By Melanie Evans
Early-stage deal talks between Walmart Inc. and Humana Inc. are
deepening anxiety in the hospital sector, which already has been
grappling with sluggish growth and competition from cheaper
health-care options.
Hospitals have been eyeing Walmart nervously for years as it
advances into health care, seeking to leverage its enormous
purchasing heft, physical reach and focus on price. The
Bentonville, Ark., retailer already operates pharmacies and
primary-care clinics and plans to begin offering lab-testing
services. It has also recently increased its direct negotiations
with hospitals for competitive prices on some procedures for its
employees.
Now, a deal for Louisville, Ky.-based insurer Humana could
accelerate Walmart's transformation into a direct competitive
threat and a force in tamping down spending on hospital services,
according to industry executives and consultants.
A deal isn't guaranteed. But a merger could add to the wave of
consolidation in U.S. health care, pairing insurers with other
sectors of the industry that offer cheaper care through clinics and
pharmacies. CVS Health Corp. announced last year a $69 billion deal
for insurer Aetna Inc. Cigna Corp. early last month said it would
buy Express Scripts Holding Co. for $54 billion, in a combination
that would marry a health insurer and the largest U.S.
pharmacy-benefit manager.
"These vertical deals are super exciting, mostly for the
potential to keep people out of the hospital," said Zack Cooper,
health economist at Yale University.
With a potential Walmart-Humana deal, "there is scope for this
new entity to, in a sense, offer a product that has less bells and
whistles and is more efficient and lower cost," he said.
Outside its pharmacies -- which operate across 4,700 U.S.
Walmart stores -- the retailer's health-service offerings are
currently limited. Walmart operates 19 clinics in Georgia, South
Carolina and Texas and other providers operate about 50 additional
clinics. But Walmart's expansive retail footprint would make it a
formidable competitor should it build out low-cost outpatient
offerings, said industry executives and consultants.
Humana, one of the nation's largest insurers, already announced
in December it would jointly acquire home-health-care and hospice
provider Kindred Healthcare Inc. with two private-equity firms.
A potential Walmart-Humana deal "should be a concern to
everybody in health care," said Randy Oostra, president and chief
executive officer of nonprofit hospital system ProMedica, based in
Toledo, Ohio.
Walmart would join an increasingly crowded field of competitors
poised to siphon patients and revenue from ProMedica's outpatient
business, which Mr. Oostra said helps to subsidize money-losing
hospital services.
"What worries us is death by a thousand cuts," he said. "Another
deal and another deal."
ProMedica, which operates 13 hospitals in Ohio and Michigan, is
looking to diversify its revenue with international expansion and
new businesses, he said.
Walmart is "a huge presence in a lot of people's lives" and has
price-conscious consumers who trust the company's brand, said Lisa
Bielamowicz, president of health-care consultancy Gist Healthcare
LLC. A competitively priced health-care option would be attractive
to some patients, she said.
As an employer, Walmart has been a very sophisticated negotiator
as it buys health benefits, which could increase competitive
pressure on services delivered inside the hospital as well, said
Dr. Bielamowicz and other industry experts.
Walmart in recent years has increased its use of direct
contracting, offering to send employees from around the country to
a small group of hospitals that agree to a fixed price and submit
data on performance for review, such as rates of infections.
The retailer and other companies that employ the strategy use
their employee health-plan and other outside data to analyze trends
and identify hospital candidates, said David Lansky, president and
chief executive of Pacific Business Group on Health, which works
with the companies to run the contracting.
Walmart, the nation's largest private employer, declined to
disclose how many employees have sought care from the 12 facilities
with which it contracts for certain spine, cardiac, weight-loss and
hip and knee replacement procedures and some cancer care.
"Our focus has been on improving quality and identifying
outstanding hospital systems for our associates," the company said
in a statement.
Walmart could combine this experience building selective,
competitive hospital networks with Humana's infrastructure and data
to create new health-plan products for other employers, said Dr.
Bielamowicz.
Geisinger Health System in Danville, Pa., one of the providers
in Walmart's program, is paid rates about 10% to 15% lower for
Walmart employees who travel to its facilities for procedures, said
Jonathan Slotkin, a Geisinger Health System physician involved with
the health system's direct employer contracts.
For the chosen hospitals, that business is "true growth," he
said, because none of those patients would have been treated by
Geisinger otherwise.
The hospitals excluded from Walmart's network, however, lose
that business. That could increase operating pressure on those
hospitals, said Dr. Bielamowicz, but it could also ultimately
benefit employers and patients by forcing more competition among
hospitals to make the cut.
"The cost is going to be the bar" for entry, she said.
--Anna Wilde Mathews and Sarah Nassauer contributed to this
article.
Write to Melanie Evans at Melanie.Evans@wsj.com
(END) Dow Jones Newswires
April 01, 2018 09:14 ET (13:14 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
Humana (NYSE:HUM)
Historical Stock Chart
From Jul 2024 to Aug 2024
Humana (NYSE:HUM)
Historical Stock Chart
From Aug 2023 to Aug 2024