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Will Walmart Become the Largest Medical Care Provider?

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By Julie Appleby and Sarah Varney
First published by Kaiser Health News, November 9, 2011

Walmart — the nation’s largest retailer and biggest private employer — now wants to dominate a growing part of the health care market, offering a range of medical services from basic prevention to management of chronic conditions like diabetes and heart disease, according to a document obtained by NPR and Kaiser Health News.

In the same week in late October that Walmart announced it would stop offering health insurance benefits to new part-time employees, the retailer sent out a request for information seeking partners to help it “dramatically … lower the cost of healthcare … by becoming the largest provider of primary healthcare services in the nation.”

On Tuesday, Walmart spokeswoman Tara Raddohl confirmed the proposal but declined to elaborate on specifics, calling it simply an effort to determine “strategic next steps.”

But by midafternoon Wednesday, the retailer issued a statement saying its own request for information was “overwritten and incorrect.” The firm is “not building a national, integrated low-cost primary health care platform,” says the statement by Dr. John Agwunobi, a senior vice president.

The information request begins with the exact wording that Agwunobi says is incorrect, saying Walmart “intends to build a national, integrated, low-cost primary care healthcare platform.” The request goes on to ask firms to spell out their expertise in a wide variety of areas, including managing and monitoring patients with chronic, costly health conditions. The goal it says is for Walmart to become “the largest provider of primary healthcare services in the nation.”

The document spells out a tight timeline. It was issued to an unknown number of “strategic partners” on October 21 and final vendor selection is set to take place on January 13.

Analysts said Walmart is likely positioning itself to boost store traffic — possibly by expanding the number of, and services offered by, its in-store medical clinics. The move would also capitalize on growing demand for primary care in 2014, when the federal health law fully kicks in and millions more Americans are expected to have government or private health insurance.

“We have a massive primary care problem that will be made worse by health reform,” says Ian Morrison, a Menlo Park, Calif-based health-care consultant. “Anyone who has a plausible idea on how to solve this should be allowed to play.”

In-store medical clinics, such as those offered by Walmart and other retailers, could also be players in another effort in the health law: encouraging collaborations of doctors and hospitals who want to win financial rewards for streamlining care and lowering costs. Such collaborations, known as “accountable care organizations,” might contract with in-store medical clinics, says Paul Howard, a senior fellow with the Manhattan Institute for Policy Research. He has studied retail clinics, some of which have recently expanded to offer services beyond simple tests and vaccinations, such as helping monitor patients with diabetes or high blood pressure.

Walmart’s request goes even further, asking possible partners to provide information on how they would oversee patients with complicated chronic conditions, including asthma, HIV, arthritis, depression and sleep apnea.

While Walmart’s efforts to partner with others on health care could help lower costs for some patients and increase access to primary care services, health policy experts also say it raises questions.

Will expansion of in-store clinics, for example, further fragment care in the U.S. by drawing patients away from their established primary care doctors? Would patients who need specialists fall through the cracks? Will patients seen by nurses or physician assistants at in-store clinics have just as good outcomes as those seen by doctors in more traditional practices?

“Maybe Walmart can deliver a lot of this stuff more cheaply because it is an expert at doing this with other types of widgets, but health care is not a widget and managing individual human beings is not nearly as simple as selling commercial products to consumers,” says Ann O’Malley, a physician and senior health researcher at the Center for Studying Health System Change, a nonpartisan Washington think tank.

And will it save money? Because primary care services are not the main driver of health care costs in this country, “I would be surprised if this were a model that could truly attack cost problems,” says O’Malley.

Whatever it does to health costs, it may also be a way to boost foot traffic and sales in Walmart stores, says Colin McGranahan, a retail analyst for Sanford C. Bernstein & Co.

“Their traffic has been declining for over two years and they’ve been losing market share,” McGranahan says. “If you get someone in the door, you can also sell them milk and a shotgun.”

CVS/Caremark, Walgreen’s, Kroger, Target and others have recently reinvigorated efforts to open in-store medical clinics. The first such in-store clinics opened in 2000, but growth took off later in the decade.

Until recently, Walmart was the nation’s leader in opening such clinics, but has dropped to third place with about 140 such clinics, well behind industry leader CVS Caremark’s nearly 550 Minute Clinics and Walgreen’s 355 Take Care clinics, according to data tracked by Tom Charland, CEO of Merchant Medicine, a Minnesota-based research and consulting firm. About 1,300 store-based clinics are open nationwide, he says.

