Walmart, Humana, and the Consolidating Healthcare Landscape

Ryan Black
MARCH 30, 2018

A Walmart in Elko, Nevada. Photo courtesy Wikimedia Commons user Famartin. Image has been cropped and stylized.

Yesterday, it was reported that Walmart is in early discussions to buy the insurance company Humana. That didn’t come out of left field.

Within days of CVS announcing its intent to buy Aetna, speculation emerged that Walmart would move to buy an insurer of its own. That makes sense, in a keeping-up-with-the-Joneses sort of way: Walmart and CVS are the 2 most lucrative retail pharmacies. CVS also operates all of the pharmacies in Target stores, which compete more-or-less directly with Walmart.

Humana (like Aetna) is 1 of the 5 largest private payers in the United States, in terms of both customers and revenue. The company is also the 2nd largest provider of Medicare Advantage plans, and has nearly 5 million people enrolled in its Medicare Part D prescription business.

For Walmart, the prospect of gaining access to huge Medicare populations while potentially saving money on its own employees’ insurance holds obvious appeal. It’s the nation’s largest private employer, with about 1.5 million workers.

Diana Moss, PhD, sighed when asked about the early Walmart/Humana reports. She’s the President of the American Antitrust Institute (AAI), which put out a letter this week urging the Department of Justice (DOJ) to block the CVS deal.

Moss told Healthcare Analytics News™ today that it was too early for her or the AAI to make any definitive statement about the potential Walmart move. But she said the broader healthcare landscape is undeniably changing.

“It’s just coming at us fast and furious, with CVS and Aetna, Cigna and Express Scripts, and maybe this,” she said. “I think the relevant takeaway is that if these deals were all to go through, even with whatever remedies DOJ would put into place, we’re talking about a massive restructuring of the industry.”

AAI’s concerns revolve around the effect this sort of vertical integration will have on competition and innovation. “The merged company could frustrate rivals’ access to CVS products and services, raising their costs or cutting them off completely, thus impairing their ability to compete,” Moss wrote in the letter.  

A major issue for the group is that CVS owns a pharmacy benefits manager (PBM), and the arrangement would give the combined company “stronger incentives to exclude rival PBMs and health insurers.” Humana also owns a PBM—albeit not the size of CVS’s—and in buying the insurer, Walmart could gain similar inclinations to block out competition.

“The DOJ’s going to have scrutinize these things closely—not just the deal itself, but all of them together. If they all were to proceed, what would be the net result for the industry?” Moss said.

Companies that can offer insurance, prescriptions, and even medical care (in the limited way that CVS’s MinuteClinic and Walmart’s Care Clinic do) would wield enormous power in the healthcare industry. That’s before mentioning the numerous relationships that insurers the size of Humana and Aetna consistently forge with providers nationwide (take Humana’s recent bid to buy Kindred Healthcare, for example).

“The losers are consumers and healthcare professionals,” Moss said. “Vertical integration creates massive barriers for new, more innovative contributors,” looking to enter the healthcare industry.

But there’s no shortage of innovative contributors looking to get in. Some speculate that, as advantageous as it seems, Walmart would be buying Humana in a defensive maneuver to grow another revenue stream while Amazon threatens its retail flow. And it’s not like Amazon doesn’t want in on healthcare, too.

As does Apple, and Berkshire Hathaway, and JP Morgan, and Uber, and Lyft

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Related Coverage:
Humana Looks to Loneliness and Food Insecurity for Its Bold Population Health Goals
Major Stakeholder Comes Out Against Kindred and Humana Deal
American Antitrust Institute Argues Against CVS/Aetna and Cigna/Express Scripts Deals

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