With the Walmart-Humana Revelation, a Cresting Wave of Disruptive Developments in U.S. Healthcare? | Mark Hagland | Healthcare Blogs Skip to content Skip to navigation

With the Walmart-Humana Revelation, a Cresting Wave of Disruptive Developments in U.S. Healthcare?

April 1, 2018
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The Walmart-Humana, CVS-Aetna, and Amazon/Berkshire Hathaway/JP Morgan Chase developments could upend the U.S. healthcare system

As Healthcare Informatics Managing Editor Rajiv Leventhal reported on Friday, “Only two months after CVS Health announced it was acquiring Aetna for $69 billion, another huge retail-health insurer deal could be in the works, according to a March 29 Wall Street Journal report. Indeed,” as Leventhal wrote, “the report noted that Walmart Inc. is in preliminary talks to buy insurer Humana Inc., “according to people familiar with the matter.” According to the WSJ report, “It isn’t clear what terms the companies may be discussing, and there is no guarantee they will strike a deal. If they do, the deal would be big: Humana currently has a market value of about $37 billion.” And Walmart, “which in addition to being the world’s biggest retailer is also a major drugstore operator, has a market value of about $260 billion,” according to the piece.”

Further, Leventhal noted, “Interestingly, the CVS-Aetna deal came almost a full year after a federal judge blocked a merger that would have resulted in Aetna acquiring the Louisville, Ky.-based Humana, which at the time was the largest acquisition of its type in the history of health insurance in the U.S., reported at $37 billion. “The transaction would violate antitrust laws by reducing competition among insurers,” U.S. District Judge John D. Bates in Washington said at the time. Similarly, a proposed combination of two other health insurers, Anthem and Cigna, was also shot down. However, although these subsequent retail-insurer mergers do not involve two health insurance companies like the other ones that got rejected, it is possible that antitrust regulators could disapprove this one as well, according to a CNN Money report at the time of the CVS-Aetna deal.”

Meanwhile, an analysis published on Saturday in Bloomberg Gadfly and written by Tara Lachapelle and Max Nisen on Saturday, put it this way:  “As if the health-care-merger frenzy weren't wild enough already, it looks as if Walmart Inc. may soon dive into it. The mammoth discount retailer is reportedly in early-stage talks to acquire Humana Inc., a health insurer valued at $41 billion (based on Thursday's after-hours trading price, which spiked on the late news),” Lachapelle and Nisen wrote. “The potential merger comes on the heels of a December offer from drug-store chain and pharmacy-benefits manager CVS Health Corp. to buy insurer Aetna Inc. for $77 billion including debt -- and we mean a lot of debt (more on that later). There was also the $67 billion merger announced this month between Cigna Corp. and Express Scripts Holding Co., a similar pairing.”

As Lachapelle and Nisen report in their article, “Driving all this dealmaking is the fact that Amazon.com Inc. -- a recent target of ire for President Donald Trump -- has its eye on health care. It struck an alliance in February with Warren Buffett's Berkshire Hathaway Inc. and JPMorgan Chase & Co. to tackle employee health costs. The trio's initial focus will be on their workers, but the threat of Amazon even dipping its toe into the industry has the biggest players scrambling to respond.”

As Lachapelle and Nisen further note, “Bloomberg News reports the Walmart-Humana talks are about deepening an existing partnership, and that while a merger is among the options being explored, an outright combination isn't likely at this point. Given Walmart's sizable pharmacy presence, getting hold of Humana's pharmacy-benefits management (PBM) business would be appealing, though.

 

Humana is by far the largest PBM remaining for potential suitors and could help Walmart keep drug costs down. It already manages $26 billion in annual enrollee and client drug spending.

Humana also has the second-largest Medicare presence of any insurer, fitting nicely with Walmart's customer base. Some of Humana's Medicare Part D enrollment actually comes from a partnership with Walmart -- the two companies offer a co-branded drug plan that drives traffic to Walmart stores.

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