About two years ago, we conducted visioning exercises about the future of healthcare and its business models. We forecast several “signal events” that – should they come to pass – would mean real business change was under way in healthcare. Ironically, one of our dummy headlines was “Walmart Acquires Humana.”
Score one for our crystal ball, even if Walmart and Humana are discussing partnership options vs. plotting an acquisition. Just like CVS’s plan to acquire Aetna and the announcement of the Amazon-Berkshire-Chase entity, Walmart and Humana together could contribute to the compression of the healthcare value chain, driving out costs and enabling more efficient, affordable care.
By opening talks with Humana, Walmart is responding to Amazon’s healthcare broadsides; the two companies also compete vigorously in the e-commerce space. Yet this is far from a “me-too!” response: Walmart and Humana together create an intriguing powerhouse with the following qualities:
- Complementary scale and a shared demographic. With 1.5 million employees, Walmart is the largest private employer in the U.S. and has a massive consumer base; more than 140 million people shop in its U.S. stores each week. Humana’s Medicare membership grew through its Advantage plans to 8.6 million members in 2017. Humana also extended its reach into the Medicare demographic by taking a minority stake in Kindred at Home, the largest home healthcare provider in the U.S.
- Large pharmacy footprint. Walmart has pharmacies in most of its 4,700-plus U.S. retail stores and reportedly wants to buy the online pharmacy start-up PillPack, which bundles consumer prescription shipments to save money. Humana has its own large pharmacy benefits practice. Some consultants estimate that Walmart and Humana would have $26.8 billion in combined pharmacy revenues.
- Innovative approaches to healthcare. Walmart has a track record of fighting back against rising healthcare costs. It introduced $4 prescriptions in 2006; in 2012 it began directly contracting with leading hospitals for certain bundled cardiac, spine and other conditions for its employees. Humana said its stake in Kindred at Home will help advance its integrated care delivery model, designed to provide care to consumers in the low-cost setting of their homes. The two companies already partner on Humana’s Go365 personalized wellness and rewards program, through which some members get discounts on Great For You™ foods at Walmart.
- Data, data, data. Both companies are data-savvy. Walmart’s 2017 annual report notes the company is “leveraging tremendous data” from in-store shoppers to “bring increased personalization and convenience for e-commerce shopping.” Humana cited “robust data sharing” with Kindred at Home that will yield better analytics and improved modeling, the better to advance remote monitoring, telehealth and digital interactions with members and physicians, along with closing gaps in and improving the quality of care.
The ‘McHealth’ Model
Pulling these factors together, Walmart and Humana could create a new business model for delivering more efficient, lower cost care that leverages Walmart clinics and pharmacies and Humana’s nascent integrated at-home care delivery system. Each company has a captive population, and both could use their complementary abilities to expand services to them.
Walmart could develop what we have dubbed a “McHealth” model, delivering quality care via a repeatable, efficient process vs. the muddled fill-this-form-out-yet-again approach that is still too characteristic of the health industry. Humana and Walmart have the scale necessary to drive the process standardization and automation that have lagged in healthcare because each value chain member requires an economic incentive to do so.
Moreover, Walmart and Humana could simply eliminate most intermediaries and execute automated, simple processes across every encounter on which they partner, from a transaction in a Walmart store, to care delivered at a Walmart-Humana customer’s home.
How to Respond Now
Walmart has the reputation of compelling suppliers to deliver good value to its customers. Providers and payers that want to tap into whatever business model Walmart and Humana develop will need to be highly competitive on price. No-regrets investments such as putting mobile first, investing in AI and analytics, enabling real-time transactions, and modernizing infrastructure will improve operating efficiencies and are rapidly becoming prerequisites to success right now in the industry.
Yet it’s also past time to invest with an eye on the future. The biggest issue to tackle is the ongoing compression of the industry’s value chain. Through our visioning exercises, we concluded healthcare will be transformed by a consumer-to-business healthcare-on-demand platform (cue Amazon here).
Further, we said the new business models that emerge around this shift will deliver value by equipping consumers to manage their care. (Walmart’s “save money and live better” mission fits here.) No industry “rollbacks” are coming: Evaluating current business models and core competencies against consumer centricity should provide health organizations with clarity on how to shape their new roles in a shrinking, more efficient value chain.
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