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Why Walmart Threw in The Towel on Healthcare · CareTalk: Healthcare. Unfiltered.

• 0:00
  Walmart Health is closing.
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  That's a big reversal for a company that was poised to shake up healthcare, and it raises questions about whether other retailers can succeed.
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  So why is Walmart Health shutting down?
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  And why now?
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  Welcome to Care Talk, America's home for incisive debate about healthcare business and policy.
• 0:25
  I'm David Williams, president of Health Business Group.
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  And I'm John Driscoll, a senior advisor at Walgreens.
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  Well, come join the ever -growing Care Talk community on LinkedIn, where you can dig deep into health care business and policy topics, access Care Talk content, and interact with the hosts.
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  And please be sure to leave us a rating on Apple or Spotify while you're at it.
• 0:44
  A very high rating, ideally.
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  Amen.
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  So David, what's going on with Walmart?
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  I thought you could buy everything at Walmart.
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  You can buy everything at Walmart, John, except I guess healthcare.
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  Now they have decided that they're going to get out of healthcare.
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  Now what does that mean?
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  It means that they're closing their health centers.
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  They'll still have pharmacy, they'll still have vision care, but these big clinics that they were opening, they are now not going to open more and they're going to close the ones that they have.
• 1:17
  So David, I think that the thing that just contextually Walmart is probably the largest retailer in the world.
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  They are leaders in everything from groceries to housewares to clothing.
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  And they have really revolutionized everything from the supply chain, buying stuff cheap to distributing things at scale and materially brought down the cost of everyday things.
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  for most Americans.
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  And they have repeatedly said they're gonna take on healthcare.
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  You know, 20 % of the American economy, a very high cost area where people are penny pinched and dollar oppressed, where the patients consistently are having a harder and harder time paying for things.
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  And Walmart really does live its missionary, as almost a messianic missionary belief in...
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  Its founders believe that its mission was to just deliver a better deal for the working -class American consumer I would think what?
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  Healthcare would be an ideal target What did they do and what went wrong?
• 2:28
  John let's wind it back to something that they had done some years ago probably 15 years ago or so where they introduced the four dollar generic drugs What had happened John at the time was they had realized that you know these generic drugs were the cost?
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  The wholesale cost was extremely low, sometimes pennies.
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  And yet people were being charged a copay,$50, $100, some high amounts.
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  And they said, let's actually go and just acquire these drugs cheaply and just sell them retail for $4.
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  So there's a lot of products you could acquire for $4 a month.
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  Now they didn't do that through the healthcare system, John.
• 3:01
  They went around healthcare.
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  They went around health insurance.
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  And I think that is actually what you're seeing here as a reason for their lack of success.
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  They're not able to get outside the third party reimbursement when they get into healthcare services, unlike with some of the products.
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  So again, you're over -complicating it, but let's break it down into different pieces.
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  They are staying in the pharmacy and I believe the optical.
• 3:27
  Correct.
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  The care business.
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  So you can get vision and you can get your drugs there.
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  And while they, and this goes back a ways, over a decade ago, they put about, I think it was 200 or 300 drugs, some of the most commonly prescribed drugs in America, and materially brought the prices down for those drugs, but not any others, interestingly.
• 3:49
  They just did that $4 and they got an enormous amount of attention.
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  And the belief was, okay, if they can really materially bring down drug costs, imagine what they could do with everything else in healthcare.
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  They have about 51 primary care clinics that have...
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  X -ray machines and you can see a doctor and a nurse practitioner and they had plans to grow over 22 more and the theory was that they would actually and David I know you may have been involved with some of this and working with them that they believed they could and had great confidence that they could materially bring down the cost of seeing a doctor or nurse practitioner and getting your problem solved.
• 4:34
  even on a unit price basis.
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  So basically to so materially bring down the cost of primary care, and there's a primary care crisis, particularly in a lot of the crisis meeting, there aren't enough doctors in some of these rural areas where Walmart's the last dominant player, that they believe they could materially bend the cost curve.
• 4:55
  Does this kind of suggest that the cost curve bent them?
