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Walmart makes cutting health-care costs top priority

Category: Finance,Retail

Walmart is looking for ways to reduce health-care costs — for its customers in addition to its employees — as the nation's largest employer and retailer makes it a top priority this year.

Insuring its 2.2 million workers across the world is the company's second-largest expense on its profit and loss statement, behind wages, company executive Lori Flees said this week at the Manova Summit in Minneapolis.

Rising health costs are also cutting into its potential sales, she said, because customers have to spend more of their income on medicine and doctor's visits than on backpacks and home goods. Walmart customers will need to spend an estimated $750 billion more on out-of-pocket health-care costs in five years than they do today, compared with $250 billion in additional estimated spending on retail goods, Flees said.

When consumers spend more of their paychecks on health care, they have less money to spend at Walmart. And when people use Walmart's pharmacy or health services, she said, they tend to shop for other items in stores, too.

Retailers are searching for ways to differentiate their stores as consumers increasingly shop online. Some of them are teaming up with pharmacy companies, adding health clinics and expanding drug aisles to draw more customers into the stores. Meanwhile, health expenses are rising at a rapid clip, pressuring both employers and employees.

"So these are the things that drive us to be interested in health care: Our customers need help. Our associates need and want to be healthy. And it's good for our business," she said.

Walmart's competitors are also investing in health care. CVS Health wants to add more options at its retail clinics, known as MinuteClinics, once it closes its acquisition of health insurer Aetna. Walgreens is testing a number of partnerships, including one with UnitedHealth Group to add urgent care centers to some drugstores.

Walmart earlier this year was looking to deepen its partnership with Humana, people familiar with the matter told CNBC. Flees said partnerships are "an essential part" of the strategy to lower the cost of health care and to improve the health of the country.

"If you take the expertise that lies in the industry and you combine it with Walmart's footprint, it really is an opportunity to have a positive impact at scale," she said.

Americans worry more about the availability and affordability of health care than other issues, including crime, homelessness and illegal immigration, according to a Gallup poll conducted this year. When you dig deeper, Flees said, you find about 67 percent of households are concerned about access and quality of health care.

Walmart views itself as uniquely positioned to address Americans' health needs. Those households typically are in either suburban or rural areas where necessary care is not as good as in urban areas and tend to earn less than $75,000 per year, she said. Walmart's core shoppers tend to be in both of those demographics, Flees said.

"So when our customers tell us they're concerned about health, the cost of health and access of good health-care services, we believe we have a responsibility to do more," she said.

Walmart can make health-care more affordable, accessible, personalized and transparent, Flees said. She pointed to Walmart's decision in 2006 to slash the price of some generic drugs to $4. This helped people without insurance afford prescription medications, she said.

Walmart is positioned as the nation's largest retailer to reach huge numbers of people, she said, with 140 million customers coming into their U.S. stores every week and 100 million shopping online.

Currently, Walmart operates 17 health clinics, according a spokeswoman. The retailer also offers pharmacies, vision centers and hosts screening events. Walmart partners with health plans, including Humana, to encourage people to buy healthier foods at Walmart, which is also the nation's largest grocer.

"We know that our customers need and want a solution, and we think that our brand stands for affordability and access, and therefore it's resonating," she said.

As an employer, Walmart directly contracts with providers for its Centers of Excellence program. Walmart pays for associates to visit world-renowned centers like the Mayo Clinic and the Cleveland Clinic for some conditions and procedures.

"The reality is with Walmart, you have to test and learn, and there are many things that will work and many things that won't," she said. "And figuring out what will work or what doesn't work and how to iterate to make it work then and then scaling it as fast as possible is really our plan."


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