Amazon, CVS, and Walgreens went all in on primary care. Their bets are bleeding money.

Owning primary-care clinics gives them control over the front door to the healthcare system, allowing them access to millions of patients and a new stream of revenue. Controlling that entryway also means companies can steer patients to other services they own. For CVS, which owns national health insurance company Aetna, owning clinics may help the insurer lower its health plan members’ costs.

But building medical clinics requires a ton of capital, and it can take years for a single clinic to reach profitability. The deepening losses have become hard for the retail giants to stomach, and some are retrenching to slash costs.

Here’s how the bets that Amazon, CVS, and Walgreens made are playing out.

Amazon is slashing costs at One Medical with closures and layoffs

It’s been a little over a year since Amazon closed its $3.9 billion acquisition of One Medical, a chain of subscription-based primary-care clinics serving employers and individuals. The deal gave Amazon a fleet of 188 brick-and-mortar clinics and nearly 800,000 patients.

Before that, Amazon had ventured into providing virtual care and filling prescriptions through its online pharmacy. It shut down its Amazon Care telehealth service in 2022, and an earlier partnership with JP Morgan and Berkshire Hathaway to tame rising healthcare costs and improve care for their employees went up in smoke in 2021.

That partnership, called Haven, failed in part because the companies never coalesced around a clear strategy.

Now there are reports that Amazon is struggling with One Medical’s deepening losses. Business Insider’s Eugene Kim reported in February that the primary-care business projected 2024 operating losses of more than half a billion, worse than the losses One Medical reported in 2022, the year before Amazon bought it. 

To slash about $100 million in costs, Amazon has been laying off One Medical staff and closing some corporate offices. It’s also cutting how much it spends on marketing, and is considering spinning off its senior care business, One Medical Seniors, formerly called Iora Health, Kim reported.

The Washington Post reported that some seniors have been frustrated with the care they’ve received since One Medical was folded into Amazon. Appointments are shorter and certain features, like having health coaches assist doctors during patient visits, disappeared, the Post reported.

“Making it easier for people to get and stay healthy through quality health care is a long-term investment for us, and it’s still early days,” an Amazon spokesperson said.

She added that Amazon continues to see strong growth and positive feedback from One Medical members, and will continue investing to provide high-quality care to more people.

Walgreens is rethinking its clinic strategy

In 2021, Walgreens embarked on a big push to transform itself into a healthcare provider.

That year, it spent $5.2 billion to take its stake in VillageMD from 30% to 63%, and it announced plans to roll out at least 600 clinics by 2025 and 1,000 by 2027.

In 2022, Walgreens spent another $3.5 billion to help VillageMD buy specialty care and urgent care company Summit Health-City MD.

But VillageMD hasn’t been doing as well as Walgreens expected, and the pharmacy giant has already pumped the brakes on its clinic rollout. Walgreens’ healthcare segment reported an operating loss of $1.7 billion in 2023, compared with a loss of $829 million in 2022. VillageMD accounts for 70% of the healthcare segment’s revenue.

Now Walgreens is rethinking its strategy. After slowing the pace of clinic openings, the company announced plans to close about 60 VillageMD clinics. In February, Business Insider reported that Walgreens planned to shutter all its clinics in Florida, one of its biggest markets.

“It’s a companywide strategy shift,” said Jefferies analyst Brian Tanquilut.

One problem is that Walgreens went all in on a strategy to attach primary-care clinics to its pharmacy stores rather than building out standalone VillageMD offices, Tanquilut said. Co-locating clinics and pharmacies doesn’t seem to work, because the clinics ends up being too small for the number of doctors, exam rooms, and patients that would be needed to generate profit, he said.

He pointed to CVS as evidence. The company isn’t building Oak Street clinics in its stores. Instead, it’s ramping up standalone clinics, he said.

A Walgreens spokesperson said in an emailed comment that the company’s healthcare segment is expected to break even on an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) basis in 2024. He added that VillageMD “is in a strong position for growth” in markets where there’s more demand and opportunity to care for patients enrolled in Medicare Advantage and other payment arrangements.

CVS is building more Oak Street clinics despite losses

After losing out to Amazon on a potential deal with One Medical, CVS scooped up Oak Street Health for $10.6 billion in May 2023.

At the time, Oak Street had 169 clinics, employed 600 doctors, and cared for 210,000 seniors mostly enrolled in Medicare Advantage, the privatized version of the traditional Medicare program for people 65 and older. It’s grown since then, and at the end of 2023 it had 204 clinics and 270,000 patients.

CVS plans to open 50 to 60 new Oak Street locations in 2024. But building all those new clinics requires significant upfront expenses, and Oak Street, which has never been profitable, recorded operating losses of $520 million in 2023, according to CVS’ annual filing.

Mike Pykosz, CVS’ head of healthcare delivery and the former CEO of Oak Street, said during CVS’ investor day in December that it takes about two years and $3 million in operating losses before each clinic breaks even, since the clinic must attract patients and then improve their health to capture savings. CVS is hoping to help Oak Street clinics get profitable quicker by driving more patients their way.

Pykosz said Aetna identified 120,000 members who could benefit from getting care at Oak Street, and the clinic chain is finding ways to reach out to them. For instance, it’s setting up Oak Street tables at CVS stores to advertise its services.

Leerink analyst Michael Cherny said in a February 26 research note that Oak Street’s patient growth has been “robust” so far, but there’s a risk that growth might not meet expectations as the company expands into new geographies.