Why Health Insurers Want to Merge With Retail Giants

Jack O'Brien, April 16, 2018
Outside corporate giants are looking to make a play in healthcare, abiding by a specific strategy of vertical integration with insurers and PBMs. (Mike Mozart/Flickr)

While retailers are positioned as corporate disruptors to healthcare, an interesting aspect to these recent developments has been the willingness of insurers to merge with them. 

As retail powerhouses push into healthcare, industry watchers are analyzing the effectiveness of how they're vertically integrating with health insurers and pharmacy benefits managers (PBM).

Over the past six months, CVS Health proposed a $69 billion merger with Aetna Inc., Cigna Corp. and Express Scripts Holding Co. announced a $52 billion deal, and Walmart joined the fray with its reported interest in purchasing Humana Inc. 

While retailers are positioned as corporate disruptors to healthcare, an interesting aspect to these recent developments has been the willingness of insurers to merge with them.

Moody's Investors Service released a report analyzing the vertical integration strategies pursued by several large health insurers, calling the approach a "short-term credit pain, long-term credit gain."

"In the long term, such vertical integration holds the potential for cost reductions, improvements in coordination of care, and increased non-regulated cash flow, all credit positive effects," according to the report. "However, in the short term, the large deals are credit negative overall, given a substantial increase in debt and leverage, along with significant execution risk."

Jack O'Brien

Jack O'Brien is an associate editor at HealthLeaders Media. 

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