Walgreens, CVS and Walmart Scale Back on Health Care amid Financial Strain

In 2024, retail health care faced significant disruption as industry giants like Walgreens, CVS and Walmart reevaluated their health care strategies in response to rising operational costs, reimbursement challenges and shifting market conditions. The difficulties encountered by these companies illustrate the complex nature of balancing health care 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 formidable task. Retailers must align their strategies within health care regulations, manage unpredictable reimbursement models and overcome staffing shortages, all while maintaining profitability. With rising labor costs and an uncertain financial landscape, several major retailers are scaling back their health care ambitions or pivoting to new approaches.

Walgreens | Scaling Back VillageMD

Walgreens, once committed to making VillageMD the centerpiece of its health care strategy, has significantly altered its course. At the HLTH Conference in October, Walgreens’ U.S. health care president, Mary Langowski, revealed that the company is moving away from an exclusive reliance on VillageMD and adopting a diversified approach to health care delivery.

This year, Walgreens closed 160 VillageMD clinics — approximately half of its footprint — due to rising operational costs, marking a significant retrenchment. The closures reflect broader financial pressures across the company, which also announced plans to shutter 1,200 retail stores, or about 14% of its total locations, over the next three years.

Walgreens had invested heavily in VillageMD, committing more than $6 billion to acquire a majority stake in 2021, with ambitions to expand into primary care. The aggressive expansion included the $8.9 billion acquisition of Summit Health+CityMD in 2023, adding multispecialty and urgent care services. However, the company struggled with financial headwinds in its pharmacy and retail segments, forcing a strategic pivot.

Walgreens now seeks to leverage its extensive retail network by deepening partnerships with multiple payers and pharmacy benefit managers. This shift signals a departure from a single-provider model and aims to position Walgreens as an integral part of the health care journey — offering touch points throughout the care continuum without being tied to a singular partner.

As part of its new strategy, Walgreens announced an expansion of its virtual health care, which offers consultations for common conditions, as well as prescription questions and lab 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 a strategic realignment in October, with CEO Karen Lynch stepping down amid the company’s mounting financial difficulties. Longtime executive David Joyner will take the helm as CVS contends with a decline in stock prices and rising costs within its Aetna health benefits segment, which includes Medicare Advantage plans.

Financial pressures have forced CVS to lower its earnings outlook three times this year. In a cost-cutting move, the company recently laid off approximately 2,900 employees and announced plans to reduce 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 its primary care footprint through Oak Street Health, which operates more than 200 stand-alone centers across 25 states. CVS intends to open 24 additional Oak Street locations by year-end, demonstrating its belief in the long-term potential of primary care, even as other retailers are pulling back from the sector.

Walmart | Exiting Health Care Ambitions

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

Initially, Walmart planned to expand its health care offerings, but rising expenses and market dynamics forced the company to retreat from health care delivery.

Amazon | Staying the Course amid Market Shifts

While some retailers retreated from health care, 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 nearly 240 offices across more than 20 U.S. markets.

At the HLTH Conference, Amazon announced a new partnership with Cleveland Clinic, 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 health care, emphasizing the role of technology and partnerships in meeting consumer demand for accessible care.

Key Takeaways | The Future of Retail Health Care

The divergent paths taken by Walgreens, CVS, Walmart and Amazon reflect the complex dynamics of retail health care. Success in this space 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 health care must address rising labor costs, evolving reimbursement models and the intricacies of managing health care delivery alongside retail operations. As the industry evolves, technology, partnerships and flexible care models will play pivotal roles in determining which players can succeed in meeting consumer needs while maintaining profitability.

Learn More

This AHA Market Scan Trailblazer special report explores the health care disruption outlook for 2024.