Retail healthcare faces significant disruption in 2024 as industry giants such as Walgreens, CVS, and Walmart re-evaluate their healthcare strategies in response to rising operational costs, reimbursement challenges, and changing market conditions. The challenges these companies face illustrate the complex nature of balancing healthcare delivery with traditional retail operations, requiring more than capital investments to remain sustainable.

Managing care services within a retail framework has proven to be a challenging task. Retailers must align their strategies around health regulations, manage unpredictable reimbursement models and overcome staffing shortages, all while maintaining profitability. Due to rising labor costs and uncertain financial conditions, many large retailers are scaling back their healthcare ambitions or pivoting to new approaches.

walgreens | Scaling Back VillageMD

Once determined to make VillageMD the centerpiece of its healthcare strategy, Walgreens has dramatically changed course. in that HLTH Conference In October, Mary Langowski, Walgreens’ president of U.S. healthcare, announced that the company was moving away from dependence solely on VillageMD and was taking a diversified approach to healthcare delivery.

This year, Walgreens closed 160 VillageMD clinics (about half of its footprint) due to rising operating costs, marking significant savings. The closures reflect broader financial pressures across the company, which has announced plans to close 1,200 retail stores, or about 14% of its total stores, over the next three years.

Walgreens has invested heavily in VillageMD, committing more than $6 billion to acquire a majority stake in 2021 and has a goal of diversifying into primary care. The aggressive expansion included the $8.9 billion acquisition of Summit Health+CityMD in 2023, adding multi-specialty and urgent care services. But the company was forced to make a strategic move by struggling with financial problems in its pharmacy and retail segments.

Walgreens now aims to leverage its extensive retail network by deepening partnerships with multiple payers and pharmacy benefit managers. This shift signals a departure from the single-provider model and aims to position Walgreens as an integral part of the healthcare journey by offering touchpoints across the care continuum without relying on a single partner.

As part of its new strategy, Walgreens announced: Expansion of virtual healthcare servicesOffering advice on general conditions as well as prescription questions and laboratory orders. Last week, the pharmacy retailer said it would provide virtual care to 30 states.

CVS Health | Facing Leadership Changes and Financial Pressures

CVS Health also announced strategic realignment In October, CEO Karen Lynch resigned due to the company’s mounting financial difficulties. Longtime executive David Joyner will take the helm as CVS struggles with a decline in stock prices and rising costs in its Aetna health benefits segment, which includes Medicare Advantage plans.

Financial pressures have forced CVS to cut its earnings outlook three times this year. In a cost-cutting move, the company recently laid off about 2,900 employees and announced plans to cut expenses by $2 billion. These measures include discontinuing some Coram infusion services and closing or selling 29 retail pharmacy locations.

Despite these challenges, CVS remains committed to expanding primary care coverage through Oak Street Health, which operates more than 200 freestanding centers in 25 states. CVS plans to open 24 additional Oak Street locations by the end of the year, demonstrating its belief in the long-term potential of primary care even as other retailers withdraw from the industry.

Walmart | Quitting Health Greeds

Earlier this year, Walmart announced it would do so. Close all 51 health clinics and discontinue virtual care services. The closures come as Walmart struggles to establish a viable business model for its health care operations, which launched in 2019. Positioned to provide affordable care in underserved communities, Walmart’s clinics have faced challenges with reimbursement structures and rising operational costs.

Walmart initially planned to expand its healthcare offering, but rising expenses and market dynamics forced the company to pull back from its healthcare offering.

Amazon | Staying the Course Amid Market Changes

While some retailers are withdrawing from healthcare, Amazon continues to invest heavily in the sector. In 2023, Amazon acquired One Medical, a provider of physician-staffed clinics and virtual care services, which now operates approximately 240 offices in more than 20 U.S. markets.

At the HLTH Conference, Amazon announced a new partnership with Cleveland ClinicIt is designed to coordinate care between One Medical’s primary care clinics and Cleveland Clinic’s network of specialists and hospitals. Amazon’s continued investment signals confidence in the future of retail healthcare and highlights the role of technology and partnerships in meeting consumer demand for accessible care.

Key Takeaways | The Future of Retail Healthcare

The different paths taken by Walgreens, CVS, Walmart, and Amazon reflect the complex dynamics of retail healthcare. Success in this field depends on more than infrastructure and capital. Companies must align their strategies with market realities, maintain operational efficiency, create sustainable care models and compete with established providers.

Retailers venturing into healthcare must address the complexities of managing retail operations as well as rising labor costs, evolving reimbursement models, and healthcare delivery. As the industry evolves, technology, partnerships, and flexible care models will play important roles in determining which players can succeed in meeting consumer needs while maintaining profitability.

Learn more

This AHA Market Scan Pioneer special report explores the healthcare disruption outlook for 2024.