Walmart Health: Lessons and a Look Ahead

Let us not throw the baby out with the bathwater

Walmart Health started in 2019 with much fanfare. It went through several executive transitions. After expanding to 51 clinics and a virtual care service in five years, it will shut down in 2024.

Surface Reasons

• From the company’s press release: “The challenging reimbursement environment and escalating operating costs create a lack of profitability that makes the care business unsustainable for us at this time.”
• Translation: The prices were low, and we could not control costs.

As we will see, the first statement is not true. The second one is an artifact of their chosen model.

Root Causes/Insights

• Anyone who has used Walmart Health (I have) knows that their prices, while reasonable, are not super-low. For instance, ear cleaning is $49/ear, and most patients get both ears cleaned. A medical assistant performs the procedure in less than 10 minutes.
• Let us think about this. They charge close to $100 for a procedure that requires basic training (10–20 weeks) and minimal supplies. This is a company that makes money selling $3 jars of salsa. The prices are not the problem.
• The culprit is probably the unit cost. What does that mean? Not enough customers. The medical assistant—even at a reasonable hourly rate—is mostly sitting idle. The clinic has few patients, leading to a high amortized cost.
• In First Principles’ analysis, the company went after the wrong customer set (itinerant users) with the wrong offering (episodic care). Episodic care will struggle at this stage because of a catch-22: With a small number of users, there isn’t enough data or revenue to reimagine/redefine the care journey. Without that reimagining, unit costs will stay high, and the customer uptake will remain low. And so on.

Recommendations for the Next Retail/Tech Company Entering Care Delivery

Start with a primary care subscription for the uninsured using the “new trifecta” care sites: retail, virtual, and in-home

• Imagine a $50/month/person subscription that includes unlimited virtual primary care, unlimited generic prescription drugs, $50/in-person visit, and $150/in-home visit. Care is delivered mostly by medical assistants and some nurses, with a small number of pharmacists and medical directors.
• There are 26 million uninsured people in the USA. Their care options today range from bleak to horrible. They frequently end up in emergency rooms simply because they do not have a regular, inexpensive care provider.
• For an uninsured person, for $700/year, they can have unlimited virtual care and two in-person visits per year (one every six months), as well as generic drugs prescribed in those visits. This is a game-changing, health-altering offering.
• The uptake of in-home care will likely be low; the unit price is high to ensure positive unit economics at any uptake. It is there for the company to learn this modality, for future products.

Once NewCo figures out product-market fit, usage (e.g., virtual care), and unit economics, it is time to go broader

• Market this product without major feature changes to high-deductible users. This is only a targeting change.
• Almost half of Americans have a high-deductible plan. They are constantly stressed about the expenses within their $5k+ deductible. As the previous analysis showed, $700/year would give them a good safety net. It is worth noting that the annual premium difference between a high-deductible and regular health plan is much higher than $700, making the NewCo value proposition compelling.

The next step is to sell to managed care organizations that provide individual health insurance

• 46 million Americans have individual plans. (There is an intersection with the TAM for high-deductible plans; please do not add these total addressable market numbers without subtracting the intersection.)
• Managed care organizations that target ICHRA (individual coverage health reimbursement account) members for their individual plans would be an especially good target segment. In an ICHRA, the employer pays a stipend, but the plan choice belongs to the employee. This new-trifecta primary subscription will appeal to people who make their own health and health benefit choices.
• At this stage, new product offerings, e.g., appropriate specialist care offerings, can be woven in.

There you have it: First Principles’ perspective on how to succeed with retail/virtual/in-home healthcare.

I welcome your thoughts.