Walmart isn’t the first place patients tend to go after spraining their ankle or coming down with a bout of the flu — but in future years, seeing a doctor, filling a prescription, and picking up a few get-well odds and ends in a single trip to the store might just become the norm. This spring, the retail giant sparked debate across health services and investment communities when it stated its intent to purchase the behemoth insurance provider Humana.


The news broke mere months after CVS Health announced that it would acquire Aetna, another health insurance giant, for $69 million. The decisions might seem somewhat surprising from the outset; after all, neither businesses are particularly well-known in the health services sector. Walmart and CVS are primarily retailers, not care providers — and yet, their investments stand to overhaul the way patients access treatment in a market that increasingly prioritizes value-based care.  


Mergers aren’t in and of themselves unusual. According to a recent report from the multinational auditor PwC, the US Health Services sector has brought in over 200 deals in the second quarter of 2018 alone, continuing a fifteen-quarter-long attainment streak. Deal volume has risen a full 9.4% since this time last year, with long-term care centers and provider networks attracting the most investor attention. However, large-scale partnerships with retail businesses were all but unheard of before last year. Most are between organizations that are already well-established in the healthcare sector.  Bonds between like-sized hospitals, hospital systems, provider offices, and health networks are both common and practical, as they cut out redundant services, pool staffing resources, streamline processes across service providers, limit the impact of technology and pharmaceutical costs, and expand geographic and network coverage. Most importantly, however, mergers enable the smooth implementation of a value-based care model.


Over the past decade, patient and payer dissatisfaction over the traditional fee-for-service model of healthcare reimbursement has reached a fever pitch. As the name suggests, the fee-for-service framework reimburses doctors according to itemized bill charges, thereby incentivizing quantity of care services over quality. Value-based care is the opposite: it prioritizes high-quality care by rewarding physicians for providing efficient and effective care.


The latter model has been touted as an alternative to — or even replacement for — the tradition fee-for-service framework; however, value-based systems can be daunting to institutions, given that they put more financial pressure on providers to successfully treat patients. Healthcare organizations who want to embrace the value-based model need to be cost-effective and operationally efficient — so, they opt into mergers to smooth the transition.  This strategy generally works well; one study published in Health Affairs found that mergers between hospitals led to an average price reduction of about 7%.


Of course, there are times when merges fall flat. While hospitals and smaller care networks may be able to merge and acquire with minimal difficulty, horizontal integration among insurers can be challenging. In early 2017, Aetna and Humana were forced to cancel a planned deal after antitrust regulators blocked the  $37 billion partnership out of a concern that it would lead to market monopolization and price-fixing. Those looking to establish horizontal alliances between insurers face an uphill battle — unless they try to create vertical bonds instead.


By acquiring Aetna, CVS Health pioneered a new kind of lucrative investment: one that would both allow for efficiency-boosting partnerships without creating deal-breaking monopolies. As Randal L. Schultz, chair of the Healthcare Strategic Business Planning Practice group at Lathrop Gage, addresses the subject in an article for Health Leaders Media, “If you’re huge in pharmaceutical distribution and you buy a big insurer that controls where patients go for care, you’re creating a more lean, mean, efficient machine.” In fact, Schultz later notes, if insurers decide to take the next logical step and acquire physician practices, they will have access to the provider data they need to shuttle patients through more cost-effective care delivery models.


That very strategy is now on the table with the Walmart-Humana deal. When considered jointly, the companies encompass nearly every rung on the vertical integration ladder, from insurance to pharmacy to retail-based primary care clinics. The two have already seen success selling co-branded, stand-alone prescription drug plans to senior patients; if they merge, they could create a funnel which would both keep all treatment for those in-network seniors within one healthcare ecosystem and manage costs for providers. If this partnership passes regulatory muster, Walmart could quickly become a one-stop-shop for every senior, adult, and child enrolled in Humana’s plans — and pioneer an entirely new frontier for retail players in the healthcare sector.