Humana and Walmart?
The news came over the holiday weekend; Walmart and Humana are having early-stage talks about strengthening their existing partnership. As part of those talks, an acquisition has been discussed but such deal talks are in the very early stages and may not happen.
For Walmart, a deal to buy Humana would not be cheap: The health insurer had a market valuation of $37 billion, as of Thursday’s close. Aetna’s failed 2015 acquisition of Humana was valued at $54 billion. The firms have held preliminary talks exploring a possible combination, including a potential merger, according to the Wall Street Journal.
Walmart may very well want to reinforce its partnership now, partly in response to retail pharmacy giant CVS Health’s $69 billion deal to acquire insurer Aetna, and health Cigna’s $54 billion proposed merger with pharmacy benefits manager Express Scripts. Even more so with Amazon’s potential entry into the pharmacy business.
Potential Medicare Game Changer?
The key for all of these deals is whether they can provide consumers with a more affordable and effective new health care model. CVS and Aetna are proposing to use pharmacy clinics to provide coordinated, personalized medical care for members with chronic conditions at lower cost, by leveraging prescription and medical data. Some analysts say a Walmart-Humana combination has the potential to be even more transformative. Humana already has its own pharmacy benefits unit and has launched nearly 200 standalone clinics to help manage chronic conditions for Medicare beneficiaries.
Walmart, of course, has pharmacies in most of its 4,700 stores and Sam Club brands, and in-store clinics in Georgia, South Carolina, and Texas. An expanded partnership or merger with Humana catering to Medicare beneficiaries could help the retailer become a major provider of primary care. Walmart has also tried to promote its in-store clinics as a lower cost point of primary care for its employees. As the nation’s single largest employer, with more than 1.5 million workers, acquiring an insurer could ostensibly help Walmart bring down health costs for its own workforce.
Three years ago, when four of the major health insurers rushed to partner on large-scale mergers, the deals were blocked by the Department of Justice, and ultimately rejected by the courts on anti-trust grounds. Analysts say the CVS-Aetna and Cigna-Express Scripts deals are different because they are not mergers of rivals but rather vertical deals which would not result in fewer competitors in the medical or pharmacy benefit markets. Last month, the Department of Justice asked CVS and Aetna extended its review of the merger, asking the companies for more information. The firms still expect the deal to be approved in the second half of the year. Even if regulators sign off on the deals, there are risks to execution for both Walmart and CVS, as they try to integrate health insurance, pharmacy, and primary care services at such a large scale.
Sources: https://www.cbsnews.com/news/4-reasons-walmart-would-want-to-buy-insurer-humana/(4/2/18, CBS News),
https://www.bloomberg.com/news/articles/2018-04-01/threats-from-all-sides-push-walmart-and-humana-closer-together (4/2/18, Bloomberg),
https://www.courier-journal.com/story/money/companies/2018/03/30/walmart-humana-why-makes-so-much-sense-right-now/472708002/ (3/30/18, Louisville Courier-Journal),
https://www.wsj.com/articles/why-would-walmart-want-to-buy-an-insurer-the-retail-squeeze-1522412933 (3/20/18, The Wall Street Journal)