In 2014, CVS quit cigarettes. And when the world’s No. 2 pharmacy chain gave up $2 billion in recurring annual revenue from selling tobacco products, the choice was hardly altruistic. The move was part of a larger effort to rebrand itself as CVS Health, a disciplined stab at entering the healthcare market, vastly wider than that of tobacco, and growing.  

In 2017, Americans spent $3.5 trillion on healthcare, making it the fourth-largest industry in the U.S. Big drugstore chains CVS, Walgreens, Rite Aid and Walmart have long made fine livings on the industry’s side, dutifully filling prescriptions. CVS’s rebranding reflected an industry-wide desire to slide in closer to the profitable center of American healthcare.

The desire hasn’t died. In February of this year, CVS opened the first three “HealthHub” locations within its drugstores. The HealthHubs, all located in Houston, offer an array of health services, including a wellness center and chronic care management for diseases like diabetes. About 20% of the physical store space is devoted to health offerings, rather than the normal convenience store fare. Last week, Walmart opened its first “Walmart Health” center, offering services in dental care, audiology, x-ray examinations, and mental health counseling. Located in Dallas, Georgia, it is the first of many planned by the retailer.

The guiding assumption shared by all participants in the retail-healthcare fray is that traditional models are too expensive, too inconvenient, and ripe for disruption.

Of course, companies aiming to compete for some of the billions in healthcare dollars will have to provide services services faster, cheaper and closer to customers’ homes. This means innovation. 

One way to do that is to seek new ideas that seem to be working and partner with their creators. But this approach has resulted in dramatic, very public stumbles.

Theranos and Biome Scandals

In 2010, Walgreens wanted to bring a diagnostic blood-draw capability to its nearly 10,000 retail locations. It famously teamed up with Theranos, a startup founded by smooth-talking Stanford University dropout Elizabeth Holmes, whose pitches brought in massive venture capital backing and brought Henry Kissenger and former U.S. Secretary of State George Schultz to sit on her board. The company promised to streamline the process of diagnostic blood collection by returning accurate results based on a mere finger prick of blood. 

It seemed a good fit for a company trying to bring healthcare from a large, thickly staffed hospital to a small, neighborhood retail space. In 2013, the two companies debuted their first Theranos Wellness Centers inside Walgreens stores. They ultimately opened 40 centers, with plans for more.

But after a 2015 Wall Street Journal article first questioned the accuracy of Theranos’ tests, the company went into a tailspin. Holmes, who was CEO, and Theranos COO Sunny Balwani were indicted on charges of bilking investors out of hundreds of millions of dollars, and in September 2018 the company closed its doors. 

Earlier this month, uBiome, another diagnostic startup at first seen as revolutionary, filed for bankruptcy amid accusations of billing irregularities, and admitted that its flagship microbiome test might be tainted and unreliable. The company was founded by another charismatic, young leader, Jessica Richman, whose TED Talk bio mentions her Oxford University education and previous jobs at Google, McKinsey & Co. and Lehman Brothers. 

In its bankruptcy filing, uBiome argued that its chances of rebounding were strong, however, because of a lucrative partnership with CVS. CVS responded by announcing that it would immediately suspend all sales of uBiome testing kits.

It was another high-profile failure in of bringing healthcare into the retail space. But experts don’t see this as an end for pharmacy chains rebranding. As David Gross of Strategic Value Partners tells Karma, the failures of Theranos and uBiome are part of a normal learning curve. “In any industry,” he explains, “a move into an adjacent market carries strategic, operational, and financial risks. The healthcare industry is no exception.” 

What is different are the stakes. Healthcare is, he says, “one of the few industries that can immediately, adversely, and dramatically impact people’s health.”

The lessons are important for companies attempting to move into the space. They are also clear: “From the earliest stages of due diligence,” Gross says, companies must “focus relentlessly on the veracity of the key premises, ensure there is robust and effective governance, and refine the operating model before scaling up responsibly over time.” 

In other words, focus on the fundamentals.  

Big drugstore chains are trying to participate more in Americans’ healthcare, and at present, there’s probably no reversing that approach. With greater care, and perhaps a little more skepticism in the face of charismatic innovators’ world-changing promises, there should be great potential for success.