Wal-Mart's RX for Health Care
The retailer is opening cheap, convenient clinics in its superstores--and calling on Washington to fix the really big problems.
By Rik Kirkland

(FORTUNE Magazine) - When Wal-Mart announced recently that it would open medical clinics in supercenters across the country, the news coverage went something like this: Get ready for a battle of the titans. America's most admired, most vilified, most shopped-at retailer is finally taking on the $2-trillion-a-year U.S. health-care market, a hulking giant just begging to be whipped into shape by Wal-Mart's vaunted efficiency and everyday low pricing. It's Ali vs. Foreman, Mothra meets Godzilla, right?

Not exactly. Stop by the Wal-Mart (Research) in a place like Owasso, Okla., five miles northeast of Tulsa, and you do see signs of something interesting going on. Between the Smart Styles hair salon and the Kids Fun Center is the new RediClinic, three freshly painted, stark-white rooms staffed by nurse practitioners licensed to prescribe drugs. A smiling receptionist hands out fliers touting a flat $45 fee for "Get Well" visits. That price includes all the tests necessary to diagnose and prescribe for everyday ailments like colds, flu, strep throat, and pink eye. If you're uninsured, as roughly half the clinic's customers are, it's a big saving over the $95 or so that a regular doctor's visit would cost in this part of the country, and a huge savings over the $400 a hospital emergency room might charge. Another pamphlet offers a menu of "Stay Well" screenings for basic preventive medicine. For instance: a $29 blood test to determine your cholesterol profile with glucose, vs. what RediClinic claims is a "retail" price of $65. (Thirty minutes south down Highway 169, the Wal-Mart in Broken Arrow touts an "end-of-season special" on flu shots--"Now only $20.")

This mix of transparent prices, electronic efficiency (patients can access test results online using a password), and convenient hours (7 A.M. to 7 P.M. weekdays, 8 A.M. to 6 P.M. Saturdays, and noon to five on Sundays) looks, for now at least, like a winning formula. "It was pretty awesome," according to Dirk Thibodaux, a landscape architect who dropped by the RediClinic in Fayetteville, Ark., with an ear infection a few weeks back. Visiting his regular doctor, he figures, would have involved a midday appointment and a "minimum of two hours." For roughly the same cost as his regular co-payment, says Thibodaux, "I showed up at 7 A.M., got my diagnosis and prescription in 20 minutes, and wasn't even late for work."

"The initial results on this launch were as good as any test we've done recently. We were seeing satisfaction rates over 90%," says Glenn Habern, Wal-Mart's senior vice president for new-business development. This being Wal-Mart, the company promptly stepped up the rollout. It had planned to open 12 clinics with four partners by the end of 2006. (The clinics are owned and operated by vendors; Wal-Mart merely leases them its valuable floor space.) In February it pledged to open 50 more by next January.

Though Wal-Mart is only collecting rent money here, it sees the clinics potentially as a big deal for two reasons: They boost its appeal as a one-stop place to shop by giving customers a much-needed service, and they help fulfill its self-proclaimed mission to be "a champion for working families," as Susan Chambers, head of benefits, puts it. The model for the clinics, in fact, is the company's bid to drive costs out of the fat-margin check-cashing and money-order business; it now offers those services in more than 3,000 stores and figures it's saving workers and customers $4 million a week.

Still, there's a limit to the dent the clinics can put in the nation's swelling health-care tab--even if all 2,000 Wal-Mart supercenters eventually get them. Year in and year out, roughly 70% of medical bills are generated by just 10% of the population, usually folks with serious chronic illnesses, which these places are not set up to treat.

So let's go back and revise that Godzilla vs. Mothra story to reflect reality. Wal-Mart, it turns out, is getting slammed just like every other company by the rising cost of health care. Its spending on health-care benefits has soared 19% a year since 2002. At the same time, it continues to get pounded politically on this issue like no other company. While its benefits are quite respectable by the standards of big retailers, which operate on razor-thin margins, they still leave a lot to be desired. Chambers says she and her team were "surprised" and "disappointed" to discover last fall after a "deep dive" into the data that nearly half the children of Wal-Mart's employees were either uninsured or on Medicaid.

An ever more vocal crowd of critics is trying to force Wal-Mart to adopt the more generous benefit standards of the typical blue-chip corporate giant. Their weapon: state laws mandating that large employers either spend at least 8% of payroll on health benefits or pay the difference into a state low-income health-insurance fund. Maryland passed such a law over its governor's veto in January, and unions are pushing for similar legislation in 31 states.

To all this the nation's largest employer is responding in three ways: (1) by vigorously defending itself in the opinion wars, (2) by launching initiatives, large and small, such as opening the new clinics, giving employees big discounts on fruits and vegetables to promote healthy eating, and offering inexpensive "value plan" health insurance to workers that combines high-deductible catastrophic coverage with low co-pays on a limited number of visits, and (3) by insisting that ultimately health care is not a Wal-Mart problem but a national one. CEO Lee Scott recently told the National Governors Association: "The soaring cost of health care in America cannot be sustained over the long term by any business that offers health benefits to its employees."

The fact is, he's right. While it's premature to declare the death of the uniquely American system of delivering health-care security mainly through employers, signs abound that it is dying. A little more than half of Americans now receive health insurance from their employer, down from nearly 70% in 1980. The steepest decline in coverage--from 46% to 26%--has occurred among workers earning roughly $8.50 an hour (the populace of Wal-Mart Nation, in other words). No wonder 25% of states now spend 25% of their budgets on Medicaid alone.

It's only going to get worse. Princeton University health expert Uwe Reinhardt predicts that the exploding cost of private-sector insurance premiums, up 10% to 20% a year since 2000, means "low-wage workers and their employers are sailing into a perfect storm." The number of uninsured Americans, which has already climbed from 40 million in 2000 to more than 45 million today, should soon top 50 million. Meanwhile, most analysts predict that the percentage of large U.S. companies that can afford to offer health-care benefits to retirees, already down from 70% in 1990 to 36% today, will wind up somewhere close to zero.

What's the solution? Wal-Mart's top brass haven't formulated a plan, beyond calling for business, government, and industry leaders to develop standards and electronic systems that will drive costs out of health care the way Wal-Mart and its allies drove them out of supply chains.

Inevitably, any fix to make the U.S. health-care system more affordable and accessible--not to mention sustainable-- requires facing down a whole herd of snorting-mad interest groups. That's why politicians won't act unless there's a much stronger sense of crisis than there is today. The bad news is, such a crisis seems almost certain down the road. And the good news? At least we'll be able to afford those $20 flu shots from Wal-Mart.

FEEDBACK rkirkland@fortunemail.com Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.