The health technology startup Fabric recently acquired one of Walmart’s telehealth assets, aiming to capitalize on the void left by the retail giant as it steps away from the healthcare space.
Fabric, a healthcare technology company specializing in telehealth and patient management services, revealed on Friday, June 28 that it bought virtual care company MeMD from Walmart.
MeMD works similar to Doctor on Demand or Teladoc, providing virtual behavioral, urgent, and primary care services for up to 30,000 corporate partners and five million members.
Walmart purchased the company in 2021 during the height of the COVID-19 pandemic, with the aim of providing nationwide virtual healthcare coverage.
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Rise of Telehealth During COVID
Walmart’s pullback from the virtual care space is reflective of the overall uncertainty and post-pandemic stagnation of the sector following its meteoric rise.
During the COVID-19 pandemic, as Walmart was investing in its health services, competitors like Walgreen, CVS, and Amazon were also making moves in the massively growing telehealth space.1
At that time, companies experienced significant growth in investments and usage. One of the biggest beneficiaries was Teladoc Health, which partnered with CVS’ Virtual Primary Care platform.2
Teladoc’s revenue more than doubled during the pandemic, hitting $1.09 billion – up from $553 million in 2019.
The telehealth business as a whole sector saw mass adoption, with 46 % percent of U.S. consumers using telehealth services in 2020, compared to 11% the previous year.
However, since the pandemic ended, Walmart’s ambitions in the healthcare space haven’t panned out, and the company stated in April that it would be closing its clinics and virtual care services due to unsustainable operational costs and unprofitability.
Fabric has since aimed to capitalize on Walmart’s exit.
Acquisition Details
Fabric, previously known as Florence, released a statement acknowledging the acquisition, claiming it will enhance offerings for employers and payers while expanding its position in the virtual care market.
As part of the deal, Fabric will take on MeMD’s existing customer base and employees.
"The MeMD team built a leading virtual care offering, and we are excited to welcome them to Fabric," CEO Aniq Rahman stated. "This acquisition aligns with our strategic vision to transform healthcare delivery through innovative technology and exceptional patient care. The combination of our teams, technology, and clinicians strategically positions Fabric to quickly expand across payers, employers, and provider organizations."
MeMD’s CEO, Bill Goodwin, will also join Fabric. The company plans to maintain MeMD as an independent entity.
Fabric stated that it will work to ensure a seamless transition for MeMD's patients, partners, and clinicians. The company hopes that the partnership will provide millions with access to affordable, high-quality care.
As part of the move, Fabric will continue to offer telehealth services to Sam's Club members.
About Fabric:
According to the company’s website, Fabric was founded in 2009 to empower healthcare providers to operate more efficiently and deliver better care to patients, employees, and health plan members.
Fabric boasts a conversational AI and adaptive intelligent interview platform that manages virtual and in-person care and automates workflows.
According to the company, this state-of-the-art system streamlines treatment and integrates efficiently with MeMD.
The telemedicine platform also features a range of products from patient intake to self-scheduling and provider documentation tools to improve operational efficiency.
Currently, the company collaborates with 70 health systems and payers, including Luminis Health, OSF HealthCare, MUSC Health, Highmark, and Intermountain Health.
Fabric has received financial backing from General Catalyst, Thrive Capital, GV (Google Ventures), Salesforce Ventures, Vast Ventures, BoxGroup, and Atento Capital.
The acquisition is Fabric’s third purchase in the past two years. Last year, the startup acquired telehealth company Zipnosis from Bright Health, which was offloading assets as it exited the insurance sector. In January, Fabric acquired Gyant, an artificial intelligence care assistant.3
Fabric also recently secured $60 million in a Series A funding round led by General Catalyst, fueling its rapid growth in the sector. Highlights of this growth include a growing customer base featuring Cleveland Clinic, OSF HealthCare, Highmark, Wellnow, MUSC Health, and Intermountain Health.
Sales growth has also reached triple digits each year, and the number of employees at the company has grown from eight to 200 in less than two years.
In addition, Fabric now serves over 75 health organizations through their Engagement, Virtual Care, and In-Person Care Suites.
Market Context and Walmart’s Exit
The latest acquisition by Fabric comes at a time of upheaval in the telehealth sector, as the surge in virtual care usage during the COVID-19 pandemic has subsided, and companies are finding it hard to monetize these services.
