Hospitals Fear Competitive Threat From Potential Walmart-Humana Deal

wsj.com - Early-stage deal talks between Walmart Inc. WMT 1.37% and Humana Inc. HUM 0.48% are deepening anxiety in the hospital sector, which already has been grappling with sluggish growth and competition from cheaper health-care options.

Hospitals have been eyeing Walmart nervously for years as it advances into health care, seeking to leverage its enormous purchasing heft, physical reach and focus on price. The Bentonville, Ark., retailer already operates pharmacies and primary-care clinics and plans to begin offering lab-testing services. It has also recently increased its direct negotiations with hospitals for competitive prices on some procedures for its employees.

Now, a deal for Louisville, Ky.-based insurer Humana could accelerate Walmart’s transformation into a direct competitive threat and a force in tamping down spending on hospital services, according to industry executives and consultants.

A deal isn’t guaranteed. But a merger could add to the wave of consolidation in U.S. health care, pairing insurers with other sectors of the industry that offer cheaper care through clinics and pharmacies. CVS Health Corp. announced last year a $69 billion deal for insurer Aetna Inc. Cigna Corp. early last month said it would buy Express Scripts Holding Co. for $54 billion, in a combination that would marry a health insurer and the largest U.S. pharmacy-benefit manager.

“These vertical deals are super exciting, mostly for the potential to keep people out of the hospital,” said Zack Cooper, health economist at Yale University.

With a potential Walmart-Humana deal, “there is scope for this new entity to, in a sense, offer a product that has less bells and whistles and is more efficient and lower cost,” he said.

Outside its pharmacies—which operate across 4,700 U.S. Walmart stores—the retailer’s health-service offerings are currently limited. Walmart operates 19 clinics in Georgia, South Carolina and Texas and other providers operate about 50 additional clinics. But Walmart’s expansive retail footprint would make it a formidable competitor should it build out low-cost outpatient offerings, said industry executives and consultants.

Humana, one of the nation’s largest insurers, already announced in December it would jointly acquire home-health-care and hospice provider Kindred Healthcare Inc. with two private-equity firms.

A potential Walmart-Humana deal “should be a concern to everybody in health care,” said Randy Oostra, president and chief executive officer of nonprofit hospital system ProMedica, based in Toledo, Ohio. ContinueReading