How Home Care Could Be Re-Shaped if Walmart Acquires Humana

In the midst of acquiring a stake in the largest home health provider in the nation, insurance giant Humana (NYSE: HUM) might also be in early stage talks to itself be acquired by retail behemoth Walmart (NYSE: WMT). The combination of Humana and Walmart, though far from certain, would potentially be a game-changer for home care and the overall health care delivery and payment system for U.S. seniors.

On Thursday, The Wall Street Journal was the first to report that Louisville, Kentucky-based Humana and Bentonville, Arkansas-based Walmart are negotiating, citing an unnamed source familiar with the matter. Details remain scarce, but subsequent reporting from Bloomberg indicated that Walmart and Humana have been discussing a “wide range of options,” and that at this point, an outright combination is not likely.

Still, the rumors were enough to send Humana’s stock surging, with shares jumping from $263.21 on Thursday morning to $268.83 mid-day Friday, bringing the company’s market capitalization to around $41 billion. Walmart was up 1.48% on Friday afternoon, trading at $88.97 a share.

Humana had not responded to requests for comment as of press time. Walmart does not comment on rumors or speculation, the company stated in an email to Home Health Care News.

The Walmart rumors began swirling on the same day that shareholders of Louisville-based Kindred Healthcare (NYSE: KND) began casting votes to approve or reject a proposed deal with Humana. In that $4.1 billion transaction, first announced in late December, Humana would acquire a 40% stake in Kindred at Home, the largest U.S. home health provider. Two private equity firms would acquire the other 60%, but Humana would have the chance to fully take over Kindred at Home over time. The shareholder voting is scheduled to close on April 5.

Walmart could be interested in tying up with Humana as a defensive move against Amazon, its fierce retail rival.

Though known primarily for its e-commerce platform, Amazon has been making inroads into health care recently. It is teaming up with JP Morgan Chase and Berkshire Hathaway on a new venture that will seemingly manage insurance benefits for the companies’ roughly 1.5 million employees, although the exact nature of the three-way partnership has not yet been clearly defined.

In addition, Amazon has been active in the pharmacy space, leading to chatter that it might be interested in acquiring a pharmacy benefit management (PBM) company.

Acquiring Humana would hypothetically be a way for Walmart to answer both these plays by Amazon.

Humana is “by far the largest PBM” that realistically could be acquired at the moment, Bloomberg reported. Other major pharmacies such as CVS and Express Scripts are already in the midst of mega-mergers with insurers Aetna and Cigna, respectively. Walmart and Humana have partnered on some prescription plans, under which Humana beneficiaries can pay as little as $1 for medications picked up at Walmart locations.

Furthermore, owning one of the largest U.S. insurers would be a way for Walmart to internally manage the benefits of its own 1.5 million employees.

“Walmart has an opportunity to leverage their own massive employee health care needs to beat Amazon to the punch of re-imagining health care first for employees and eventually for consumers,” Brittain Ladd told Home Health Care News. Ladd is an independent consultant who specializes in digital, operations and supply chain management, and he previously focused on these areas in jobs with Amazon and accounting/advisory firm Deloitte.

Home care is a piece of the puzzle

These potential moves by Amazon and now Walmart have put home care providers—both Medicare-certified and private-duty agencies—on alert.

Most obviously, an outright acquisition of Humana would make Walmart a de facto home health provider, assuming that Humana’s acquisition of Kindred at Home is completed as planned. Jarring as it might be to think of Walmart as a home health company, lines are already being blurred between insurance, retail and home care.

For example, CVS and Aetna are joining forces, with one goal being to transform CVS pharmacies into one-stop shops where seniors could buy a greeting card, pick up a prescription, and receive health care services—helping them to manage chronic conditions, avoid hospitalizations, and improve the bottom line for Aetna’s large Medicare Advantage business.

Walmart and Humana could execute a version of this model on an even larger scale. Humana is the second-largest Medicare Advantage provider in the nation, behind only UnitedHealthcare. And Walmart is the largest retailer in the world, with $485 billion in annual sales, according to the Forbes Global 2000 rankings for 2017. CVS ranked as the second-largest retailer on the list, with about $178 billion in sales.

“The reason why I recommended [in a piece last June] that Walmart acquire a health insurer is because of the fact 90% of Americans live within 10 miles of a Walmart store,” Ladd told HHCN. “Acquiring Humana provides Walmart with an imperative to greatly expand their pharmacy, clinics, health care, and insurance capabilities within their stores to give seniors and others easier access to a provider capable of meeting the majority of their health care needs.”

In the long run, Walmart has the potential to be a huge driving force not only for transforming home care but the whole senior care ecosystem, he believes. He painted a picture of Walmart fulfilling Meals on Wheels deliveries from its stores, offering house cleaning, and doing on-demand wellness and welfare checks of seniors living at home. Already, tech-forward home care startup Honor has opened storefronts inside some Texas Walmarts.

Walmart could eventually even acquire nursing homes or develop its own alternative to nursing homes, powered by its supply chain, technology platforms, and health care services, Ladd postulated.

Home care providers and industry stakeholders have already been envisioning this type of large-scale disruption, in light of Amazon’s recent moves.

If Amazon were to leverage its retail services, technologies, and customer support to enable aging-in-place, it could theoretically reduce the need for traditional caregivers, posing a threat to established providers. On the other hand, Amazon is already boosting home care in certain ways—its voice-activated technologies like Echo are proving valuable in supporting in-home care, for example. And its experiment with Chase and Berkshire Hathaway could lead to more in-home care, if the three corporate giants try to lower costs by covering services delivered at home rather than inpatient settings.

Similarly, though home care providers might tremble at the thought of Walmart becoming a direct competitor, transforming retail stores into robust health care hubs is not necessarily bad for the industry, if it enables more seniors to live at home for longer periods of time. The trend can be seen as a “validation of the home health pitch,” which is that the volume of patients will increase in the coming years as more people will be able to age in place, Brian Tanquilut, analyst with investment bank Jefferies, told HHCN after the Aetna-CVS deal was announced in December.

Of course, Walmart acquiring Humana is far from certain, no matter how compelling the arguments might be. And there are drawbacks and obstacles as well.

Operationally, Walmart would be expanding outside its core competencies in retail. Financially, the price tag on Humana could run to $50 billion, but Walmart ended 2017 with only $6.76 billion in cash on hand, the WSJ reported. If Walmart were to issue stock rather than take on debt for the acquisition, the Walton family’s ownership stake likely would drop below 50%, which could be an impediment. There would be inevitable regulatory hurdles to clear as well.

Even if this particular deal does not go through, the writing appears to be on the wall that home health and private duty providers need more scale and sophistication than ever before, both to compete against and potentially partner with the massive corporate entities taking an interest in the sector.

It’s a point recently made by several CEOs of home health companies, including AccentCare CEO Stephan Rodgers, and is one reason for consolidation in the space. As Kindred’s shareholders were casting their votes on the Humana deal, two other heavy hitters—Lafayette, Louisiana-based LHC Group (Nasdaq: LHCG) and Louisville-based Almost Family (Nasdaq: AFAM)—on April 1 closed on a merger that will create the second-largest home health provider in the nation.

Written by Tim Mullaney