What Walmart Just Learned and You Should Know

May 5, 2024
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Last week, Walmart announced that it is closing 51 health centers in 5 states including their dental centers citing “the challenging reimbursement environment and escalating operating costs”.  Their 5-year-long experiment failed.

They have not disclosed the investment that was made in this project but as you might expect, it must have been substantial.  Anyone need some lightly used medical or dental equipment?

What Walmart figured out is what many, primarily insurance-based practices knew that when reimbursements don’t keep pace with costs, profits suffer.  And one thing Walmart knows how to do is generate profits, big ones.  The Walton family is the wealthiest in America ($267 Billion).

When I spoke to a Walton family member back in 2019 and asked why they were entering into the healthcare market, the answer was that it was “the right thing to do” for their customers.  After all, Walmart has positioned its stores to be within 10 miles of 90% of America’s population.  Providing access to care and social responsibility were the primary drivers.

There was an ulterior motive to be certain; Profit.

Though the Waltons are exceedingly charitable, ranking fifth on the Forbes list of the top 25 billionaire philanthropists over the five years from 2016-2020, the business itself is not a charity.  Businesses need to make a profit and so do you.

No money, no mission!

Walmart made a critical mistake.  Their brand promises of; Save money, live better and “Always low prices. Always” attracted a specific shopper.  Would that customer avatar be a profitable healthcare customer?  Would Walmart Health attract a different customer?

The answer was NO.

Walmart learned that when your patients only want the cheapest, or insurance covered treatments, you cannot make money.  Will traditional Walmart shoppers go to Walmart for esthetics or implants, which are not covered expenses?  Could they make money on a dental lay-away plan?

For practices that accept most insurances, there are economic facts of life that must be faced.  Profitability is formulaic.  Revenue minus Costs = Profit.

Insurance reimbursement that limits and/or delay revenue depress profits as costs continue to rise can lead to unfortunate decisions like closing 51 clinics.  

Note the trends as described by the ADA data.

The existing model is broken.  One way to generate profit from a population that is insurance dependent is to promote non-insurance covered therapies.  This reality is denied by some.  Do so at your peril.  Remember that as a professional, compromising on quality is unethical and just doing the ‘right thing’ can lead to bankruptcy.

Another way to profit is being explored by CVS.  It’s model is to also own the insurance company.  After all, insurance companies make money.  Having a carefully crafted and priced in-office membership plan is the dental version of this strategy.

Upsell and Memberships are the strategies to cope with dwindling clinical profitability.

The ability or willingness to “upsell”, a disdainful, unprofessional term for an activity some might employ when dealing with an insurance dependent patient base can best be diagnosed by asking the following question; “how many whitening procedures were performed last year?”

The reason that whitening revenue is such an important KPI is that it’s an indication of whether a practice is having critical conversations about what people really want.  Being over a $7 BILLION dollar per year business, tells us that people want white teeth.  And so, offering whitening should be a no brainer in a dental office setting.  But it requires staff and doctors to inquire about their patients WANTS rather than solely focusing on their NEEDS.

Was Walmart marketing to the wrong people?  Did they not realize the slim margins with insurance-only, price conscious consumers?  Were they unable to “negotiate” better rates?  Did they fail to appreciate the importance of promoting non-insurance therapies and failed to realize that health is not a commodity?  Was the failure due to a commodity driven business trying to deliver a revenue-controlled service?

Insurance has mostly succeeded making dentistry a commodity.  It’s the original sin of 3rd party payers.  It’s one of the foundational fallacies of government and other 3rd party payers.

Given the option, most people want ‘the best”.  People are willing to pay for better service.  But Walmart discovered that it couldn’t deliver such service at Walmart prices.

Socialized medicine in other countries has proven the adage that “you can’t have your cake and eat it too.”  Forbes reports that In 2023Canadians faced a median wait of around 13 weeks for an MRI, 6.6 weeks for a CT scan, and just over 5 weeks for an ultrasound. 

A recent study defined the issue thusly; “In many universal health systems, waiting times act as a non-monetary rationing mechanism.”

What are your patients not willing to tolerate?

Walmart can afford to make mistakes. You cannot.  Don’t equivocate, schedule a STRATEGY SESSION with the Wizard.

Michael

Practice Success Insights

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Dr. Michael Goldberg is one of the leading educators on dental practice management in the United States.

Michael ran and sold a prestigious group practice in Manhattan and has been on Faculty at Columbia University and New York-Presbyterian Medical Center for 30 years including Director of the GPR program and Director of the course on Practice Management.

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