What's Your Story Idea June 17, 2009, 4:49PM EST

Wal-Mart Medical Clinics Stumble

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The retailing giant does run in-store TV advertising and promotions on walmart.com, and is "working with our existing clinic operators to determine how we can better communicate to our customers about the benefits of clinics," company spokeswoman Christi Gallagher says.

As unlikely as Wal-Mart's foray may seem, its venture into the clinic business comes as no surprise to Paul Keckley, executive director of the Deloitte Center for Health Solutions in Stamford, Conn. "Think of it not as running a clinic but running a health-care services organization," he says. The company already provides prescription drugs, including increasingly popular generics, and medical products. By incorporating clinics, Wal-Mart offers consumers yet another reason to come inside, and increases its potential indirect revenue. Kalorama publisher Bruce Carlson estimates that for every 70 clinics, a big-box store can pull in $13.5 million a year in indirect sales. "Initially, it looked like the box stores were going to be the entities that were going to really have a lot of these clinics," he says.

drugstores capture clinic market

Instead, brands already known for their drugstores—CVS, Walgreens, and Rite-Aid (RAD)—have captured the bulk of the market. By the end of 2008 there were 934 retail clinics in drugstore chains, or more than 20 times the number in Wal-Mart stores, according to Kalorama research. Carlson estimates there will be more than 1,000 in drugstores by 2010, but only about 70 in big-box stores. Broward Health closed its pair of Express Aid locations earlier this year after treating an average of five patients a day since opening the clinics in early 2008. "The easy part was providing health care. That's what we do," says Orr.

Unlike the subsidiary relationship many drugstores have with their clinics, Wal-Mart operates on a landlord/tenant basis with its retail operators. While clinics at CVS or Walgreens can lean on their partners during tough times, tenants cannot. "Certainly, some of the operators were affected by the downward economy," says Tine Hansen-Turton, executive director of the Philadelphia-based Convenient Care Assn.

Many locations that faltered were networks of venture-capital enterprises. Wal-Mart requires its independent operators to hire health professionals to deliver care, says Mary Kate Scott, founder and CEO of Scott & Co., a health-care consultancy. For venture capitalists looking to invest in a rapidly profitable business, running a co-branded clinic with two partners is a difficult proposition. "When you don't deliver the service or own the brand or own the space, you have almost nothing," Scott says. "Essentially, the investors lost with the Wal-Mart strategy."

In January 2008, nascent clinic operator CheckUps closed its 23 Wal-Mart locations across the South after failing to raise enough money. Then in June, Colorado-based SmartCare Family Medical Centers shuttered all 15 of its in-store businesses. RediClinic, whose largest investor is AOL (AOL) co-founder Steve Case's Revolution Health Group, parted ways with Wal-Mart in December, shelving plans for 200 co-branded clinics nationwide. The company also has clinics in 21 Texas grocery stores. RediClinics declined to comment about its business partnerships.

new partners

Insiders aren't overly concerned with Wal-Mart's false start. "Remember, we're still very much a young industry," says Hansen-Turton. "The beauty of a young industry is that you can try different models." With patient visits rising and satisfaction surveys showing high marks, retail clinics are confident they'll succeed. According to a 2008 Wall Street Journal/Harris study, 90% of adults were satisfied with the quality of care they received at clinics, 88% were satisfied with staff qualifications, and 86% were satisfied with the cost.

After hiccups with independent operators, Wal-Mart plans to increase collaboration with established medical providers. Gallagher says more than 400 hospitals and health systems are trying to open sites in the retailer's stores. Janet Teske, a nurse practitioner and manager of Quick Care clinics in six Wisconsin Wal-Marts, says she's benefited from the relationship. The clinics are part of the larger Aurora Health Care network of hospitals and health-care service providers in the state and retail clinics act as an outpost. Visits to Quick Care clinics have tripled over the past year, to between 20 and 40 people per day. By partnering with a health-care system like Quick Care, Wal-Mart can provide patients backup when they need further medical care. Retail clinics also give emergency rooms a release valve for heavy traffic, especially during flu season.

With plans for clinics across the country, Wal-Mart says it will seek continuity through its branding and electronic medical records. Store façades will say "The Clinic at Wal-Mart" and display the name of a local hospital system, offering both the credibility of established health-care systems and the low-price attraction of the Wal-Mart brand. Keckley, of the Deloitte research center, is confident that Wal-Mart's partnerships with hospitals, coupled with the business of its pharmacy and health-care departments, will prove successful. "They're not stupid," he says. "They see the spending curve on health care."

Spielberg is a reporter for BusinessWeek.