What would an acquisition of Humana mean for Walmart and its rivals?


Walmart is in early stage talks to acquire Humana, the second largest Medicare provider and a top health insurer, The Wall Street Journal reported Friday.
The report, confirmed by others, indicated the two are also discussing forming a closer partnership. Walmart has a co-branded drug plan with Humana offering prescription drug plans for individuals enrolled in Medicare.
The speculation of a hook-up comes as insurers are striking mega-deals with partners down the supply chain amid scrutiny over rising healthcare costs.
December’s news of CVS Health Corp’s $77 billion agreement to acquire Aetna had already led some analysts to predict a merger of Walmart and Humana. On March 8, Cigna struck a $52-billion deal to buy pharmacy benefits manager (PBM) Express Scripts.
Rumors are also circulating that Amazon is planning to enter the healthcare market. The e-commerce leader’s alliance reached in February with Berkshire Hathaway and JPMorgan Chase is aimed at reducing employee health costs.
An acquisition of Humana’s pharmacy benefits management (PBM) business would enable Walmart to better control healthcare for its employees, defend against rivals and enter a category growing faster than retail.
Neil Saunders, managing director of GlobalData Retail and a RetailWire BrainTrust panelist, told CNN, “Moving onto this turf would give Walmart a whole new arena in which to expand [and] would be valuable at a time when its retail margins are under pressure.”
Pharmacy customers have also proven to be bigger spenders across the store, and being able to offer competitive rates on primary care and other health services could help drive overall retail traffic. Walmart’s in-store clinics could be better positioned to play a larger role as healthcare centers offering basic medical care.
Humana, however, currently valued at about $37 billion, would be Walmart’s largest acquisition of all time and would place the retailer in a category well out of its area of expertise. Insurers generally have a poor reputation with consumers amid frustrations over claim reimbursements. Such a large-scale vertical merger would also face anti-trust concerns.
- Walmart in Early-Stage Acquisition Talks With Humana – The Wall Street Journal
- Walmart-Humana Sounds Wild, But Makes Sense – Bloomberg
- Walmart in talks with Humana for deeper partnership – Bloomberg
- Come for your drugs, leave with more shopping: Walmart’s new growth strategy? – Reuters
- Why Walmart may want to buy Humana – CNN
DISCUSSION QUESTIONS: Does an acquisition of Humana make sense for Walmart? How would you weigh the pros and cons of such a combination?
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21 Comments on "What would an acquisition of Humana mean for Walmart and its rivals?"
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Principal, Anne Howe Associates
The idea seems feasible, knowing services margins are better than just product margins at retail, but taking on the problem of lack of consumer trust in critical services is the giant risk. Can Walmart really win here or is this just another “one-up” on Amazon move?
Retail Influencer, Speaker and Consultant
The move by retail into healthcare makes a lot of sense. We’ve talked about this before here with CVS acquiring Aetna. So I see a lot of upside for pharmacies to be connected to healthcare.
I think the real question is, how much do we as consumers want these two connected? On one hand, it might make for less confusing script fills and refills. On the other hand, how much privacy does this afford the consumer? Will the healthcare portion of the retailer be able to see everything I’ve bought?
Let’s take this to the extreme. If my Walmart shopping history contains a high content of sugar and sodium rich products — sodas, confections, etc., and I get diabetes, does Walmart, my healthcare provider, now say that I don’t qualify for Medicare because of my lifestyle choices?
President/CEO, The Retail Doctor
This is a data ploy to learn more about their target demographics and acquisition is the only way they would get them. Yes, it is a preemptive move on Amazon and direct response to Aetna/CVS but Walmart has far fewer locations making it less about access than supporting their fixed income and aging Boomer customers. That said, it is a far cry from Sam Walton’s vision and may prove a tricky bolt-on in a highly regulated market.
Co-founder, RSR Research
When asked by CNN, I hypothesized that Walmart would use the acquisition to provide cut-rate services to its employees and customers. It would be both good PR, and make financial sense — certainly easier than self-insuring.
It seems that others agree that’s the end game. It’s clever, Amazon or no Amazon.
Retail Strategy - UST Global
I wonder what will happen when the respective heads of retail look at the incredible compensation levels for the heads of healthcare. Will the question be “why” or “why not”?
Principal, Cathy Hotka & Associates
On the plus side, one possible outcome could be healthcare clinics in underserved (rural) areas. We’d all like to think that a merger like this could be applied to the greater good … time will tell.
Principal, Mark Heckman Consulting
American healthcare is itself on “life support.” Unchecked costs for meds, processes and equipment are untenable. Consumers need relief and when the current subsidies expire, many will be desperate.
National food, drug and mass retailers with the cash flow to create another reason for customer patronage are in critical need of yet another point of differentiation. Retail/healthcare is not only a good idea, it is a marriage of necessity.
Visiting clinics within the four walls of a Walmart Supercenter may not be everyone’s cup of tea, but if such a merger can produce affordable healthcare plans and alternatives to the current, escalating expense of health insurance, this just might be the answer to a problem the Feds have been unable to fix.
Chief Amazement Officer, Shepard Presentations, LLC
It makes sense for Walmart to acquire Humana as it ties in directly with their pharmacy. It’s a synergistic move, as the success of one (or both) support each other. It could also be good for the consumer as Walmart won’t likely be a high-priced option, and will likely offer the competitive pricing that they are known for.
EVP Thought Leadership, Marketing, WD Partners
The privatization of universal healthcare. It’s the right thing to do and makes a ton of business sense as many of Walmart’s customers cross the 60- to 65-year-old demographic. Win, win, win — customer, business and no government (until someone gets greedy).
