Will Accelerating Mega-Mergers Further Intensify Monopolization in the Healthcare Industry?

Recently, VCBeat (WeChat Official Account: vcbeat) learned from foreign media reports that U.S. health insurance giant Humana and leading U.S. pharmaceutical retailer Walgreens are currently engaged in preliminary discussions to expand their existing partnership and plan to take cross-equity stakes in each other. The collaboration between the two companies was announced this June: Humana will operate on-site clinics catering to seniors within two Walgreens stores in Kansas City, providing patients with information about Medicare.

Foreign media reported that the formal partnership between Humana and Walgreens will eliminate any chance of Walmart acquiring Humana, enabling Humana to keep pace with the industry’s trend toward vertical integration.

In April this year, Walmart was preparing to acquire Humana. This move, combined with Humana’s infrastructure, could further exacerbate industry monopolization by the merged entity, leaving many hospitals sidelined. As hospitals are unable to significantly cut costs to match the prices offered by these retail clinics, their appeal to patients may diminish. Following the news, U.S. healthcare institutions stated they would closely monitor the potential merger between Walmart and Humana, as the deal would severely harm their interests. The Wall Street Journal described the transaction as “an issue that should concern everyone in the healthcare sector.”

Image from the official Walgreens website

Whether through vertical mergers or horizontal expansion, the giants in the healthcare sector have never ceased their strides.

In March this year, Cigna announced the acquisition of Express Scripts, the largest pharmacy benefit manager in the United States, with the aim of further expanding its customer base, partnerships, health plans, and community service offerings.

In June this year, Amazon announced its acquisition of the online pharmacy PillPack. Following the announcement, stocks of Walgreens, CVS, and Rite Aid declined to varying degrees. Industry observers view this acquisition as a blow to the traditional pharmaceutical supply chain, one that will disrupt how consumers purchase medications and have a significant impact on brick-and-mortar retail pharmacies.

This July, Humana, together with two other companies, completed the $4.1 billion acquisition of Kindred Healthcare. This deal continues the trend of insurers acquiring providers and extends Humana’s reach into the post-acute care sector, where many insurers agree there are greater opportunities for improved care coordination.

Recently, CVS Health announced that it will conclude its acquisition of Aetna, first declared in December 2017, after November 22. Although executives from both Aetna and CVS have repeatedly stated that the merger will benefit consumers by creating more localized care options and aggregating vast amounts of data, the industry still believes that the combination of CVS and Aetna will further intensify the oligopolistic landscape in the U.S. pharmaceutical retail and health insurance sectors.

These large-scale mergers have drawn criticism from the industry and served as a wake-up call for primary care providers: “megamergers and industry monopolization” pose a significant threat to them.

David Friend of the BDO Center for Healthcare Excellence and Innovation even stated, “If the CVS-Aetna merger was merely a watershed moment for the healthcare industry, then Walmart’s acquisition of Humana marks the beginning of an avalanche that will lead to the convergence of the entire healthcare system. By next year, the traditional PBM model may become extinct. Traditional healthcare, retail, and technology companies will unite to compete for survival under the shadow of these giants.”

However, foreign media have stated that the partnership between Humana and Walgreens could be mutually beneficial for both parties, although the specific outcomes will depend on the scope of their collaboration. If Humana can establish a formal partnership with Walgreens, it will be better positioned to compete with companies such as CVS-Aetna and Cigna-Express Scripts.

Furthermore, leveraging its pharmaceutical retail and pharmacy operations, Walgreens can help Humana compete with companies including CVS-Aetna and UnitedHealth. Meanwhile, Humana can assist Walgreens in countering threats from Amazon and its recent acquisition, PillPack. Additionally, shared equity will enable both companies to pool their economic resources around medical loss ratios, retail clinic profit margins, and pharmacy operations.

In a research report, Dr. Ana Gupte, an analyst at Leerink Partners, stated that the collaboration between Humana and Walgreens may focus more on sales and marketing than on clinical research. This approach could contribute to the success of the pilot program in Kansas City. Furthermore, Humana’s five-star-rated health insurance plans will bring additional value to both parties through their strategic cooperation and investments.