• 5:00
  Well, John, it all depends on the meaning of they.
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  You know, so I think, yes, the senior people at Walmart, usually the people that had titles like chief medical officer that believe that and we're driving that.
• 5:10
  I'm not convinced at the top of the house, CEO and CFO were ever true believers in healthcare.
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  The things they do well have to do with logistics, with supply chain, with squeezing vendors, with understanding the needs of customers who are paying cash.
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  It doesn't have to do with healthcare.
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  And I don't think they ever had the conceit that they were going to solve health insurance.
• 5:30
  issues that they were going to actually solve all of all of health care.
• 5:34
  I think a lot of us out there in the pundit, you know, the punditry actually did want them to do that.
• 5:39
  And we saw those types of advantages and we, we were sort of cheering them on.
• 5:42
  I'm not sure they ever really bought into it at the very top level.
• 5:45
  You're, you're just a lifetime skeptic.
• 5:48
  They've had great, they've had a great, I think they did a joint venture in Medicare with Humana that on enrollment that went very well for part D they've done very well in generic drugs.
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  They've done.
• 6:00
  very well and bring down the costs of everything else.
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  How can you suggest that they can't solve the problem here?
• 6:05
  I've got a point of view here, but you're the consultant who talks to everybody.
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  What went wrong?
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  Well, the Medicare is marketing, which they're good at, and the drugs are products that they went outside the traditional health insurance industry.
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  The problem here with primary care is that the business model for primary care in this country is mostly is that it's a loss leader for hospitals.
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  who are doing expensive and sometimes unnecessary things to patients, but you've got your loss leader.
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  So if you're only competing for the loss leader side, you're going to lose money.
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  And guess one of the reasons it's hard to offer care in rural areas, there's just not a lot of supply.
• 6:43
  Now some physicians aren't just going to move to small towns because Walmart is hiring.
• 6:48
  Well, I think that's true.
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  I think there's a bigger problem at play here as well that the best way to make primary care work probably...
• 6:57
  and work quite well.
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  And there are some, even though the models have been beaten up, including Walgreens Village model, but I've seen the, when you integrate primary care into risk, where you actually take risk on outcomes on a per member, per month basis.
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  And we've had some good experience there at Village in some markets where you clearly see the value of the primary care coordination of particularly folks with chronic illness who's got multiple diseases.
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  And it dramatically reduces the...
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  the emergency room visits and hospitalizations.
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  So it can work, but I kind of agree with you.
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  I don't see what, I think the flawed assumption here was that you could truly bring down the cost of basic primary care, you know, assessment, and then sending you to someone else when, you know, you've really got a pretty strong, high fixed cost of doctors, nurses, and those labor costs are going up, and the physical infrastructure.
• 7:52
  And then I guess the other question I'd have is, Do you think people were really comfortable going to see the white coat in the clinic as opposed to the white coat in the meat section?
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  Is there a brand?
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  No, but is there seriously a product market fit problem here?
• 8:07
  Well, John, the reason I'm laughing is because when you go see the guy with the white coat in the meat section, usually has blood all over it, which doesn't bother you so much if it's the butcher, but it might bother you or if maybe the baker, it might bother you.
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  And it's definitely going to bother you if it's the candlestick maker or the physician.
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  So that, I guess, could be an issue.
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  But Sean, you sort of set it with where the model is gonna be going with primary care, right?
• 8:27
  You said, you know, certain village markets you'd see if you integrate a risk model in.
• 8:31
  Well, guess what is totally far away from Walmart's expertise.
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  They're not an expert in that.
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  What's interesting is that CVS, which of course has, unlike Walgreens, it has Aetna, it has the PBM.
• 8:46
  So they are actually more in a position to try that.
• 8:49
  They're still not necessarily gonna succeed.
• 8:51
  And we'll see what Amazon manages to do.
• 8:53
  But I think it's just far away from what Walmart actually does, the things that you say, and I agree, that could work for primary care.
• 9:01
  No, I think you have to make primary care viable on its own if you expect Walmart to participate.
