Blog Post

The Latest Disruption: Walmart’s Big Leap

Walmart And Humana 650 X380 Web

Over the past decade, Walmart’s intermittent healthcare ventures have generated explosive headlines followed by underwhelming results. In 2007, the retail giant announced that it planned to operate over 2,000 clinics across the country within five years … but by 2012, Walmart had only about 130 clinics and was closing them faster than they were opening.

In 2013, Walmart again appeared bullish on entering the healthcare market. An executive at the retailer declared that within five to seven years, Walmart would be providing full primary care services in its brick and mortar locations. Despite this bold proclamation, today the company has only a handful of owned and operated clinics in Georgia, South Carolina, and Texas. The majority of its health delivery initiatives are partnerships with local health systems in which Walmart has no role in the provision of care.

Despite mixed signals in the past, Walmart now seems serious about growing its influence in the healthcare industry. The announcement by Amazon, JP Morgan, and Berkshire Hathaway that they aim to disrupt the industry may have spurred Walmart to reconsider its own healthcare strategy. Last week, the Wall Street Journal reported that Walmart intends to closely align with—and possibly acquire—Humana, the nation’s fourth-largest health insurer. Here are three reasons to believe that the move will finally catapult Walmart into the ranks of major healthcare players across the country:

1. Dramatically Altered Incentives

Until now, Walmart has not had an incentive to use its strong brand and considerable footprint to bend the cost curve. It has generally viewed its clinics as vehicles to increase in-store traffic and pharmacy sales, and provision of care has had little impact on the company’s bottom line. If Walmart may soon be linked to an insurer—and thus at financial risk for the health status of many of its customers—investment in clinics could become an imperative, rather than a distraction from business as usual.

2. Evolving Payer Strategies

This announcement follows the recent trend of insurers and providers working together to reduce expensive hospital stays. Payers have come to understand that the healthcare industry’s way forward is through direct collaboration with, and even ownership of, primary care networks. UnitedHealth Group’s acquisition of DaVita Medical Group and CVS’s acquisition of Aetna are in the same mold as Walmart’s new megadeal and share the same goal: reduce expensive hospital stays by increasing preventive care and proactively managing chronic diseases. It has been said that 90% of Americans live within 15 minutes of a Walmart. That presents a unique opportunity to improve patient access and manage the health of a significant portion of the US population.

3. Complementary Demographics

Humana is known for its strength in the Medicare Advantage market. It is currently the second-largest Medicare Advantage network by number of covered lives. Humana’s older enrollment demographics complement the Walmart shopper profile, and the recent acquisition of hospice and home healthcare provider Kindred reinforces the focus on this age group. While people over the age of 65 represent approximately 15% of the US population, medical spending on those over 65 represents 34% of the nationwide total. If Walmart wants to reduce its patrons’ healthcare costs, its biggest opportunity lies with its older customers. In addition, this cohort is more likely than any other to reside in rural areas that lack convenient access to routine care: the same areas that have always been Walmart’s focus. The company’s presence in underserved communities is an asset for healthcare delivery, beyond even what CVS offers.

Over the coming weeks and months, we will learn more about the terms and strategies of this potential blockbuster transaction. The one thing we can be sure of is that if this deal happens, many healthcare providers will find a new big-box competitor sitting right in their backyard, with the infrastructure to disrupt the industry.