PBMs, retailers, and providers are getting together to integrate health plans, with Walmart-Humana taking mergers to another level of complexity and transformation, says one healthcare consultant.
The Walmart merger with Humana is another strong sign that the healthcare industry is rapidly merging with disparate parts of the retail world, intermingling so much and so quickly that some traditional parts of healthcare may be absorbed and cease to exist as we now know them.
The Wall Street Journal recently reported that Walmart plans to purchase Humana in a deal that resembles the CVS Health move to buy Aetna for $69 billion. Humana is worth $37 billion.
The purchase would be the biggest acquisition so far for Walmart and marks an aggressive push into the health insurance market. A major component of both deals is combining retail pharmacies with a pharmacy benefit manager (PBM), which promises benefits all around from improved access to customer networks and economies of scale.
Humana is making acquisitions of its own while waiting for its deal with Walmart to be completed.
Humana purchased Kindred Healthcare, a healthcare services company based in Louisville, Kentucky, with annual consolidated revenues of approximately $6 billion in 2017. Kindred Healthcare shareholders recently approved a sale to Humana and two private equity firms.
Humana will take a 40% stake in Kindred Healthcare's home division for about $800 million, as part of a larger deal by private equity firms TPG Capital and Welsh, Carson, Anderson & Stowe to buy Kindred Healthcare for $4 billion.
The CVS-Aetna merger was a watershed moment in healthcare, but the Walmart-Humana deal shows the enormity of the changes underway, says David Friend, MD, chief transformation officer and managing director of the Center for Healthcare Excellence & Innovation with the consulting firm BDO. Friend also sits on the board of Fallon Health, a health plan in Massachusetts, and is the former chief clinical officer of a $2.5 billion postacute healthcare provider.
"Walmart-Humana signifies the beginning of the avalanche that will cause the entire healthcare system to converge. By next year, the traditional PBM model could be extinct," he says. "Everyone is going to get in everyone's business. Traditional healthcare, retail, and technology companies will unite behind a singular goal—survival."
More complex mergers
The Walmart-Humana merger builds on the trends of previous years but takes them to another level of complexity and transformative impact, says Ashraf Shehata, partner at KPMG's Global Healthcare Center of Excellence.
"We used to see combinations of two, with health plans joining PBMs, retail connecting with PBMS, then providers and payers getting together, and providers and retailers. There's a long history of those partnerships," Shehata says.
"The groupings now have become more than twos, with payers, PBM, retail, and providers all getting together in groups of three or four to integrate the health plan product. Combining four variables gives you much more opportunity than when you have one or two," he says.
All large healthcare organizations are looking at the potential for mergers now as they see their competitors growing and acquiring new strengths from PBMs and other access to the market, Shehata says, but making a deal like the Walmart-Humana purchase is only the beginning. The potential benefits will only be realized if the companies execute their plan properly, he says.
"That's going to be the real challenge, because each one of these businesses is run very differently. The insurance business is different from retail, which is different from PBM and providers," Shehata says. "Just because these people sit in the same corporate structure doesn't mean it's going to create a new model that works better than the old one. That innovation needs to somehow come out of the ashes of this integration."
Data reigns supreme
Data analytics also will be key, Shehata says, and the newly combined healthcare-retail entities will be racing to determine the most effective way to leverage the information they have.
"The digital platform is going to be where the real differences lie," he says. "They will be searching for the best way for all these different data capabilities to come together to better serve the consumer, combining data that is now separate in a claims platform or a retail card platform. Building a better 360-degree view of the consumer and being able to approach that consumer in a more meaningful way will be telling for the future of these new entities."
The healthcare organization that can accurately capture and analyze the data of the fast-growing U.S. demographic—seniors—stands to lead the industry of the future, Friend says. That surely was a driving force behind Walmart's decision to acquire Humana, he says.
Ruling the healthcare world
Medicare Advantage (MA) is the future of healthcare, Friend explains, because it has accomplished what the public sector still struggles to do: cut healthcare costs and improve the quality of care. Humana's strength in MA drew the attention of Walmart, he notes.
KPMG's 2018 Healthcare & Life Sciences Investment Outlook had a favorable outlook for MA plans, based on a survey of more than 250 corporate finance executives.
"CMS has shown support for MA plans by offering insurers … flexibility, and the government has put its support behind them," Friend says. "Humana is a key player in the MA market. So together, Walmart and Humana stand to rule the future healthcare world."
The purchase of a health plan by Walmart could bring more consumer-oriented service to the insurance industry, but only if the company can successfully execute what, for now, seems like a grand and ambitious plan, Shehata says.
"If you asked people how the healthcare industry has done in consumer-centricity, they probably would give the industry a less-than-stellar grade, so if they can revitalize that relationship with the consumer it would be of benefit to the industry overall," Shehata says.
"This also could benefit large employers who are looking for better use of their dollars, because Humana will be working with a retailer that has made a name for itself in offering value to consumers," he says.
Friend agrees, saying consumers are in the driver's seat for the first time in healthcare. Traditional PBMs and retail pharmacies are now just pieces of an incomplete puzzle when it comes to care delivery, he says.
"The healthcare model of the future brings together the best doctors and data and delivers care as close to the consumer's doorstop as possible. Today, Amazon owns the doorstop and is signaling that healthcare is the next move," Friend says. "Walmart knows a thing or two about battling Amazon. In Humana, it certainly finds an interesting bedfellow, but a smart one."
Gregory A. Freeman is a contributing writer for HealthLeaders.