• 9:08
  Yeah, and again, primary care does lose money for most hospitals, and they make money on all the referrals.
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  And most integrated medical groups, again, tilt more towards specialists where the money is.
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  and away from primary care where it's not.
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  And so when you think about this, Walmart has been pretty successful in almost everything it's done.
• 9:29
  There's some markets where it's had some challenges, but where they choose to really commit, they figure out a way to win.
• 9:38
  And I can't tell you, having negotiated and partnered with Walmart in different jobs at Medco and at Cast Light, both as a partner and as a negotiating partner on the other side of the table, They are completely consistent in terms of a better deal for the American consumer.
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  They are the most consistent culture company that I've met and they're amazingly large.
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  They've got a million employees in the US and that consistency has I think helped them to really drive consistent innovation in everything from again supply chain to store layout and delivery.
• 10:17
  But I think that...
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  it's only when they fully commit.
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  And I think that while healthcare is always interesting, it's not necessarily gotten the level of resources and long-term commitment that would kind of give it the oxygen and runway to mix two metaphors or two, do the wrong analogies, enough time and resources to actually prove, to create.
• 10:43
  a novel model, because we do have to reinvent healthcare in the US, David.
• 10:47
  We just, at some point, we're going to be a health insurance plan connected sometimes to a country as opposed to a country that covers everybody in health insurance.
• 10:55
  It's getting a little crazy.
• 10:58
  And I think it's people like, you know, Doug McMillan and the team at Walmart, that he's the CEO of Walmart, that I was kind of hoping that they would really reinvent it.
• 11:08
  It's frustrating to me that they have left it, I think, a little too soon.
• 11:13
  Well, John, let's talk about why they thought they might have been able to be successful, because I don't think it was just to concede.
• 11:19
  They have some real advantages.
• 11:21
  I remember touring the model of these new big health clinics that they were having, and they're actually quite different from the clinic, let's say, at a CVS.
• 11:29
  And in fact, I remember getting a tour, and the person giving me the tour pointed out that the conference room that they had within the center was bigger than these big health stops or whatever CVS was creating these health.
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  these healthcare centers that they were very excited about.
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  And so there's a much larger, you know, real economies of scale.
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  Some of those little clinics in a store, you know, at a pharmacy are not really big enough.
• 11:55
  The idea here, you're going to be able to do more and it would be a place that you'd be able to go and you're going to Walmart anyway.
• 12:01
  So what they found, I think, is that the economies of scale weren't so great because you get stopped up in these labor costs and certain ways of doing business because of insurance and because of the way that...
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  hospital systems for structure and how they make money.
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  And then I think what's also a little, the thing that was curious to me is that soon after announcing that they were gonna be building about 75 new clinics over the next several months, then they stopped immediately after that, shortly after that.
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  I think that most likely has to do with reviewing the actual plans for building these and saying, hey, you know, the construction costs are too high.
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  We're never gonna make money.
• 12:35
  Let's just cut it off now.
• 12:37
  And I do believe that - You may be able to read their mind.
• 12:40
  But I don't think anyone else can I I I think I think that I still go back to the unique when you're trying to reinvent an industry you've got to give it time space and resources and I don't think it happened I actually thought some of that the early work they were doing around leveraging AI in assessment and using you know machines to replace some of the the endless paperwork and questions you get in that were very effective they were showing a higher precision to get to the right diagnosis quickly than with a person.
• 13:11
  They were looking at different labor models.
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  I think I was really excited about how they were exploring not just to repeat what other folks are doing, but explore new modes.
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  It's for me a tragedy.
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  It'll be really interesting to see how CVS fares.
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  CVS has obviously committed a tremendous amount of capital to their Oak Street clinics.
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  They're talking about integrating it in with retail.
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  And they've suffered a little bit in the marketplace for some misses in the anticipated medical costs being the actual medical costs being a lot greater than those that are anticipated.
• 13:49
  It'll be interesting to see when they're challenged with a slowing margin or a lowered margin that whether they, what path they take.
• 13:58
  Because if you think there's a role for retail to reinvent healthcare, I don't think healthcare is gonna reinvent healthcare.
