Healthcare is an interesting space right now. It seems everyone can feel that change is coming, but nobody actually knows how it’ll materialize. This has resulted in a wave of product announcements and M&A activity from companies that want a piece of the lucrative, yet complex, healthcare pie, and yesterday was no different:
“Bloomberg – Walmart Inc. is in talks with health insurer Humana Inc. for a closer partnership to provide health care to consumers at home and prevent illness, according to a person familiar with the matter.”
News broke last evening that Walmart is in talks with Humana about a much deeper partnership, and possibly an outright acquisition of the insurance company. This is a reactionary deal from Walmart on the heels of the CVS / Aetna transaction, which was a reactionary deal to Amazon entering the space – and that, my friends, is really what this is all about: Jeff Bezos and Amazon’s healthcare ambitions. The Company has announced a healthcare partnership with J.P. Morgan / Berkshire Hathaway, as well as intentions to pursue its own internal initiatives. Amazon has been tight-lipped on their approach, but it is widely assumed they’re going after the pharmaceutical distribution channel, a likely target given Amazon’s logistical and distribution expertise. This would not be welcomed news for companies like Express Scripts (who was acquired by insurer Cigna earlier this month), who manage pharmaceutical benefit plans on behalf of employers by negotiating drug prices with pharmacies and processing claims payments. Amazon would look to put the screws to these middlemen by applying their tried-and-true business model of undercutting on price and over-delivering on service. Amazon will succeed here, as it always does. The issue for pharmacy companies (Walmart, CVS) is to figure out a way to bypass being forced into business with Amazon as they enter the space. Their answer? Buy the insurance companies and handle the middleman activities in-house, building out an entire healthcare network under one roof for their millions of loyal customers. It really isn’t a bad idea and probably one of the best responses to Amazon encroachment I’ve seen. The only hurdles outside of regulatory burden will be sourcing adequately-priced deals and how to pay for them. CVS decided to go the debt route and the markets have been less than pleased. It’ll be interesting to see how it plays out, but I’ve got my chips on Jeff being the most disruptive new entrant into the space.