President, The Treistman Group LLC
Senior Marketing Manager, RW3
Recently grocers have started a natural progression towards health and wellness (ShopRite’s dietitians) and it was only a matter of time before two giants merged together. Walmart is in the middle of rebranding themselves while also competing against the Goliath Amazon. Walmart probably saw this as an essential next step and wanted to beat Amazon to the punch.
Managing Director, GlobalData
The risks of becoming entangled in the complex U.S. healthcare industry are considerable, especially at a time when Walmart is grappling with the competitive challenges of a rapidly shifting retail market.
However, there are some solid reasons behind a potential deal. Foremost among them is a need to diversify for growth. Healthcare is a huge market and a significant area of both consumer and corporate expenditure. It is also a major growth sector.
Potential linkages between health and retail, including services in stores and customer data sharing, are also attractive.
It is far from certain that any deal will come off. There are financial and regulatory hurdles as well as enormous corporate considerations. However, that the deal is even being discussed shows how much both retail and healthcare are changing.
Scientific Advisor Kantar Retail; Adjunct Ehrenberg-Bass; Shopper Scientist LLC
Retail Transformation Thought Leader, Advisor, & Strategist
This is a risky move, but Walmart may be looking at how Amazon successfully uses non-retail businesses to support their retail business performance and wants to emulate that in an area that a.) Amazon isn’t quite in yet, and b.) can be tied to their existing pharmacy business. It helps diversify, but also could help strengthen their business and make them a stronger competitor to CVS Health for consumers prescription dollars.
VP Sales and Field Strategy, RELEX Solutions
There has been a growing move toward consolidation of verticals in retail goods and services recently. With the big guns like Walmart and Amazon expanding into new verticals (e.g. grocery) over the last few years, they are going after market share by expanding their footprint rather than just trying to compete on price. CVS is acquiring Aetna to do something similar while staying close to their roots of health and wellness.
GM went through a similar process years ago diversifying significantly but eventually divested and pulled back. It’ll be interesting to see how far this can go and still make sense. Whether this move is a reaction to CVS or just having a common vision, I expect we’ll see this cycle of consolidation continue for some time yet. Unfortunately it’s likely we’ll see some more high-profile casualties, be they closures or acquisitions, as a result.
Consumer Advocate, finder.com
This makes a decent amount of sense for Humana, but I’m sceptical about benefits for Walmart. The merger places them in a position where it has to share margin on prescriptions. Walmart also self-insures a portion of its health insurance cost, which is generally a lower-cost alternative to paying someone else to administer health insurance, and makes me wonder if there are any savings to be had for them on the health insurance side. That is, unless they have determined internally that they are simply bad at this and want to get some expertise in-house.
Co-Founder and CMO, Seeonic, Inc.
The acquisition by Walmart of Humana makes great sense. Walmart has a large collection of Medicare customers which lines up with Humana’s subscribers. Some of healthcare is already provided at retail — pharmaceuticals, in-store clinics, non-prescription remedies, etc. Pharmaceutical customers tend to return more frequently and spend more in the stores. And much of Walmart’s shopper base is insured by Humana so the synergies are many. The con is that Walmart’s executive team has little healthcare insurance experience. However, they will learn quickly and make it work as Walmart has the financial resources to make mistakes yet get it right in the long run.
Retail Tech Marketing Strategist | B2B Expert Storytelling™ Guru | President, VSN Media LLC
If Walmart’s broad strategic goal is to simply win a larger share of America’s wallet, then it makes sense to go after the heaviest spending customers and categories. Health care is a natural add-on that has synergies with the company’s existing pharmacy, food, and wellness categories.
But it should beware the complexity. Health insurance and healthcare delivery are heavily regulated and subject to ever-changing political winds. HIPAA privacy rules require a firewall around healthcare data that could (and probably should) block some tempting cross-marketing concepts.
In light of the recent CVS-Aetna and Albertsons-Rite Aid deals, Humana’s pharmacy benefits business may be the gem Walmart covets most. As Walmart customers age, they may be expected to spend a larger share of their budgets on healthcare and prescription meds.
Taken in aggregate, the recent wave of acquisitions and deals in this sector are troubling to me. They send health care further down a for-profit spiral that will be increasingly difficult to unwind.
VP Marketing & Business Development, Estrella Brands
A retailer must evolve and keep attracting new customers to the franchise. If inexpensive clothing and other consumer goods are not bringing in new customers and you are in dire need of an image makeover, evolution is necessary.
I’m not certain if it makes sense, rollback prices and quality healthcare do not seem like an attractive proposition, but then I’m assuming the models that have been tried by pharmacies.
The positive aspect of the acquisition is an evolution of Walmart’s offerings, the major negative would be consumers’ reception of the concept.
CFO, Weisner Steel
I think we all need recognize that this is unproven ground. Retail and healthcare are vastly different fields, glib adoption of nomenclature between the two not withstanding.
With that in mind, I would be nervous if I were an investor in either company. Sure it could be a wonderful things if Walmart brings its market clout to medicine and the result is lower prices and better coverage, but it could also be a disaster of shortages, substandard care and financial decline. I don’t have any trouble knowing which to root for, but I do have trouble knowing which it will end up being
Retail and Customer Experience Expert
At the end of the day, health care is one of the places you have to be in person in a majority of instances (distance health care aside). Integrating retailing and phama/healthcare is the next step for any enterprises with vested physical presence. It is going to be outside Walmart’s core competence, but one could say the same thing for Amazon and Whole Foods.