A 8 minute read
April 4, 2018

Retail giant Walmart has been making big moves into the healthcare space in the past few weeks. At the end of March came news that Walmart is in talks to acquire the Humana Group, a private insurer that earned more than $9.1 billion in premiums last year according to Definitive Healthcare data. Just this week TechCrunch reported that Walmart is also in discussion to acquire PillPack, a personalized medication delivery service.

Experts say that the acquisition of Humana could improve the variety of care offered at the Clinics at Walmart, as well as influence pharmaceutical costs due to the retailer's tremendous purchasing power. Partnering or acquiring a healthcare payer could drive prices down even further for those insured by Humana, and potentially for all Walmart customers.

Top 10 Retail Clinics by Patient Population

Retail Clinic Name Total Patient Population State Network
Rediclinic Pin Oak 33,201 TX Memorial Hermann Health System
CVS MinuteClinic - Katy 33,201 TX MinuteClinic
Rediclinic Pearland 26,843 TX  Memorial Hermann Health System
Advocate Clinic at Walgreens - Yorkville 26,230 IL  Advocate Health Care

CVS MinuteClinic - Windermere

22,670 FL MinuteClinic
CVS MinuteClinic - Port Saint Lucie 20,218 FL MinuteClinic
CVS MinuteClinic - The Woodlands 20,181 TX MinuteClinic
Rediclinic Indian Springs 20,181 TX Memorial Hermann Health System 
Rediclinic North Woodlands 20,181 TX Memorial Hermann Health System 
Walgreens Healthcare Clinic - The Woodlands 20,181 TX Walgreens Healthcare Clinic 

Fig 1 Data from Definitive Healthcare

There are several directions in which this acquisition could go if it's successful. The first, of course, is that the existing Walmart clinics could see expanded preventative care offerings. According to Definitive Healthcare, there are over 100 active installments of The Clinics at Walmart across the U.S. This acquisition is also likely to lower prescription costs at the 4,600 existing in-store pharmacies. One aspect of the deal that is clear is that Walmart does not plan to expand the number of retail clinics, at least in the immediate future.

So far, it seems as though this potential acquisition is more like the CVS and Aetna deal, which was announced last year and finalized in March, than the Amazon, Berkshire Hathaway, and J.P. Morgan venture. Like Aetna, Humana specializes in Medicare Advantage, a private insurance plan for seniors. Medicare Advantage provides strong financial incentives for physicians to maintain patient health at low costs by offering fixed payments per beneficiary per year.

“This potential merger is another in a string of acquisitions that have transformative power for the healthcare industry," said Jason Krantz, CEO of Definitive Healthcare. “This deal once again hits on the key themes of convenience and data. The convenience play makes sense – Walmart already has pharmacies in most of its 4,700 stores and, with Humana’s large Medicare Advantage population, a deal between these two firms could instantly make Walmart a major provider of primary care."

CVS appeared to have a similar strategy in its acquisition of Aetna. Prior to the deal, CVS served more than 6 million Medicare patients in its 9,800 pharmacies and 1,100 clinics. Last year, a merger between Humana and Aetna was blocked due to antitrust concerns. Aetna wasted little time in aligning with CVS, and Humana will apparently follow its lead in its negotiations with Walmart. Though Walmart and Humana will face antitrust scrutiny, the approval of CVS and Aetna's partnership bodes well for the new acquisition.

Though the retail clinics only account for about one percent of CVS' annual revenue, the pharmacy chain's purchasing power and patient population data have surely benefited from it's business with Aetna. If Walmart's acquisition of Humana goes through, the retailer will also have access to detailed population health data, which it can use to target its existing purchasing power.

"As for the data play," Krantz said, "This deal would give Walmart access to a tremendous amount of valuable information on the fast-growing Medicare population. This can be used to cross-sell all sorts of products--including groceries--that could impact both Walmart’s bottom line and the well-being of its customer base.”

The target market for this partnership is clear: Walmart shoppers are primarily aged 50 or older. This demographic has strong brand loyalty, and Walmart is a prolific presence in many people's lives, making this an ideal partnership. Because the retailer has set a precedent for care provision through pharmacies, it is likely that consumers and beneficiaries will continue to place their trust in Walmart moving forward.

The other route Walmart could take with the Humana deal is one similar to Amazon, J.P Morgan and Berkshire Hathaway. Rather than provide hands-on care for the public, Walmart could focus on providing comprehensive, affordable healthcare for its employees. This is much less likely, and a spokesperson at the retailer stated that the companies are aiming for a partnership to offer accessible healthcare to consumers where they live.

“What is exciting about the deals between Walmart and Humana, CVS and Aetna," said Krantz, "Is that they are not just about cost savings or rolling up health care and patients. They have the potential to change where and how health care is delivered – the rapid acceleration of non-hospital based healthcare continues.”

Top 10 Retail Clinics by Number of Physicians

Retail Clinic Name # Primary Care Physicians State Network
Hy-Vee - De Moines #6 97 IA Hy-Vee
CVS MinuteClinic - St Louis Park 87 MN MinuteClinic
CVS MinuteClinic - Fairfax 81 VA MinuteClinic
Walgreens Healthcare Clinic - Oak Lawn 80 IL Walgreens Healthcare Clinic
CVS MinuteClinic - Fayetteville 72 NC MinuteClinici
Vanderbilt Health Clinic at Walgreens - Belle Meade 71 TN Vanderbilt University Medical Center System
CVS MinuteClinic - Matthews 63 NC MinuteClinic
Walgreens Healthcare Clinic - Seattle 62 WA Walgreens Healthcare Clinic
CVS MinuteClinic - Fairfax 60 VA MinuteClinic
CVS MinuteClinic - Nashville 60 TN MinuteClinic

Fig 2 Data from Definitive Healthcare

Vertical mergers and partnerships like these could very well keep patients out of hospitals. The convenient locations and ease of booking an appointment at retail clinics are a draw for consumers who are only looking to diagnose a cold or get a flu vaccination. But is this really a good thing?

When retail clinics first became popular, experts believed the outpatient centers would lower care costs and improve population health. This is actually inaccurate, and studies have shown that retail clinics contribute to rising care costs.

However, retail clinics could draw patients away from hospital emergency departments, reducing wait times and eliminating unnecessary visits. Retail clinics also offer care to those who may not otherwise seek it out. If free flu shots are offered at a local pharmacy in a grocery store where someone regularly shops, consumers could be more likely to receive preventative care. This improves individual as well as population health.

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Visit the Definitive Blog to read more about the Amazon joint venture and other healthcare M&As.

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