With the Walmart-Humana Revelation, a Cresting Wave of Disruptive Developments in U.S. Healthcare?
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.
Looking at this from another angle, Bruce Japsen notes in an article on March 30 in Forbes online that “Humana is launching a new brand called ‘Conviva’ on its health clinics and related doctor practices in south Florida and Texas during a period of rampant consolidation among medical providers. The Louisville-based health insurer isn’t ruling out expanding the Conviva brand across the country.” Meanwhile, Japsen added, “Rival UnitedHealth Group already has its medical care providers housed under its Optum brand and is buying up an array of doctor practices and outpatient care sites. And CVS Health is buying Aetna, the nation’s third-largest health insurer, and has plans to develop more outpatient facilities beyond the pharmacies and retail clinics the drugstore chain already operates. And Japsen quoted Human CEO Bruce Broussard’s statement to analysts during the company’s fourth-quarter earnings call last month, when Broussard said that “We are moving to an integrated model and are building a platform that will consolidate these brands in South Florida and Texas under one payer-agnostic physician brand called Conviva.”
The potential for epic disruption to traditional providers
So, we’ve got the CVS-Aetna deal and now, potentially, the Walmart-Humana deal. And then there’s the agreement among Amazon, Berkshire Hathaway, and JPMorgan Chase & Co., announced January 30, to launch some kind of initiative to improve outcomes and lower costs for their employees. That’s three potentially earth-moving announcements involving healthcare purchasers and payers, within three months. What’s more, in every one of these three cases, the players involved are massive corporations with the financial and human resources to have, potentially, a massive impact on the U.S. healthcare system.
And while there are differences in the ostensible emphases of these initiatives, these announcements all reveal very broad ambitions.
So what does all of this activity mean? It seems clear that these developments, all coming within weeks of each other, speak to a certain kind of quickening that’s taking place right now—an acceleration in business activity around the reorganization of the U.S. healthcare system. The purchasers and payers of U.S. healthcare, anxious to make a dent in curbing costs, improving efficiency, and potentially enhancing outcomes quality for the healthcare consumers whose costs they’re bearing, are striking out on their own.
And yes, to an extent, there is an indictment of the traditional healthcare delivery system in there somewhere. Clearly, had hospitals, physicians, and other providers already been able to deliver more swiftly and fully on the promise of the new healthcare, purchasers and payers would not be coming up with these schemes. Still, the corporations venturing forward here are also seeking to upend some of the fundamentals of the organization of the healthcare system.
The key questions are: first, will they be successful? And second, what will U.S. healthcare look like, if they are? I think the absolutely fundamental thing that provider leaders need to understand is that some of these changes are coming, whether they like them or not. And what hospital, medical group, and health system leaders need to do here is to start thinking in three-dimensional chess terms. Because some of the changes these potential arrangements and initiatives could bring about really would upend a lot of the business fundamentals underlying the current payment system.
In this, healthcare IT leaders will be pressed into service more than ever before, as the kinds of operational efficiency and outcomes effectiveness that will be needed for hospitals, medical groups, and health systems to survive and thrive in the coming two decades, will simply not be possible in the current operational environment. Every individual and every patient care organization will need to “up their game, so to speak.” And physicians in private practice, in particular, will be challenged to keep up with the pace of change, as will traditional hospitals. If Walmart and others can send their employees directly to centers of excellence for total joint replacements, and if minute clinics can see patients with coughs, colds, and strep throat, more efficiently than can traditional physicians, then all traditional providers can expect to see revenue margins crash in previously guaranteed areas.
All three initiatives that have been announced have yet to fully play out, meaning that both the CVS-Aetna and Walmart-Humana deals could possibly be blocked based on antitrust concerns (though I wouldn’t bet on that); and the Amazon/Berkshire Hathaway/JPMorgan Chase venture could fizzle out over time (though I wouldn’t bank on that, either). But the chances are that some major changes will come out all three announcements. And provider leaders need to expect that more of these types of announcements will come out this calendar year; after all, these three have all emerged in under three months.
So yes, it absolutely is time to start thinking about three-dimensional chess—and the future organization of the U.S. healthcare delivery system.
