The Failed Walmartization of Primary Care

Last week, Walmart surprised the business world with their announcement that they were shutting down all of their 51 health clinics along with their telehealth program. 

Why do companies like Walmart keep failing at primary care? The consensus seems to be that it’s just too difficult. This opinion piece in The Financial Times is titled, “Even Walmart cannot crack America’s dysfunctional healthcare market” and goes on to say that Walmart’s decision underscores “how difficult it is to disrupt and improve” the US healthcare market.

Blake Madden, in his excellent newletter Hospitalogy, says that standalone primary care is “an almost impossible game” while also pointing out that locating clinics physically within Walmart stores may also have reduced patient interest.

But is it really that complicated to operate primary care clinics? It depends what your goals are. If you’re a investor looking to run primary care as a “business” in order to extract a lot of money, there’s a good chance you’ll be disappointed. But if your goal is to improve people’s health while covering your costs, there are absolutely ways to make it work.

First, let’s review the common healthcare business strategies employed by large for-profits (and sadly, a growing number of large non-profits). All of these involve cutting ethical corners:

1. Corner a market, i.e. become a monopoly or near monopoly so that you can raise prices. Examples include Sutter Health hospitals and clinics in Northern California, and U.S. Anesthesia Partners in Texas. (Here's FTC’s lawsuit against U.S. Anesthesia Partners.)
2. Exploit discontinuities created by the health insurance system through surprise billing. This is harder to do now that federal law has reined in the practice, but the law still has some loopholes available, such as when an insurance company declines to (retrospectively) identify a service as medically necessary.
3. Make pricing as convoluted and opaque as possible, and then use secretive rebates to collude with your suppliers so that everyone benefits except the patient. The poster children here are pharmaceutical benefit management (PBM) firms.  
4. Reduce labor costs by reducing staffing (esp. nursing), raising the number of patients per hour seen per provider, and replace highly trained/experienced clinicians with less trained/less experienced ones. PE-backed nursing homes have used this strategy for years with relative impunity. More recently, HCA decided to see how far they could push this strategy at a regional medical center in North Carolina (see also “corner a market” above), and they’ve created such a disaster that I have to wonder if they’re regretting their approach. One can hope, anyway.  

How well do these strategies apply to companies like Walmart attempting to get into primary care?

The structure of primary care delivery, combined with the modest 3rd party reimbursement rates, make the first three “easy money” strategies less of a fit for primary care versus other kinds of healthcare products and services. The fourth one, focusing on labor costs, works to a degree if your only goal is maximising the ratio of billed services to labor costs, but in most places it’s already been pushed as far as it can go. 

So is there a sustainable business model for primary care?

Absolutely. Primary care is so valuable to multiple stakeholders, and there’s so much money flowing within the US healthcare systems, that you can’t convince me that primary care isn’t viable. Step one is prioritising value creation. Because this is healthcare, we’re talking about medical value rather than purely financial value. This is where most US primary care shoots itself in the foot. For example, dialing up the number of patients per provider per hour means that providers get burned out and patients don’t get their problems taken care of. Or treating telehealth as a revenue source rather than as a way to increase clinical efficiency. Value isn’t measured well by the number of CPT codes submitted for billing. Primary care value is hard to directly measure, because it comes from solving patient problems. I.e., helping people can live healthier and more productive lives (the Gates Foundation motto), while avoiding unnecessary (and expensive) emergency and specialty care.  

Step two is figuring out how to get paid for that value. What kinds of business models can work for primary care in the US in the year 2024? Models centered on insurance billing (treating the insurance company as customer) are problematic, because the dominant 3rd party payment models in the US badly undervalue primary care. Concierge care (patient as customer) can be viable, but mainly for those on the upper end of the income scale. Workplace clinics (employer as customer) are definitely viable, particularly when the employer self-insures for healthcare and thus has an incentive to reduce downstream health costs. Charity-supported community clinics (community as customer) for underserved populations can be sustainable, given that primary care has a lower cost structure than specialty and hospital-based care. And forward-thinking health systems with capitated contracts (health system as customer) can use medical homes to improve patient satisfaction, improve outcomes, and reduce costs associated with specialty and emergency care.

None of this is simple. The enormous variety of diseases and human factors requires primary care to use a flexible operational model (a “solution shop” rather than a factory). It’s the sort of thing that family physicians are trained for. It’s not what metrics-driven, efficiency-minded Walmart executives are trained for.

But maybe, hopefully, something good might come out of Walmart’s (and Amazon’s, and Walgreens') failure to profit from primary care. Maybe, eventually, the corporate and PE world will stop trying to impose business models on healthcare that don’t fit.