Walmart, like Amazon, is jumping into the healthcare industry.
Soon Amazon may not be the only one-stop shop on the block: It was reported earlier this month that Walmart is in talks with Humana, the health insurance giant, about a possible acquisition. While these companies already have a history of working together to provide Medicare customers with affordable prescription drug plans – Walmart has more than 4,700 pharmacies nationwide, which has enabled it to offer medication for as little as $1 if customers pick up in-store – an acquisition of Humana would fundamentally alter the healthcare industry. Said to be priced at $37 billion, this would be Walmart’s largest deal since 1999 and has the potential to transform the retailer into one of the country’s largest healthcare providers.
Walmart is just the latest retailer to explore an expansion into healthcare. In December, CVS agreed to acquire health insurer Aetna Inc. for $69 billion in the hopes of providing lower-cost medical services in their pharmacies. A month later, Amazon, Berkshire Hathaway, and JP Morgan Chase announced that they would form an independent healthcare company for their employees in the United States.
This recent interest in healthcare on the parts of massive US retailers is a reflection of consumer frustration with the country’s healthcare system. Americans spent $3.3 trillion on healthcare in 2016 – that’s 18 percent of the entire US economy – and spending continues to surge thanks to an aging population, expensive medications, and an industry littered with middle men, unnecessary costs, and perverse financial incentives. And thanks to the Trump administration’s repeal of key features of the Affordable Care Act, premiums will likely continue to rise. Corporations like Walmart and Amazon, with vast cash reserves, high market value, and the ability to bypass partisan gridlock, are better suited than the federal government, at the moment, to meet the unique challenges of the American healthcare industry.
For Amazon, the move into healthcare is about expanding into a higher profit tier: retail accounts for just six percent of the US economy, as Oliver Staley notes at Quartz. For Walmart and CVS, however, the move is about keeping pace with Amazon.
Walmart, in particular, seems determined to match Amazon step for step. In 2016, Walmart acquired Jet.com, an Amazon-style purveyor of goods, for $3 billion in cash and $300 million of Walmart shares. And more recently, Walmart and Amazon have found themselves in competition for India’s e-commerce giant, Flipkart. Amazon was reportedly exploring the acquisition, as they are aggressively targeting India, but Walmart, as Reuters reports, is just weeks away from closing the deal.
On the Humana deal, Walmart will need to act fast. After announcing the potential acquisition, Humana’s shares jumped, capping at a 251% increase over the past five years, as Max Nisen reports at Bloomberg.
The US government may also be making this an even more competitive acquisition for Walmart: it announced on April 2nd that it would increase payments to insurers who manage private Medicare Advantage plans by nearly twice as much as initial estimates predicted. As the second-largest Medicare Advantage insurer in the country, Humana stands to benefit, which could, again, make the deal more expensive for Walmart, and even, possibly, attract other bidders.
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