Wharton's Mark Pauly and Drexel's Robert Field discuss the launch of Walmart Health and whether the strategy will benefit the company.

Pushing deeper into the high-risk business of health services, Walmart has opened its first standalone primary care clinic in suburban Atlanta. Walmart Health, which has a separate entrance adjacent to the Dallas, Georgia, supercenter, offers what the company describes as transparent pricing for an array of services including dental, lab tests, X-rays, hearing, optical and mental health counseling.

Walmart already operates 19 clinics across Georgia, Texas and South Carolina that are more limited in scope, but the pilot Walmart Health signals a bigger commitment by the world’s largest retailer to capture a share of the $1.3 trillion health care industry. Walmart runs one of the largest pharmacy chains in America, and health and wellness accounted for 9%, or $36 billion, of sales for fiscal year 2018.

“We are creating a super center for basic health services,” Sean Slovenski, senior vice president and president of Walmart Health and Wellness, told Forbes. He said the clinic was part of a “serious” strategy and “not a dabble.”

Despite Walmart’s considerable resources, experts say the risk remains high because there hasn’t been a great track record of innovation in health care delivery. The potential for profits is a powerful incentive for Walmart to become a major player in the health care game, but the company has as much to lose as consumers have to gain from the pilot program.

“My view is, knock yourself out,” Wharton health care management professor Mark Pauly said. “Innovation is a good idea generally, although in health care most innovation has not been successful. But when firms are willing to invest their own money in trying to do something imaginative, if they succeed, that’s to the good of consumers, and if they don’t, that’s to the harm of their stockholders. But that’s the way progress is going to be made.”

Robert Field, professor of law, and health management and policy at Drexel University, said the company’s strategy mixes “a little offense and a little defense.” For the offense, Walmart is trying to merge its deeply rooted branding with the trust that people have in their physicians. On defense, the company is trying to get ahead of other competitors in the health care space. It recently announced plans to open a second health clinic in Calhoun, Georgia, about 50 miles away.

“None of them want to be Sears,” Field said about Walmart and its competitors. “They want to make sure that they are current, that they are ahead of the curve.”

Field and Pauly joined Knowledge at Wharton to discuss Walmart Health and what it means for the chain. (Listen to the podcast at the top of this page.) Both professors said they are taking a wait-and-see approach on whether Walmart’s grand experiment will work.

Trust Is Key

The two professors noted that there are a lot of obstacles along the road to success for the clinics, namely in the areas of branding and logistics. Research shows that patients aren’t necessarily looking for a good deal, they’re looking for trust. That’s why patients tend to remain loyal to their physicians.

“There has been a kind of branding that’s worked in health care, and that’s with the established health care systems,” Field said, citing Penn Medicine, Mayo Clinic and other networks. “The question is, can that translate to a big-box retailer? Can you feel the same sense of trust in Walmart that you would in Penn or in The Mayo Clinic?”

“You go out to get some underwear, you might as well [have someone] look at your sore throat.” –Mark Pauly

Pauly pointed out that the primary care services being offered by Walmart target 80% of people who account for 20% of health spending, not those with chronic conditions. Perhaps that’s exactly the right target for the company, which isn’t trying to build cancer centers or other specialized services.

“Grabbing the primary care end of the stick in some sense is logical for these enterprises,” he said. “You go out to get some underwear, you might as well [have someone] look at your sore throat.”

While Walmart has said it will employ physicians, it isn’t clear yet how many of them will work for the store or how the workload will be allocated between the doctors and nurse practitioners or physician assistants, or how it will connect patients to specialized care if needed, Field said. As they get further along, Walmart will likely need to partner with an insurance provider, too.

There’s also the question of whether patients seeking mental health counseling will feel comfortable talking about their most intimate problems to a Walmart employee in a store-like setting.

Pauly circled back to brand loyalty: If a Walmart physician leaves the store, how does the company keep the patients? If Walmart wants to keep physician turnover low, it will have to cede more administrative control to the doctors, which is costly for the company.

A Grand Experiment

Despite Walmart’s clout as world’s number-one brick-and-mortar retailer, success in the new venture is not guaranteed.  “Research suggests to be careful in deifying large firms,” Pauly said, noting the management downfalls of General Electric and Procter & Gamble. “That’s why I think the experimental character of this is most important, and we’ll see how this works out.”

“Can you feel the same sense of trust in Walmart that you would in Penn or in Mayo clinic?” –Robert Field

According to Field, no company is in a better position than Walmart to take a gamble on retail health care. Unlike Amazon, which in 2018 formed a health care alliance with Berkshire Hathaway and JPMorgan Chase to fix health care for their employees, Walmart has an abundance of physical locations. But he cautioned against treating health care with the same branding approach as everyday consumer goods.

“They’ve got a lot of money, they’ve got a lot of facilities, they’ve got a lot of infrastructure that they can use for that,” said Field, who is also a lecturer at Wharton. “Medicine has always been the ultimate personal business, where [consumers are] more aligned to a human being than to a product. You don’t care where you get your statin, but you do care who your doctor is. In general, we’ve been seeing health care become more corporate, less personal. Is that trend going to continue, or are we seeing a wall that Walmart is going to hit, and it’s not going to be able to truly commercialize primary care the way it would like to?”

Still, the professors praised Walmart for trying to tackle the complex problem of affordable, efficient health care provision.

“The battleship remains, even though little pieces of it have been picked off,” Pauly said. “My middle-of-the-road prediction is some of these [clinics] may turn out to be successful and find a niche, especially in big cities for people who like the convenience. Everybody’s trying to find a niche now. It used to be the only way to see a doctor was to find a general practitioner and see if they were taking patients, and now there’s all sorts of different new pathways.”