They have different business models. Walmart leases space to independent vendors, for example, while CVS owns and staffs its Minute Clinics. While a few centers operated by retailers have doctors on site, most hire nurse practitioners or physician assistants to provide the care. In 2007, Walmart CEO Lee Scott announced the firm would open 400 clinics by 2010.

But early efforts backed by venture capital money faltered and the firm failed to reach that number, says Charland. Walmart then switched strategies and began leasing to hospital systems primarily and it began to grow again. Still, last month, the firm appeared to be struggling: Walmart opened three in-store clinics, but closed 10, says Charland.

“This is an industry where people haven’t figured out how to make money,” he says. Hiring nurses isn’t cheap – and business can be seasonal: more people come in during the cold winter months and business can slow to a crawl in the summer. “My guess is the whole purpose of [Walmart’s] request for information is to find someone to help them because they’ve not been able to pull it off.”

CVS, which has run Minute Clinics since 2006, expects to break even for the first time this year, says Helena Foulkes, a CVS executive vice president in charge of strategy and marketing. It plans to keep opening clinics and is doing so at a clip of about 10 a month.

“We think the market will evolve so this will become a more important model,” says Foulkes.

Kristian Foden-Vencil of Oregon Public Broadcasting, and Chris Weaver, Sarah Barr, and Christian Torres of Kaiser Health News contributed to this story.

©2011 Kaiser Health news 

 

How Walmart Drives Down Product Quality and Durability

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By Stacy Mitchell
First published by Grist magazine, November 11, 2011

My friend Tony’s closet is as good a place as any to begin an investigation of Walmart’s environmental impact. Tony has a pair of Levi’s that date back to high school more than 20 years ago. They still fit him and they’re still in rotation. The fabric has a smooth patina that hints at its age, but, compared to another pair of Levi’s he bought only a couple of years ago, this pair actually looks far less worn. The denim is sturdier, the seams more substantial, the rivets bigger.

Tony’s old pair of Levi’s may well have been made in the U.S, and they likely cost more than his new pair. The new ones were manufactured abroad — Levi’s closed its last U.S. factory in 2003 — and, though Tony didn’t buy them at Walmart, their shoddy construction can be blamed at least in part on the giant retailer and the way it’s reshaping manufacturing around the world.

Since 1994, the consumer price of apparel, in real terms, has fallen by 39 percent. “It is now possible to buy clothing, long a high-priced and valuable commodity, by the pound, for prices comparable to cheap agricultural products,” notes Juliet Schor . Cheapness — and the decline in durability that has accompanied it — has triggered an astonishing increase in the amount of clothing we buy. In the mid-1990s, the average American bought 28 items of clothing a year. Today, we buy 59 items. We also throw away an average of 83 pounds of textiles per person, mostly discarded apparel, each year. That’s four times as much as we did in 1980, according to an EPA analysis of municipal waste streams [PDF].

Most consumer products have followed a similar trajectory over the last two decades. Walmart has done more than any other company to drive these changes, though other retailers have since followed its model. Where once we measured value when we shopped, Walmart trained us to see only price. Its hard bargaining pushed manufacturers offshore and drove them, year after year, to cut more corners and make shoddier products. As union-wage production jobs and family-owned businesses fell by the wayside, many Americans could no longer afford anything but Walmart’s cheap offerings.

Today Walmart says it wants to reduce the amount of pollution involved in making some of the stuff it sells. That seems like a good thing — except that everything else Walmart does is designed to undermine the durability of consumer goods, accelerate the flow of products from factory to landfill, and get us to buy more stuff. Even if Walmart does succeed in reducing the resources used to make a T-shirt or a television set, those gains will be more than outstripped by growth in the number of T-shirts and TVs we’re consuming.

The six-dollar toaster
On a recent visit to Walmart store No. 2659, just outside of Portland , Maine , I tried to find evidence of a shift to more sustainable products, but I didn’t see much beyond CFL bulbs and reusable shopping bags. There were no Seventh Generation cleaning supplies or organic cotton clothes, for example.

I did, however, spot a toaster that retails for $6.24 — a price that renders its longevity virtually irrelevant. If it breaks, just buy another.

