significant challenges. News of Walmart closing all its health clinics and shuttering its telehealth unit underscores these difficulties.
Similar to Walgreens, Walmart cited financial constraints as a key reason for exiting the retail healthcare space. Its clinics struggled to achieve profitability, despite the convenience factor for customers. Running clinics requires substantial investment in infrastructure, staffing and navigating complex healthcare regulations. Walmart concluded these costs outweighed the potential returns.
While not announcing a complete pullback like Walgreens and Walmart, CVS Health has also expressed caution during its recent earnings call. Its focus seems to be shifting towards core pharmacy operations and integrating some MinuteClinic services more seamlessly within CVS’ physical stores, suggesting a potential scaling back of its ambitions in the broader retail healthcare space. While CVS hasn’t explicitly stated financial constraints as a reason for its scaling back, the struggles of Walgreens and Walmart likely raise similar concerns.
It’s important to note that Walgreens, Walmart and CVS aren’t the only retailers who have struggled in the retail healthcare space. Several other chains, including Kroger and Target, have also encountered challenges and scaled back their initial forays into offering in-store clinics. Kroger shuttered all its Little Clinic locations within its stores in 2022, while Target ended its brief partnership with Kaiser Permanente to offer in-store clinics in select locations.
Rising Costs and the Retail Healthcare Model
The allure of retail healthcare was the promise of convenient and potentially lower-cost primary care. However, integrating healthcare services into a retail environment might not be the magic bullet it initially seemed. When speaking to industry experts on the topic, they said that several factors have contributed to companies like Walgreens closing its clinics and reevaluating its healthcare strategies.
Rising costs pose significant challenges for these ventures. Clinics require substantial investment in infrastructure, staffing and regulatory compliance. Despite the convenience offered to patients, retail health clinics often struggle to generate enough revenue to justify the expenses. This financial pressure is a major concern for companies like Walgreens, making it more cost-effective to focus on their core retail business.
Finding qualified healthcare professionals willing to work within the retail setting can be difficult, especially considering potentially lower pay compared to traditional practices. Additionally, limited space in retail clinics may restrict the scope of services offered, possibly impacting patient outcomes and satisfaction.
Changing consumer behavior has also played a pivotal role in this change. The rise of telehealth and digital health platforms has altered how consumers seek medical care. Many patients now prefer virtual consultations, bypassing the need for in-person visits at retail clinics. Consequently, companies are rethinking their clinic models and exploring ways to integrate digital health solutions into their offerings.
Operating in-store clinics presents another layer of complexity for major retailers. Navigating complex healthcare regulations, licensure requirements and compliance standards can be daunting for retail chains. Some companies have faced legal issues related to clinic operations, leading them to reconsider their healthcare strategies altogether.
Furthermore, the competitive landscape in healthcare is already fiercely contested. Retailers now find themselves competing with established players like standalone urgent care centers, primary care practices and hospital-affiliated clinics. These alternatives often provide more comprehensive services and have established reputations in healthcare. Companies like Walgreens may find it challenging to compete with specialized healthcare providers, especially in terms of clinical expertise and patient trust.
While the initial vision of retail healthcare may not have been fully realized, this doesn’t necessarily mean the end of the story.
The Road Ahead: Innovation and Adaptability
Walgreens’ pull-back from VillageMD clinics serves as a cautionary tale for the industry. As other retailers follow suit, the future lies in innovative approaches that prioritize both consumer needs and financial sustainability.
Amazon is already showing that it can be done with the recent expansion of its pharmacy home delivery services to more cities. In mid-March, Amazon and Eli Lilly announced a partnership to deliver weight loss drugs and other medications to patients’ homes. This service boasts same-day delivery in major cities like Los Angeles and New York City, with plans to expand to at least a dozen more locations by the end of the year.
Amazon’s focus on healthcare goes beyond home deliveries. Amazon Health Services launched health condition programs to make it easier for customers “to discover and enroll in digital health benefits for conditions like prediabetes, diabetes and high blood pressure in Amazon’s U.S. store,” the company said.
Amazon’s financial results suggest this healthcare push is proving successful. The company’s first-quarter earnings in 2024 saw an increase of 225% compared to the previous year, with pharmacy services listed as a key contributor to this growth. Amazon reported $10.4 billion in revenue from pharmacy services during the first three months of 2024, a significant jump from the $3.2 billion earned in the same period last year.
One of the key factors that positions Amazon for success in the evolving healthcare landscape is its focus on home care and telehealth options. This directly aligns with the changing preferences of patients who increasingly seek convenient and efficient ways to manage their health outside of the clinic setting and from the comfort of their homes.
While the current model might be faltering, retail healthcare isn’t dead, as shown by Amazon’s performance in the market. Companies that can adapt to the changing landscape, embrace digital health solutions and prioritize patient needs will be best positioned to succeed.
