Walmart's talks with an insurance giant tell you everything about healthcare is changing
- Retail giant Walmart is considering an acquisition of the health insurer Humana.
- Walmart is one of the largest retail pharmacies in the US behind Walgreens and CVS Health.
- Humana and Walmart have had a close relationship for years, partnering on health plans and other initiatives. The conversations underway now also could lead to a closer relationship without a deal, Reuters reports.
- But if the two were to combine, it'd be the latest in a trend to integrate pharmacies and consumer businesses with health insurers.
Walmart buying an insurance company? It's not as crazy an idea as it first sounds.
The company, in this case, is Humana and it has held early-stage talks with Walmart primarily focused on new partnerships, according to multiple media reports on Thursday. A possible acquisition is also on the table, according to the Wall Street Journal.
You might think of Walmart as a giant retail business, but the company is also one of the largest pharmacy chains in the US behind Walgreens and CVS. Walmart's long had a focus on affordable prescriptions as well, offering certain generic medications for $4.
And that's where the logic of buying an insurer starts to take shape. One of Walmart's biggest pharmacy competitors, CVS, is already trying to do this very thing. It's currently working on a $68 billion takeover of insurance giant Aetna, and the logic of a Humana deal would be pretty much the same for Walmart: it's a way to gain more leverage over drugmakers and medical device companies as costs rise, Bernstein analyst Lance Wilkes wrote in a note Friday.
Walmart and Humana have already been pairing up for years on different health initiatives. For example, Walmart and Humana have a co-branded Medicare drug plan and healthy food initiatives. The relationship's already led analysts to speculate in December that a Walmart-Humana combination could be next.
Blurring the lines of what makes a healthcare company
Back in December, when CVS said it would buy Aetna, the idea of this kind of "vertical integration" - layering one part of the industry on top of another - was shocking. But just a few months later we heard of a second attempt when health insurer Cigna has agreed to acquire Express Scripts, the largest standalone pharmacy benefit manager, for $67 billion. The move combines a pharmaceutical middleman - responsible for negotiating discounts and rebates to prescription drugs - with a health insurer. Both CVS and Humana have PBM businesses of their own.
Humana, for its part, has its own approach to new combinations that are focused on the majority Medicare members the insurer covers, UBS senior healthcare analyst Jerome Brimeyer told Business Insider back in January.
In 2017, Humana purchased the home healthcare operator Kindred Health with the help of private-equity firms. The move helps provide Humana customers with home health options, a lower-cost way to care for patients than staying in a hospital, something that's more relevant to Medicare populations.
As more companies look to cut costs and remove some of the pressure they're feeling in the health system, we may continue to see more surprising combinations that challenge our definitions of healthcare companies.