From $4 Prescriptions to $4 Primary Care visits...
Tuesday, May 9, 2017
Posted by: Suzanna Roberts
From $4 Prescriptions to $4 Primary Care visits... Why Walmart is Leading the Way in Healthcare Innovation.
By: Stephen Lytle, Walmart Care Clinics
With more than 1 million workers, 140 million customers, and thousands of stores, Walmart operates on a grand scale across the United States. As such, it's no surprise to see a large retailer push into health care, given the potential market opportunity. However, Walmart size and scope has given the company the ability to continually disrupt the industry though competitive pricing and quality healthcare, empowering them to help customers every day to "save money and live better." This article will address Walmart's healthcare strategy, ability to lead the way in offering competitive pricing models, and focus on innovation as they lead the way in putting the CARE back in HEALTHCARE.
Walmart, which runs the third largest pharmacy business in the U.S. is bringing in over $18 billion in revenue annually, has made strategic decisions that may have made the company a market leader and innovator in the healthcare industry. The company began offering prescription drugs on a limited basis in 1978, and in 2006, pharmaceutical sales represented less than 10% of total revenue for the company. However, that same year, Walmart created an innovative plan to cut the cost of generic drugs to $4 per prescription. That was novel because, at that time, retail pharmacies hadn't traditionally competed on the price of prescription drugs, which are largely hidden from consumers and this strategy attracted people who were paying full price for drugs, without insurance. Additionally, this made scores of treatments affordable to the uninsured, reduced the burden on Medicaid, and brought competitive pricing to the pharmacy industry.
Former Walmart Chief Executive, H. Lee Scott Jr., said that “competition and market forces have been absent from our health care system, and that has hurt working families tremendously.” The company, he added, was “excited to take the lead in doing what we do best — driving costs out of the system — and passing those savings to our customers and associates."
How did they do this though? One way was, that Walmart cut out third-party distributors that stood between the chain and drug manufacturers. “There is a huge profit margin in the generics” for the middlemen like pharmacy benefit managers, the distributors and the pharmacies themselves", said Patricia Wilson of Associates & Wilson, a Rosemont, Pa., health care consulting firm. "Walmart appears to be taking some of those profits from the traditional middlemen to lower the prices it is charging for these generic drugs."
Additionally, Walmart also participated in preferred pharmacy networks, in which pharmacies agreed to cut the price of a drugs charged to an insurer, in order to get more customers in the door. Those extra store visits helped grow the pharmacy business to over 4,000 locations with $18 billion in revenue in 2015. To boot, that number doesn't include the halo effect the pharmacy had on other parts of the business as they increased the frequency of customer visits and average basket size, positively impacting overall store sales growth.
However, even with the advent of $4 generics, which helped both customers and associates, Walmart has been challenged by critics for its employee health benefits in the past; contending that benefits are too costly, given the typical Walmart worker’s wages, and frequently force employees to rely on state programs or forgo coverage altogether. With the lower generic drug prices, which apply to its workers as well as customers, the company appears to be trying to address those concerns. Still, critics say this plan did little to confront the high costs of health care for the uninsured, including Walmart associates, since they still faced the expense of going to a doctor to get a prescription.
“In ambitious bid, Walmart seeks foothold in primary care,” read the New York Times headline of August 7, 2014, ten years after Walmart initially rolled out $4 generics. Once again Walmart is disrupting the healthcare industry to specifically address that exact concern and by opening primary care clinics that offer an expanded scope of medical services and competitive pricing about 25% less than their peers, including $4 visits for associates on qualified Walmart healthcare plans.
“The reason we expanded our scope of service is because that’s where the need was,” said Walmart Chief Medical Officer Daniel Stein. “When we talked to our customers, our associates, that’s where their access and affordability problems are. … We’re particularly interested in three groups: the uninsured, the underinsured — Americans in high deductible health plans who don’t have the savings to pay that deductible, so they’re acting like they’re uninsured, and Medicaid members, who have insurance but they don’t have access."
However, this isn't Walmart's first foray into providing clinical services. In the past, Walmart leased space within it's stores to local healthcare systems to operate clinics, called "The Clinic at Walmart", but found that this model missed the mark in providing a consistent scope of practice, pricing model, and operations across the 100+ leases that were being operated. Realizing that the need for quality healthcare was increasing a new model sprung forth called "Walmart Care Clinics", with the first location opening in 2014 in Copperas Cove, TX. This was the company's first effort to own and control its own primary care clinics and the business has grown to 19 locations across Georgia, South Carolina, and Texas.
It's no surprise to see a large retailer push into health care, given the potential market opportunity and Walmart's specific approach is driven by several factors:
- Long-germinating plans: Whether hosting retail clinics or potentially launching a insurance exchange, the company has spent years determining how they can best leverage the health care market.
- Existing expertise: Walmart's already acted as a disruptive innovator within the industry: as previously discussed, its discount drug program helped drive big changes for consumers' pharmaceutical spending a decade ago. They have also brought in external expertise like key hire Sandy Ryan, Vice President of Clinics. She brought expertise and experience as the former Chief Nurse Practitioner officer for Take Care/Walgreens Healthcare Clinic and was part of Take Care's original leadership team.
- Internal push for cost control: The Affordable Care Act is driving up Walmart's own health spending. The company projected to spend $330 million more on health care in 2014 as a result of expanding coverage. By opening company owned and operated primary care clinics they are attempting to try and rein in health costs.
And local lawmakers believe the retail giant can help improve the state's health in addition to that of Walmart's associates. South Carolina officials lobbied Walmart for the opportunity to launch the clinics. "We told Walmart, 'We think this is perfect,'" said Tony Keck, director of South Carolina's Medicaid agency.
Walmart is stressing that it's designed its clinics to be patient-centric, "putting the CARE back in HEALTHCARE." The clinics are open about an hour longer than at competitors like CVS Minute Clinic and in line with its usual branding, Walmart's touted the low prices available in its clinics: $59-$99 to get a walk-in check-up, and even lower costs for employees. For Walmart associates and dependents on qualified health plans, they can schedule an appointment to see a provider in the Walmart Care Clinic for $4. That is setting a new retail price in the health care industry that averages about 25% cheaper than competitors for external patients and is unheard of for internal associates.
Given their size, existing foot traffic, and record of disruptive innovation, Walmart and other big-box stores represent an intriguing new player in health care delivery, which makes their moves well worth watching. It seems that they may completely upend healthcare institutions, change how consumers and employees are treated for primary care, and ultimately "save people money to help them live better.