UnitedHealth’s Optum, for example, recently announced the closure of its telehealth division this spring, coinciding with Walmart’s decision to shut down its clinics and virtual care unit, which had been a significant investment for the retailer.
According to statements from Walmart representatives, managing virtual care centers and in-person clinics was unsustainable for the company.4
"Through our experience managing our centers and virtual care offering, we’ve determined this is not a sustainable business model for us," a Walmart spokesperson explained.
The retailers’ healthcare ambitions originally took shape during a pilot program in Georgia in 2019. This program led to the company opening 51 centers across five states offering cheap primary care and dental services.
That year, Walmart approved a plan to open 4,000 clinics by 2029. However, scaling the clinical operations proved to be complicated. Contributing factors included high labor and real estate costs, as well as administrative burdens from insurance companies, such as complex billing processes and prior authorizations.
Forrester healthcare analyst Arielle Trzcinski pointed out in an interview with Healthcare Dive that without reaching a certain scale and driving adoption in each center, profits were slim.
"I think they looked at the challenging headwinds and said, ‘This is not where we want to place our energy right now,’” Trzcinzki noted.
The closure of Walmart’s healthcare division is surprising given the company’s significant investments and plans to acquire provider practices to boost its primary care capabilities.
Future of Virtual Care
As Walmart exits the virtual care space, the telehealth industry as a whole continues to experience turbulence post-COVID-19 pandemic.
With demand for virtual care on the decline, many companies are struggling. UnitedHealth’s Optum and virtual care giant Teladoc have both faced challenges, with Optum shutting down its telehealth business and Teladoc undergoing leadership changes.5
Other major players like Walgreens and Amazon have also faced difficulties. Walgreens, firstly, has been closing underperforming stores despite acquiring provider groups, while Amazon shut down its primary care business in 2022.
Walmart says it will continue to focus on its existing pharmacy and optical care businesses, while expanding into other healthcare channels like clinical trials.
The exact timeline for the clinic closures remains unspecified, but the representatives say the centers will continue serving patients for an extended time. The virtual care unit will be dissolved over the next year.
Employees affected by the closures will have the option to transfer to other Walmart or Sam’s Club locations and will receive severance if laid off. Providers at Walmart Health locations will continue serving patients during the transition period and receive payments if they leave after 90 days.
Moving Away from Virtual Space
Given the uncertainty in the virtual care space at the moment, retail health giants are pivoting by investing heavily in brick-and-mortar medical facilities.
Amazon recently purchased primary care chain One Medical for $3.9 billion and is pushing forward with new partnerships and membership offerings. CVS bought Oak Street Health for $10.6 billion and is expanding its clinics, while Humana is growing its medical network for seniors.6
Health insurers, too, are increasingly acquiring primary care providers to improve access to preventative care and reduce long-term costs.
UnitedHealth has quietly grown its network of physician practices, employing one-tenth of all U.S. physicians, attracting the attention of Congress and antitrust regulators.
Forrester’s Trzcinski noted that Walmart did not invest enough in driving adoption through digital health and customer experience, falling behind competitors like Amazon and CVS.
The closure of Walmart Health could create opportunities for these competitors, as well as companies like Fabric, to expand into markets previously served by Walmart, though profitability remains uncertain.
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Key Takeaways:
- Fabric acquired MeMD, a telehealth company previously owned by Walmart, to enhance its offerings and expand in the competitive virtual care market.
- Walmart is exiting the healthcare space, closing its clinics and virtual care unit due to high operational costs and unprofitability.
- The acquisition of MeMD will allow Fabric to maintain MeMD as an independent entity while integrating its technology and team, broadening Fabric's reach to more patients and partners.
- MeMD provides care services 30,000 corporate partners and 5 million members, providing virtual behavioral, urgent, and primary care services.
- The telehealth sector experienced a boom during the COVID-19 pandemic, with companies like Teladoc seeing significant revenue growth. However, demand has decreased post-pandemic, leading to a decline in use.
- Major players like Amazon and CVS continue to invest heavily in healthcare, despite some setbacks. Amazon acquired One Medical, and CVS bought Oak Street Health, indicating ongoing interest in the sector.
- Fabric has been expanding rapidly, with significant customer growth and several strategic acquisitions, including Zipnosis and Gyant.
- Retailers continue to explore other options in the healthcare space, including investing in brick-and-mortar centers.
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