Prices on general household goods have fallen by about one-third since the mid-1990s. Given how awash in stuff we were in those boom years, it’s shocking just how much more we buy now. Since 1995, the number of toasters and other small electro-thermal appliances sold in the U.S. each year increased from 188 million to 279 million. The average household now buys a new TV every 2.5 years, up from every 3.4 years in the early 1990s. We buy more than 2 billion bath towels a year, up from 1.4 billion in 1994. And on and on.

While there are certainly factors beyond Walmart that have contributed to this ever-expanding avalanche of consumption, the company has been a major driver of the trend. Its growth and profitability rest on fueling an ever-faster churn of products, from factory to shelf to house to landfill.

In a paper [PDF] that came out last year, three business professors illustrate how inducing manufacturers to cut product quality enhances Walmart’s competitive position. “Because lower quality products are usually cheaper to produce, it is often argued that discount retailers induce lower quality in order to drive down prices. Our model suggests, however, that the competitive and bargaining position effects provide incentives to induce lower quality regardless of changes in production costs,” the authors write.

In other words, getting manufacturers to make shoddier products doesn’t just mean that Walmart can offer super-cheap wares; it also helps Walmart marginalize its competitors and gain more dominance over its suppliers. By using its market power to drive down the quality of manufacturing, Walmart gains an advantage over department stores and independent retailers because quality (and the knowledgeable service that typically goes with it) is no longer an important factor in a consumer’s choice about where to shop. If you are going to end up with a crappy to mediocre blender anyway, then why bother spending more or availing yourself of the advice and service of a specialty retailer? Reducing the overall quality of products thus destroys a key competitive advantage of Walmart’s smaller rivals.

Even when a manufacturer responds to Walmart’s cost-cutting pressure by producing a separate, cheaper line to sell only in big-box stores — as many name-brand companies now do — the brand’s reputation for quality can suffer, making it hard for specialty retailers to persuade customers that the higher-quality, longer-lasting versions they offer are worth more.

As local stores and other competing retailers are weakened, manufacturers become more dependent on Walmart. Many major consumer products companies now rely on Walmart for one-quarter or more of their business. According to the study, this gives the chain greater bargaining power over its suppliers, who have fewer options for bringing their wares to market and thus little leverage to resist the retailer’s demands.

Walmart is also a master at getting shoppers to buy more than they came for. It employs all of the techniques that have been shown to spur “unplanned buying,” according to a recent study [PDF] in the Journal of Marketing. The study found that large stores that promote the concept of one-stop shopping and can only be reached by car generate the most impulse buys. Marketing messages that evoke abstract shopping goals are also highly effective at inducing people to put more stuff in their carts. The authors cite Walmart’s “Save Money, Live Better” slogan as a leading example.

According to the study, the least amount of unplanned buying occurs when a shopping trip involves multiple stores, each with a specific product focus, and the customer arrives on foot or by mass transit — in other words, when you shop at small neighborhood and downtown retailers.

A low-tar cigarette
Walmart has a powerful incentive to increase the scale of consumption. Sustainability will never be more than a modest sideshow to this larger endeavor. Nowhere in Walmart’s pronouncements about greening its supply chain does the company mention the durability of products or the pace at which households burn through the stuff its stores sell.

As consumers, we’re hardly innocent in all of this, of course. With prices falling below the real human and environmental costs of production, we have been happy to upgrade to a bigger TV or buy four T-shirts when one would suffice. But imagining that Walmart might be part of the cure is like putting tobacco companies in charge of ending smoking. Walmart’s sustainability plan is the low-tar cigarette of the environmental movement: it admits there’s a problem, but offers a kind of pseudo solution that’s really aimed at keeping us all puffing.

As Walmart takes over an ever-larger share of the global economy, companies that favor a more durable and sustainable model of production are squeezed to the margins. The business press is replete with tales of storied U.S. brands, like Levi’s, which held out against Walmart for years before finally giving in, moving overseas, and figuring out how to make a $10 pair of jeans. Some still resist. Stihl, for example, the world’s leading maker of chain saws, has been vocal about retaining the quality of its products by not selling to the big boxes . But if Walmart and those that follow its model continue to grow, there may soon come a day when no producer can escape its dictates.

Check out Grist’s whole series on Walmart’s greenwashing.

Stacy Mitchell is a senior researcher with the Institute for Local Self-Reliance, where she directs initiatives on independent business and community banking. She is the author of Big-Box Swindle and also writes a popular monthly newsletter, the Hometown Advantage Bulletin. She lives in Portland, Maine, and has lately joined Twitter .

©2011 Grist.com