Hospitals Face a New Threat: Competition From ‘Retailized’ Healthcare

According to Paul Schuhmacher, Managing Director of consulting firm AArete’s healthcare practice, VillageMD’s recent $8.9 billion acquisition of Summit Health-CityMD is the latest chapter in the “retailization” of healthcare, a practice that offers significant opportunities to capture some of the revenue that would typically go to traditional provider groups.

While the executive does not believe the trend will pick up in 2023 due to rising interest rates and slowing investments, he believes that in the long run, growth of the model will continue, permitting retailers like Walgreens to obtain a very broad line of business, drive same-store sales, and diversify revenues. For the model to work, retailers will need to focus on services and processes that can be easily standardized and repeated across the board, combining the convenience and accessibility of the fast-food model with the customer service focus of retail stores.

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Though the model has promise on paper, its low operating margins can have significant real-world impacts. In 2019, Walgreens Boots Alliance scaled back its walk-in clinic business, closing roughly 160 U.S. in-store clinics that it runs itself, while retaining 220 clinics run by local health systems. CVS Health was not immune to the business realities of retail health care either, announcing in 2021 that it would close 900 stores over the next three years to focus more on delivering health services in its remaining stores.

All this leads to hospitals and physician practices seeing direct competition from retailers adjacent to the healthcare industry such as CVS, Walmart, and Amazon, all of whom are heavily investing in different ways and making inroads into traditional primary care. In August 2021, CVS Health and telehealth company Amwell joined to unveil a virtual primary care service. Later in the year, Walgreens announced the Walgreens Health platform to offer care across multiple locations and settings, and in the same month Walmart announced its planned expansion of 16 clinics in Florida, offering primary care, X-ray and EKG, labs, dental and community health, and behavioral health.

Overall, traditional healthcare providers can expect to see increasing competition from unconventional providers taking advantage of an already widely-established and accessible presence in the communities they serve, putting additional pressure on operating margins and hiring pools across the country. Whether this new care model will be successful remains to be seen, but it’s enough to keep healthcare business leaders on their toes.