Soaring cost of medical care drives Walmart, CVS to make cuts

Health care providers are struggling to keep up with rising costs

What you probably already know: In a stark reversal of previous statements, Walmart this week announced it will shutter all 51 of its health clinics and its virtual care facilities, which were operating in five states. Meanwhile, CVS’s shares experienced the biggest selloff in 15 years Wednesday after the pharmacy chain cut its full-year financial outlook.

Why? In a statement, Walmart blamed the “reimbursement environment” and high costs, which drove the business into the red. CVS highlighted “elevated medical cost trends” and a drop in its Medicare Advantage business. Medicare downgraded CVS’s prescription drug plan, which has resulted in large clients seeking other partners. The company has been closing stores steadily over the last two years.

What it means: Health care costs in the U.S. are expected to increase 5% this year to $4.9 trillion, the highest of any nation in the world. Health care now represents more than 17% of GDP in the U.S. New private health providers like Walmart and, several years ago, a joint effort between Amazon, JP Morgan Chase and Berkshire Hathaway, have all failed. Traditional health care providers are also struggling. A total of 12 hospitals filed for bankruptcy last year, more than the previous three years combined.

What happens now? More than half of U.S. health care spend was associated with administrative costs of insurance, prescription drugs and wages for physicians. Prescription drug costs, in particular, are likely to become a talking point in the upcoming presidential election.