• 14:05
  And then you've gotta watch, You know the elephant of the of Amazon so David, what's your view of what Amazon's up to?
• 14:15
  God only knows Johnny.
• 14:17
  Yeah, you asked me to be a mind reader before I think the telltale sign for CVS if they start to fail in healthcare is if they start selling cigarettes again That'll be a good indicator that they're backing off from healthcare for Amazon.
• 14:27
  You know Amazon had its own internal attempt to do your virtual care, which they backed away from But then they acquired one medical.
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  So they are, I think, have quite a ways to go.
• 14:39
  And they are really integrated into people's lives beyond what a typical retailer is.
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  And they have an opportunity to experiment.
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  And they are innovators.
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  I mean, they definitely try to do new and different things.
• 14:53
  So I think Amazon is actually likely to continue to charge down the path in healthcare.
• 14:57
  And they've got a lot of different places that you don't even necessarily see.
• 15:00
  like selling medical supplies to physician offices.
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  There's a lot of different places that they actually can get involved.
• 15:07
  Now Walmart, I'll just mention one thing on the side there.
• 15:09
  They have been innovative in the past, but I actually think they're sort of stepping away from that.
• 15:14
  The other thing that they did this year is they closed down what they call store number eight, which was their innovation center, which existed somewhat outside of the business, but was actually, I thought, a pretty interesting model where they had things that they would bring innovation in that could grow alongside the business or within the business, but wouldn't be wouldn't be crushed by this big monster.
• 15:33
  So I understand why Walmart wants to put innovation back within the company, but I think it's actually more of an attempt to shift back to basics and maybe the healthcare exit decision goes along with that.
• 15:46
  But we gotta go back to Amazon for a second.
• 15:50
  I'm a skeptic.
• 15:51
  I think Amazon's got a trust problem that people don't realize.
• 15:54
  And actually, if you look at the volumes on virtual care, they're actually kind of growing a little bit.
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  So I don't think they're going to be a trusted player in healthcare.
• 16:05
  I suspect that when you look at healthcare versus AI and cloud computing and all those other things that you and cyber, all that you know a lot about than I do, that that's going to be a lot more attractive.
• 16:18
  I think that this is going to be a little bit like their head fake into grocery with their...
• 16:25
  their move that everyone thought was going to transform grocery when they bought Whole Foods.
• 16:32
  And all it did was transform the bank accounts of the Whole Foods investors.
• 16:35
  I'm willing to be wrong, but not if I'm talking to you.
• 16:38
  Yeah, no, I think that's fair, John.
• 16:40
  Let's get back to that comparison of the pharmacy -based retailers versus Amazon.
• 16:46
  So I would say that from a trust standpoint, what the retailers like Walgreens and CVS have in common is that they do have that trusted pharmacists that's there.
• 16:56
  Now the pharmacists are under pressure, so they may not always be able to give the experience that the patient might want, but the trust is there.
• 17:04
  Whereas Amazon...
• 17:06
  Who trusts Amazon?
• 17:08
  No, I don't even trust them to get the package to my door.
• 17:12
  I mean, you certainly don't trust their motive.
• 17:14
  I guess, if Tesla starts getting into virtual care, then they may have less trust than Amazon, but that would be about it.
• 17:22
  Well, David, I think that's all we got on.
• 17:24
  on retail and healthcare.
• 17:26
  If we're ending up with Tesla, we've overshot the mark.
• 17:29
  All right, John, well, I'll take your cue for it.
• 17:31
  Although I think some of the cameras on the Tesla could be used for virtual care.
• 17:34
  That's it for yet another episode of Care Talk.
• 17:36
  We've been talking today about Walmart.
• 17:38
  I think that's what we've been talking about, their exit from healthcare and a few other things along the way.
• 17:43
  I'm David Williams, president of Health Business Group.
• 17:45
  And I'm John Driscoll, senior advisor at Walgreens.
• 17:48
  Thank you for listening.
• 17:49
  If you like what you heard, please subscribe on your favorite service.
• 17:53
  Give us a review.