Insiders reveal why Walmart pulled the plug on Sam Walton’s dream to ’get the hospitals and doctors in line’

“They’re skinnin’ us alive.”

That was Sam Walton in 1991, a year before the Walmart founder and capitalist king of rural America succumbed to cancer.

In a room full of Walmart employees gathered for a regular Saturday morning leadership meeting, Walton made an impassioned plea for his company to use its size and power to rein in medical costs. Walton had recently discovered how much a hospital was marking up the imaging exam he had just undergone and the contrast injected into his veins, and he was furious about it.

“We’ve got to get the hospitals and doctors in line,” he told the audience of Walmart employees. “We’ve got to get those charges under control.”

“And if we don’t get it done this year,” he added. “I’m gonna get real upset. I mean real upset.”

Walton’s company didn’t hit his goal but, for the better part of the past two decades, different Walmart leaders have been trying, albeit with varying levels of commitment and investment. They launched a series of initiatives aimed at providing more affordable and convenient medical care to Walmart customers, either right from within Walmart stores or at nearby company-run clinics.

All along, and especially in recent years, the experiments were cheered on, if not encouraged, by members of the Walton family—Sam’s daughter, Alice, chief among them.

But last week, the company announced that it was shuttering its latest attempt to see through a version of Walton’s vision: Walmart Health, a chain of 51 clinics—health care supercenters if you will—that offered medical and dental appointments, plus X-rays and lab work, all under the same roof. Walmart also said it was shutting down its virtual medical service, which it had spun up after acquiring a stand-alone telehealth company in 2021.

While the company blamed “a challenging reimbursement environment and escalating operating costs” as reasons for pulling the plug on Walmart Health, the reality was likely more complicated, as the five-year experiment was also plagued by leadership turnover and at times internal politics, according to multiple sources familiar with its operations. It also faced a miscalculation of how many patients would be willing to pay in cash.

At the same time, no matter the full cocktail of ingredients responsible for Walmart Health’s demise, important questions remain: If this Fortune 500 company couldn’t find a successful model to make health care cheaper and more transparent, despite many years and significant investments, who can? Or, like its retail sector rival Amazon, will Walmart end up making a splashy multibillion-dollar acquisition to resurrect Sam’s vision and give it one more go?

In the early 2000s, Walmart cycled through several iterations of partnerships that saw third-party health care companies operate urgent-care–type practices within Walmart Supercenter stores, but the economics of those facilities were difficult to overcome.

“The money is in chronic illness,” Marcus Osborne, a former Walmart Health executive, told me in my book, Winner Sells All. “A diabetic who comes back every month makes you more money than somebody who has strep throat once a year.”

A decade later, in 2014, there was a renewed effort when Walmart created and ran its own medical facilities inside its stores for the first time. Dubbed Care Clinics, these medical offices were run by nurse practitioners. They were designed at first to bring more affordable care closer to Walmart employees in health care–starved communities from Texas to Georgia where residents were often likely to hold off on regular doctor visits until a more serious issue sent them to an emergency room and an often costly hospital stay.

That model began by offering visits to Walmart employees for just $4, thanks to the belief that the Care Clinic would get internal credit for the cost savings that Walmart’s benefits division experienced from a decrease in hospital visits by Walmart employees. But former Walmart U.S. CEO Greg Foran disregarded those savings, instead pushing the clinics to hit profitability on their own. So the clinics felt forced to pursue relationships with insurance providers that eliminated the low-cost differentiator that Walmart hoped would serve as the main attraction to prospective patients. Walmart called it quits on the idea after just 19 openings.

One more shot at Sam’s dream

But under current Walmart CEO Doug McMillon, the company took one more shot. In 2019, with a strong push from the Walton family, Walmart surveyed its customers and found that more than 40% of them saw the cost of care as the biggest impediment to seeking treatment. At the time, conversations around health care disruption were popular at CEO circuit events such as Davos.

“I think he was partially influenced by the family, who had started to get more interested and … believed there was opportunity,” Osborne said of McMillon in Winner Sells All. “But I also think he was being influenced by his peers.”

That same year, Walmart unveiled Walmart Health facilities, which it pitched as “the first to put primary and urgent care, labs, X-ray and diagnostics, counseling, dental, optical, and hearing services all in one facility.”

These mini-supercenters of medical care promised transparent and affordable pricing, just as Walton had requested at the Saturday morning meeting nearly 30 years before. Walmart Health focused its initial pitch on the affordability of its services for those without good insurance; doctor visits would cost $40 and dental appointments $50. But it didn’t take long for fissures in the model to emerge.

https://www.youtube.com/watch?v=iNs6cDUKl7Y

A cash issue

Karissa Price, Walmart Health’s former VP of marketing, told Fortune that it quickly became clear in some Walmart Health communities that there weren’t enough prospective patients who would want to pay in cash, which she says was supposed to be the backbone of how Walmart differentiated its model: charge low prices in cash to those without quality health insurance and eventually make up the difference in volume.

