|THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
“Every Day Low Prices”—coming to healthcare?
The dizzying pace of deal activity in healthcare continued this week, as the Wall Street Journal reported that giant retailer Walmart is in talks about a partnership with—and perhaps an acquisition of—the insurance company Humana. The news comes on the heels of CVS Health’s planned acquisition of Aetna, and in the midst of Humana’s own pursuit of an ownership stake in the postacute provider Kindred Healthcare. Walmart has long been interested in the healthcare space, with a major retail pharmacy operation of its own, primary care clinics in a handful of its stores, and ongoing partnerships with health systems around the country.
The Walmart-Humana combination would create a major new force in the healthcare, with the potential to disrupt insurance, physician practice, hospital referral patterns, and much more. As the largest private employer in America, Walmart could reap a double reward by developing the ability to manage healthcare costs—both for its customers and its employees. Humana would gain a massive distribution channel for its Medicare Advantage plans, and a low-cost clinic and pharmacy platform for its senior enrollees. Longer term, the company could develop a range of low-cost insurance products and care networks sold directly to consumers in Walmart stores. To give a sense of the magnitude of disruption Walmart could bring to bear, their pilot in-store clinics offer basic primary care to their own employees at $4/visit, and to shoppers at $40/visit. The sheer size of Walmart makes the deal a game-changer, and if successful the deal could have lasting consequences for the way US healthcare is organized.
Pressing pause on a major health system merger
In other deal-related news, the national Catholic health system Ascension has reportedly decided to put its plans to merge with Providence St. Joseph Health on hold. The deal would have created the largest hospital company in the US, with nearly $46B in revenue and more than 190 hospitals in 27 states. Earlier, reporting on corporate operating performance, Ascension executives signaled a shift in focus away from further investment in hospital assets, amid concerns about cost pressures and changing patient utilization. Other major, multi-state hospital system mergers are still underway, with more expected to come. While details on the decision to postpone or cancel the Ascension-Providence deal were not forthcoming, the announcement highlights a concern that we’ve heard from a number of executives involved in these mega-mergers. Negotiating and concluding a deal of this kind is a major undertaking, and the post-merger integration work can be extraordinarily complex and take years to complete. Health systems considering mergers of this magnitude are weighing the potential value created by such deals against the imperative to maintain intense focus on operating performance in a turbulent marketplace—raising the bar for entering into any new combination.
The cabinet reshuffle hits the Veterans’ Administration
President Trump fired his Secretary of Veterans Affairs, David J. Shulkin this week after weeks of rumors and speculation about whether and when the firing might come. Shulkin ultimately learned of his fate on Twitter, as have a number of other senior Administration officials who’ve been let go recently in the ongoing shake-up by the White House. But Shulkin, a physician who came to the VA during the Obama years after a long career in hospital administration, did not go quietly. In a sharply-worded piece in the New York Times, Shulkin asserted that he was fired because of his opposition to privatizing healthcare for veterans, a policy priority of many on the right. The VA is a massive, highly-specialized part of our larger healthcare system—one that has suffered from mis-management and under-investment for years, even as demands on the system have grown. Fixing veterans’ healthcare deserves the attention of our best and brightest health system leaders, and the loss of a leader like Dr. Shulkin is an unfortunate step in the wrong direction.