Commentary: Healthcare’s disruptors find no perfect prescription for industry ills

By DAMOND W. BOATRIGHT, MHA, MHS, FACHE
Hospital Sisters Health System

Say it ain’t so, but it appears that healthcare’s so-called “disruptors” are now being disrupted.   

Those of us who have worked in healthcare for decades have lamented for quite some time about the regulatory complexities, reimbursement challenges, escalating operating costs, unnecessary competition for patients, and other hurdles that make our business extremely difficult to navigate. I am not surprised these same issues would impede even the country’s largest retail companies who sought to venture into traditional healthcare delivery. 

All of us “traditional” healthcare providers were warned when JP Morgan, Berkshire Hathaway, Amazon founder Jeff Bezos and others promoted the entry of non-traditional healthcare companies as the cure for our industry’s ills. Based on that bravado, Walmart’s announcement April 30 that it will close all of its 51 doctor-staffed health clinics and also exit virtual care services may have shocked some pundits—and possibly disappointed some bullish investors. 

It was only five years ago when the mega-retailer touted its business model to bring convenient access to low-cost primary care to millions of its customers. In 2023, Walmart doubled down, adding 17 primary care centers in Florida. That is an aggressive and optimistic growth mindset. 

Now, according to the company’s statement, this strategy is not a sustainable business model. Huh? Say it ain’t so… 

Wal-Mart is certainly not the only prestigious, deep-pocketed company to get a wake-up call about healthcare’s ever-vexing economic and business challenges. Just a few days before Walmart conceded, UnitedHealth Group’s Optum subsidiary announced it would shutter Optum Virtual Care, its telehealth business, after a three-year run.

Meanwhile, Walgreens announced it is closing 160 of its VillageMD primary health clinics after suffering unsustainable losses and will take a $6-billion write-down in the value of that investment. The retail pharmacy giant cited slower than expected growth in patient volume and changing Medicare reimbursement models as contributing factors. 

And in May, another discount retail giant – Dollar General – ended its mobile clinic pilot with DocGo On-Demand to bring primary care to underserved areas. The venture was well-received. Yet, as most of us know, patient demand and satisfaction with a service like this does not translate into business success. 

Don’t get me wrong. I feel no schadenfreude in noting these high-profile defeats. Each of these companies has a solid track record when it comes to running a business. The truth is, providing affordable and accessible healthcare to millions of people, especially those living in rural areas, is hard. 

And that’s because the complexities, regulatory nonsense and forced competition built into our business require more than the usual business principles and solutions. Plus, it’s not easy to create enough revenue to reinvest in operations and attract dedicated clinicians.

As the CEO of a Catholic nonprofit healthcare system, my opinion is the business of delivering healthcare was never meant to be grossly profitable. However, it is meant to be – and must be – sustainable. 

Alarmingly, even sustainability is at risk, especially in rural communities. According to a recent report by the nonprofit Center for Healthcare Quality and Payment Reform, about 700 rural hospitals are in danger of closing. Another report, from healthcare consulting firm Chartis, estimates 167 rural hospitals have closed since 2010, with another 418 likely to follow unless they can turn things around. 

So, while Dollar General, Walmart and Walgreens hoped to bring access to affordable primary care to people who visit their stores, many of which are located in non-urban, sparsely populated towns, that hope has been dimmed because it’s hard to do and even harder to make money doing. The median margin on patient services at small rural hospitals is about negative 7%, according to CHQPR. The median operating margin for independent rural hospitals is negative 2.2%.

The “disruptors” are learning painful lessons those of us in nonprofit healthcare have long known. U.S. healthcare is too expensive, both for providers and the people we serve. But it’s not because it’s run by for-profit corporations, mega systems or greedy executives who believe margin is more important than the mission. If it only were that simple.

The fact is, treating patients who haven’t seen a doctor because they can’t afford it or because they lack access, or who are uninsured or underinsured, is expensive. And, unlike other business sectors, oversupply and competition in healthcare doesn’t drive down costs the same way those principles do in other industries that enjoy more free-market principles and more evenly applied regulatory oversight. 

And while size might bring some advantages, it can’t guarantee success, as Walmart has now learned. Bigger is not better. Being better is better. Better quality, better safety, better efficiency and providing better access to all those who seek care, regardless of their ability to pay.

Maybe I have a pollyannaish view, but I believe healthcare should help all citizens achieve what our Founding Fathers promised in our Declaration of Independence: life, liberty and the pursuit of happiness. And I’m confident America’s founders wanted those basic rights not just for the wealthy and most healthy, but for everyone. If our industry is suffering so badly, how can we deliver on these promises for everyone else? 

It might not always be the most profitable venture, but our healthcare system is a necessary safety net that we as a society must view as a basic human right. And it is up to all of us to spend more time collaborating on how to fix it instead of competing for every patient and every last dollar.

Damond W. Boatwright is president and CEO of Hospital Sisters Health System, a nonprofit that operates 13 community hospitals in Central and Southern Illinois and Eastern Wisconsin.

(Editor’s note: This commentary piece also appears in the August 2024 print edition of the Illinois Business Journal.)