Insurers are exploring vertical deals after their horizontal merger plans were blocked. Their odds are looking much better this time around.
A year ago, four major health insurance companies were reevaluating their business strategies after their plans to pair off and form two even bigger insurance companies were blocked to preserve competition.
Within the first six weeks of 2017, one federal judge blocked Aetna’s plan to buy Humana, and another blocked Anthem’s plan to buy Cigna. Each judge cited antitrust laws, saying the deals could harm consumers.
Today, however, it seems most of the four insurers have moved on to new potential partners—with verticality in mind.
Citing unnamed sources, The Wall Street Journal reported Thursday evening that Walmart is “in preliminary talks” to purchase Humana. This news comes after CVS Health announced plans in December to buy Aetna for $69 billion and Cigna announced plans in March to buy Express Scripts, a pharmacy benefit manager (PBM), for $54 billion.
The prospective Walmart-Humana deal looks an awful lot like the CVS-Aetna arrangement insofar as each transaction would combine a PBM with pharmacies and health insurance.
That seems like a logical setup for Walmart, according to J. Mario Molina, MD, president of Golden Shore Medical Group, which operates clinics in four California counties.
“Walmart already has a massive pharmacy infrastructure & has tried venturing into in-store clinical care,” Molina, who was president and CEO of Molina Healthcare Inc. until last year, wrote in a tweet Friday. “Plus, with 1.5M U.S. employees, it makes sense when trying to optimize healthcare costs.”
Looking to compete
Humana, like every other major player in the healthcare space, is competing not only for market share but also for control of how patients and money flow through the system, according to Erik Gordon, clinical assistant professor in the University of Michigan Ross School of Business.
At the same time, Walmart could be looking to bolster its rapport with older customers while also staying competitive with online retailers, such as Amazon, Gordon said during an interview with Marketplace’s Sabri Ben-Achour.
“Walmart, which is the giant that scared everybody, is now a little bit scared itself,” he said. “It's scared of Amazon, and we think Amazon is going into the health care business. So Walmart is fighting back.”
One reason why Walmart may feel a sense of urgency came in January, when Amazon announced a healthcare-focused partnership with deep-pocketed Berkshire Hathaway and JPMorgan Chase. Although the details of their plan remain unclear, the trio said they are looking to solve some of the industry’s most vexing problems.
Will it happen?
Bloomberg’s Zachary Tracer and Ed Hammond confirmed Thursday evening that a potential Walmart-Humana deal is being discussed. But, citing one unnamed source, they reported that “an outright combination isn’t likely at this point.”
Both the Journal and Bloomberg reported that Walmart and Humana are considering a wide range of options, the details of which have not been made public. The companies did not respond Friday to requests from HealthLeaders Media for comment.
If the warm reception CVS-Aetna has received thus far is any indication, it seems likely that the verticality of a Walmart-Humana merger will find a smooth-sailing route through the regulatory review process.
Even if the companies reach a concrete deal and secure the necessary approvals, however, that doesn’t necessarily mean they will find success in the shifting healthcare sector. Nonetheless, their efforts are a positive sign, according to Zack Cooper, assistant professor of public health and economics at Yale University.
“This is the type of disruption health care needs,” Cooper wrote in a tweet. “Not sure it’s going to succeed but combining retail with insurance has lots of potential.”
Senior editor John Commins contributed to this report.
Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.