Senior Living Lessons from Walmart Health Closure, VillageMD Woes, Other Market Upheavals

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This week, Walmart announced the closure of its Walmart Health business, which will shutter 51 health centers across five states. The news is part of a reckoning that is unfolding in the health care sector, with implications for senior living.

The health care reckoning can be observed in other recent headlines, including layoffs at UnitedHealth Group’s Optum arm, which also is ending its Optum Virtual Care telehealth business; Walgreens’ decision to close 160 VillageMD clinics after posting a nearly $6 billion loss in the second fiscal quarter; and news that hospitals in the state of Washington lost nearly $4 billion in the last two years.

While there are specific factors at play in all these situations, health care organizations across the country are all facing many of the same extreme challenges, including labor shortages and revenue that is falling short of escalating operating expenses and the pressure of higher interest rates.

“It is the most challenging health care operating environment of my whole career, that I’ve ever seen,” Anne Tumlinson, CEO of health care research and advisory services firm ATI Advisory, told me this week.

In this exclusive, members-only SHN+ Update, I analyze the upheaval in the health care sector and offer key takeaways for senior living, including:

• Why the “retail-ization” of health care might be shifting to the “consumerization” of health care
• Lessons on the tradeoffs between scale and specialization in value-based care models
• What current disruptions mean for the future of value-based care in senior living

The future of ‘retail health care’

The rise of “retail” health care has been one of the most dramatic trends in recent years. In particular, a new model of primary care arose, revolving around conveniently located clinics that aimed to make health care delivery akin to a retail experience. Indeed, some of these new primary care clinics – such as VillageMD locations in Walgreens stores and Walmart Health practices in Walmart stores – are co-located with retail.

Now, these “next-gen” primary care businesses are experiencing some of the most high-profile reversals during the current health care reckoning, including the Walmart Health closure and the VillageMD repositioning.

Such setbacks might have been inevitable. Over the last several years, vast sums of money have been invested into new primary care businesses, including nearly $11 billion that CVS Health paid for Oak Street Health, Amazon’s nearly $4 billion purchase of One Medical, and Walgreens’ roughly $6 billion investment to gain a controlling stake in VillageMD – and these were just a few of the transactions in the space. Surely, not every one of these deals was destined to be a winner.

“Sometimes you have some just bad deals, bad operators, bad strategy, and they’re going to get winnowed out,” Tumlinson told me.

One example is Cano Health, which was valued at $4.4 billion in a 2021 SPAC deal but filed for bankruptcy earlier this year with $1.4 billion in debt versus $1.2 billion in assets.

“The industry reacted without surprise, with experts calling the bankruptcy a direct result of mismanagement, a quixotic growth strategy and poor market selection,” Katie Adams wrote in MedCity News.

The struggles of primary care companies such as Cano have disheartened me; I’ve written in the past about what I see as the promise of their models and potential opportunities for partnerships with senior living providers. For example, by providing more personalized, integrated, tech-driven care – often paid for via Medicare Advantage plans – these next-gen primary care providers hold the potential to extend older adults’ “wellspan” while bringing down systemic health care costs. Several senior living owners and operators – including Welltower – have seen the potential in bringing this type of primary care to residents of active adult and independent living communities. And Cano had a presence in Century Village active adult communities.

“We have several clinics, I estimate a half-dozen or so, that are already embedded within these senior living communities and bring that increased accessibility to its residents for [an] integrated, value-based model of care. I think it’s incredibly helpful and super popular among residents,” Hernandez told me in 2021.

However, the problems besetting some of these primary care companies do not mean the model is a failure, Tumlinson emphasized. There are successful organizations to consider, she said, noting that Oak Street remains in a stronger position. Although Amazon cut jobs in One Medical earlier this year, the business is expanding, with plans to enter two new U.S. markets by year’s end.

And there are some lessons that senior living providers can take from the shakeouts and pivots that are occurring in the primary care space. For one, consumers are teaching the health care market what they want – for example, people might not want to receive their health care in the same place they buy lightbulbs and car tires. As Tumlinson put it, the “retail-ization” of health care might be morphing into more of a “consumerization” of health care.

“It may be that consumers are telling us, ‘I’m not going to go to Walmart for my primary care … I still want to go to my doctor. But if that doctor is practicing at One Medical, and they’ve made it so much easier to be in that environment, and you can have a long-term relationship with someone in that environment, that’s going to win,” Tumlinson said. “So, consumer-oriented value-based care assets are going to continue to be very valuable.”

This message about being consumer-oriented is one that many senior living executives have spoken to about in the last several years – and yet, the sector as a whole might still be clinging too much to typical ways of doing business, and not truly listening to the consumer and adapting. That was one message that Arrow Senior Living CEO Stephanie Harris delivered at last fall’s NIC conference in Chicago.

“We’ve got to change the paradigm in how we listen to the residents,” she said. “ … Part of leaning in is figuring out how to alter those lines of communication and developing collaboration and how we create a more cooperative business model where residents help determine the direction the business takes or community goes.”

A long-term play

Another important lesson to be gleaned from current health care upheaval relates to the future of value-based care.

The next-gen primary care groups arose to meet the demands of Medicare Advantage plans, accountable care organizations (ACOs) and other models that tie payment and profit to controlling the costs of health care for patient populations, while maintaining or improving quality outcomes and consumer satisfaction. Achieving success in such frameworks is not easy, particularly amid severe cost pressures and paltry payment rate adjustments.

