Walmart has eye on Amazon in Humana deal talks

The world’s largest retailer, Walmart, is reportedly in talks with insurance giant Humana in what is likely a bid to keep up with rival Amazon.

“I think Walmart is really responding to Amazon ... they’re in an all-out war,” David Friend, managing director of BDO's Center for Healthcare Excellence & Innovation. “Amazon is the mortal threat to Walmart. Walmart is obviously pushing back tremendously.”

The Walmart-Humana talks, first reported by The Wall Street Journal, include the potential for a full-blown acquisition of Humana, which has a $37 billion market value.

Amazon has been creeping into health care, announcing a joint venture with Warren Buffett’s Berkshire Hathaway and JPMorgan Chase that aims to improve transparency and reduce costs for employees. The sector has largely been untouched by the disruptive “Amazon effect” until now.

Health care is the next big way both Walmart and Amazon can really move the needle, according to Friend.

“If you think about health care consumers, they’re really in the sweet spot for these retailers,” he said. “It’s a big play for the data.”

Data will be especially important as the sector shifts toward a more consumer-centric model.Mergers and acquisitions have become the norm in the health care space. Earlier this year, retail pharmacy CVS acquired Aetna in a deal valued at $69 billion, while a myriad of other companies, such as UnitedHealth, have pursued deals.

A rumored deal between Walmart and Humana would look a lot like the CVS-Aetna proposal. Like CVS, Walmart has an established pharmacy business, distribution capabilities and physical locations.

“The traditional health care experience is expensive, highly fragmented and inconvenient for consumers, and Walmart could truly become a one-stop-shop for consumer health needs,” Dedi Gilad, CEO and co-founder of telehealth company Tyto Care, told FOX Business.

Cutting the cost of prescription drugs is a primary focus. Drug prices rose nearly 25% from 2012 to 2016, according to Aetna. One way companies are seeking to drive down costs is by collapsing layers of the supply chain, including reducing the roles of pharmacy benefit managers (PBMs). Each step of the negotiating process offers an opportunity to pack on additional levels of pricing.

Another reason a deal with Humana makes sense for Walmart in its bid to keep up with rival Amazon is to solidify and protect its customer base, Friend said. Humana has a big Medicare business, and many of those recipients overlap with average Walmart customers.

If both retail giants successfully form health care ventures, the system as a whole could fell stress.

“This is forcing everyone now to think about what they’re going to do,” Friend said. “It’s like a wave that’s going to ripple through the entire health care ecosystem from drug distributors to suppliers to physicians. These are tectonic shifts, these … are actually bigger than they seem.”