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Optum and Walmart fail at telehealth and low-cost care — what does this teach us?

This week saw the news that retail giant Walmart is shutting down its 51 centres and its virtual care offering launched in 2020, and that insurer UnitedHealth’s Optum Virtual Care service was also being shut down after launching in 2021. 

2024 is off to a rocky start for virtual care providers after both Teladoc Health and Amwell announced job cuts.

The U.S. is a market that has historically adopted technology much faster than Europe and where innovative ideas flock to, so what lessons do the latest failed models serve us?

What makes these two failed models particularly interesting is that both Walmart and Optum are big, highlighting the challenges of making a profit from healthcare, and particularly with telehealth, regardless of size. 

Whilst big news, it is not entirely surprising that Optum couldn’t make the model work. Telehealth quickly became a commoditised model, with very low barriers to entry. Now almost all providers use a form of telehealth as part of their service offering. Where it might have been a differentiating factor during or just after the pandemic, this is no longer the case. Optum’s parent company UnitedHealth has well-established partnerships with telehealth providers in its health plans.

This glut in supply has driven down costs so much that United was offering virtual care for some plans for free. Telehealth only really works and adds value if you adopt a hybrid model, giving patients the choice to use virtual or in-person care. 

Walmart’s shutdown however is more of a surprise. 

The low-cost supermarket chain opened its clinics in 2020 trying to fill a gap in the market for its customers without health insurance, or who had plans with deductibles. Clinics offered primary care, urgent care, lab tests, x-rays, behavioural health and dentistry and a telehealth offering. 

The belief was that its scale and financial might would see it through any challenges, a belief that seems to have come unstuck pretty quickly, driven by a “challenging reimbursement environment and escalating operating costs” according to the company announcement.  

Running brick-and-mortar is expensive, and being a new entrant in a pretty crowded market Walmart was clearly unable to build its patient volume to reach the scale needed to offset its costs. It will continue to run its 4,600 pharmacies and 3,000 optical centre services with more similarities to traditional retail models than health clinics. 

What is frustrating about this failed model is that there is a genuine gap in the market that this model tried to fill. The U.S. has huge discrepancies in health equity and a great need for such a service, this failure may warn others away. 

So, what do these failed models teach us? 

Financial Sustainability is Key: New healthcare models need to be financially sustainable in the long term. This requires careful and realistic consideration of costs, reimbursement rates, and patient volumes.

Differentiation is Crucial: Standing out in a crowded market is essential. Offering unique services, competitive pricing, or a superior patient experience is crucial for success.

Technological Innovation is Ongoing: The telehealth landscape is constantly evolving. Businesses need to adapt and leverage new technologies to stay competitive. This requires taking a long-term view and means they need to also be prepared to pivot the model to respond to market changes. 

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We would welcome your thoughts on this story. Email your views to Lee Murray or call 0207 183 3779.