Indeed, the next-gen primary care companies are not the only value-based care organizations that are in flux. Optum’s recent layoffs included reductions in its I-SNP and IE-SNP teams, according to sources who spoke to SHN’s sister publication Skilled Nursing News. Anonymous messages posted to an online message board indicate that the IE-SNP business – that is, the part of the company focused on Medicare Advantage plans for assisted living residents – is shutting down in all but four states.

Optum and other organizations with businesses tied closely to Medicare Advantage are responding in part to CMS’ 0.16% cut in the benchmark rate for 2025.

“In the larger health care context, what we’re seeing a little bit right now is [that] people are kind of doubling-down on fee-for-service, because they just have immediate financial pressures and the only way to they can solve for those in the very near term is just to crank out as much volume as they can,” Tumlinson observed.

That said, the current environment does not alter the fundamental logic behind value-based care or the longer-term momentum toward these models becoming dominant – a goal that CMS has pursued aggressively, pushing for every Medicare beneficiary to be in a “care relationship with accountability for quality and total cost of care” by 2030, as the agency has stated.

“The longer-term solution is value-based care, and everyone knows that, including policymakers,” Tumlinson said.

This is another lesson that senior living providers should take from the current situation across the health care continuum: engaging in value-based models is a long-term strategy. This might sound obvious, but it’s not always clear to me when talking to operator executives that they view value-based care as a long-term play.

Some senior living leaders seem most interested in forging quick partnerships – say, with a primary care company that can provide on-site services to residents – with an eye toward gaining a marketing edge and extending length of stay. These operators are not necessarily making larger investments and deeper commitments related to value-based care, such as implementing technology platforms to track resident health data or taking ownership in a special needs plan.

As Tumlinson put it, regarding takeaways for senior living providers contemplating their value-based care strategies: “That may be another theme or lesson – you have to be all-in … You have to know what you’re doing, and you have to be prepared to stay the course.”

Those organizations that are in value-based care for the long-term – Tumlinson name-checked Marquis Companies and the Perennial Consortium as examples – are working, albeit for some of them, “it’s taking time.”

“You’re getting into value-based care because you want a long-range, sustainable model for your residents and your population, and you want to evolve and innovate over time,” she told me.

Scale versus specialization

Senior living leaders are fond of saying that demographics are destiny. If that’s the case, large Medicare Advantage players on a collision course with the senior living sector. That’s because MA enrollees – including the beneficiary populations of behemoths like Humana and UnitedHealthcare – are becoming older and frailer. As their needs escalate and more of them make the move into senior living, the insurance companies are likely to seek more control over these settings, just as they already have gained control of home health delivery. Optum and Humana have acquired some of the largest home health providers in that sector.

The prospect of gigantic “payviders” swallowing up operators has created some deep anxiety in the senior living sector. However, the current health care reckoning is illustrating just how difficult it is for the payviders to achieve their vision of creating an end-to-end solution, integrating their insurance plans with provider services – such as next-gen primary care practices, home health agencies, et cetera – and optimizing care delivery, cost control and consumer satisfaction via technology systems that they also own, such as Optum’s now-embattled naviHealth solution. 

This type of vertical integration might be especially hard within the context of a massive organization with many moving parts. For instance, it might sound straightforward to get information about a home health patient’s condition from a caregiver in the home and to a care manager in an office, and then activate an intervention based on certain data points. In practice, this process could be an intricate dance involving multiple touchpoints and several systems across a sprawling business. 

Certainly, scale is a necessary factor in value-based care. As many senior living leaders have observed, population health initiatives only work if the population being served is sizable enough to check certain boxes, such as creating operating efficiencies while insulating providers from risks (such as beneficiaries who become very sick and require costly care). However, the current challenges in vertical integration also illustrate that success in value-based care might lie in getting the right balance of scale and specialization.

Indeed, some of the next-generation primary care providers that seem to be having more consistent success have specialized models that they are disciplined about executing on, Tumlinson pointed out. Oak Street, for instance, focuses largely on the dual-eligible and low-income population – and then there are the smaller primary care practices and other types of value-based care providers that specifically focus on the senior living space, which also continue to expand. These include Pine Park Health, Bluestone Physician Services (Tumlinson is on the board) and Curana. 

This all boils down to a few more takeaways for senior living providers. One is that senior living leaders should be carefully attuned to how the large payviders are pivoting and altering their strategies as they learn lessons in vertical integration. Perhaps the payviders’ experience with integrating primary care startups, home health agencies and other companies will cause them to be more leery about senior living acquisitions – or perhaps they’ll refine their approach, and in the process offer important clues about how they will try to expand control over senior living in the future.

And then there’s another lesson that might seem obvious but that bears articulating: Senior living providers need to be cautious in who they choose to work with, particularly as they seek to bring more care on-site and participate in value-based payment models.

The unfolding failures, bankruptcies, disruptions and layoffs in the health care sector – particularly among recent darlings like primary care startups – reinforce the importance of due diligence such as evaluating the specificity of a potential partner’s business model, the level of specialization they have related to senior living, the scope and speed of their anticipated growth, and the expectations of their investors and lenders. 

Perhaps most importantly, senior living providers need to have clear strategies for a future driven by a new consumer and the continual push toward value-based health care, and make decisions that align with that strategy without being overly reactive to immediate market conditions. And providers have to be prepared for the sweat and tears that such an effort involves.

“Vertical integration is hard. Health care is hard. Value-based care is hard,” Tumlinson told me. “There’s no silver bullet. There’s no slam dunk … we have to move to consumerism and value-based care. It’s inevitable, it will happen. We have to make the system easier for people to use.”