Price pointed to a Walmart Health opening in Chicago in the fall of 2020. She said it quickly became clear that the clinic wasn’t going to hit its appointment goals, in part because so many people in the community turned out to be on Medicaid. Unlike with Walmart Health’s first openings in Georgia, where deep market research was done on the pool of residents who might pay in cash, the same wasn’t true for the Chicago location, according to Price. The reason? Walmart CEO Doug McMillon wanted to quickly open a facility there to support a community that had been ravaged by unrest in the wake of George Floyd’s murder.

Price agreed with the CEO’s move, but said that the launch marked one of the first proof points that the cash model wasn’t going to work for Walmart Health facilities across the board. Walmart spokesperson Marilee McInnis told Fortune in a statement that the “main goal in opening a Chicago Walmart Health center was to try and serve a community in need,” and that “timing for the opening of the center was business and community driven.” McInnis added that Walmart Health clinics also accept some insurance, but Price told Fortune that Medicaid or Medicare were not accepted on day one.

Turnover at the top

From there, executive turnover should have been another sign that things weren’t going as planned. First, Walmart Health’s initial leader and main architect, Sean Slovenski, departed only a year after launch. Speaking a month later, he cited the challenge of Walmart’s bigness: “I’m not a big-company animal,” he said. “As soon as I get to the point where bureaucracy is the rule of the day … I stop doing well in that environment.”

It was not uncommon for Walmart Health leaders to spend many hours in retail leadership meetings that had little impact on the health care business.

Next, Walmart hired Dr. Cheryl Pegus, a former cardiologist who held chief medical officer roles at Walgreens and the insurance company Cambia Health Solutions. When I interviewed Doug McMillon for Winner Sells All in early 2022, he was confident that Walmart had found its leadership answer in Pegus.

“She’s able to articulate a plan in a way that feels more understandable and complete to us,” he said.

But eight months later, Pegus was gone herself, leaving for a new health unit at JPMorgan Chase.

“Walmart Health’s biggest threat is Walmart,” Osborne, the former Walmart Health leader, said in Winner Sells All, citing the revolving door of health executives and what he believed was “wildly inconsistent commitment” from top Walmart leaders.

Walmart eventually replaced Pegus with her division’s CFO, Brian Setzer, a former longtime health insurance executive. Under his leadership, Walmart had announced plans to open a total of 75 Walmart Health clinics by the end of 2024, but never surpassed 51. Still, Walmart isn’t alone among U.S. mass retailers struggling with health care pursuits. Walgreens, for example, announced recently that it was closing 160 locations of VillageMD, the primary care operator in which it owns a majority stake. The drugstore chain also announced a $5.8 billion write-down related to VillageMD. (Walmart still operates more than 4,000 pharmacies in its stores, as well as 3,000 vision centers, where customers can get an eye exam and shop for glasses.)

Christina Farr, a health care investor and author of the Second Opinion newsletter, said that while some industry observers may choose to focus on Walmart’s failure, she’s more concerned with what it says about how entrenched incumbents are in the U.S. health care system despite rising costs and medical care outcomes that trail those of other countries.

“No one is truly acting in the best interest of the patient right now,” Farr told Fortune. “I’m not happy about this news.”

Price, the former Walmart Health marketing chief, said her first reaction to hearing the news was sadness.

“There was so much opportunity to bring access to affordable health care to rural and underserved America,” she told Fortune, “and it’s gone.”

It is now. But for good? That’s one outstanding question. One source familiar with Walmart Health’s operations said they’d be shocked if this is the last we hear of Walmart’s ambitions in medical care. Rather, Walmart could pursue one or more acquisitions to make an impact in health care like its retail rival Amazon did when it acquired One Medical, an operator of primary care offices and telehealth services, for nearly $4 billion in 2023.

Last year, for example, Walmart considered purchasing a majority stake in the seniors-focused primary care chain ChenMed. Walmart had also looked at a deal for Oak Street, another primary care chain that CVS spent more than $10 billion to acquire, according to the former marketing leader Price.

“The idea that Walmart is just going to give up,” the source familiar with Walmart Health’s operations said, “and not fire a missile equivalent to One Medical, seems impossible to me.”

Until then, one of Sam Walton’s last goals remains unfulfilled.

Are you a current or former Walmart employee with thoughts on this topic or a tip to share? Contact Jason Del Rey at jason.delrey@fortune.com, jasondelrey@protonmail.com, or through secure messaging app Signal at 917-655-4267. You can also message him on LinkedIn or at @delrey on X.

This story was originally featured on Fortune.com