Walmart in talks with Humana for deeper partnership

Walmart Inc. is in talks with health insurer Humana Inc. for a closer partnership to provide healthcare to consumers at home and prevent illness, according to a person familiar with the matter.

Healthcare spending accounted for about 18% of the U.S. economy last year, and continues to surge with an aging population, pricey medications and a complex regime of reimbursements and middlemen. Companies have been trying to address some of the market’s inefficiencies by forging alliances or getting bigger: Cigna Corp. is acquiring Express Scripts Holding Co. for $54 billion, and CVS Health Corp. is buying Aetna Inc. for $68 billion.

Walmart and Humana have explored a wide range of options including a merger, though an outright combination isn’t likely at this point, said the person, who asked not to be identified discussing private information. The Wall Street Journal reported Friday that Walmart was in early talks to acquire Humana.

An acquisition of Humana’s size — $37 billion — would be rare for Walmart, which has mostly been focused on buying e-commerce companies, including last year’s deals for Bonobos Inc. and ModCloth.

But the company still gets plenty of shoppers in physical stores who rely on its 4,700 pharmacies in the U.S. Like drugstore chain CVS, Walmart could use a partnership, or even a merger, with an insurer to take on a more powerful role in the delivery of medications to consumers.

Walmart and Humana already work together on prescription drug plans for individuals in the Medicare program. The plans offer some prescriptions for as little as $1, as long as customers pick up their drugs at a Walmart or Sam’s Club. Walmart could use a closer tie-up to steer more of Humana’s customers to its stores through its drug coverage arrangements.

Stores can also be a convenient place for individuals to get care, and both CVS and Walmart have clinics in some locations.

The rising cost of healthcare has captured the attention of some of corporate America’s biggest titans. Amazon.com Inc., JPMorgan Chase & Co. and Berkshire Hathaway Inc. announced plans earlier this year to set up a business to improve their employees’ care. Berkshire Chairman Warren Buffett called high health costs a “tapeworm” afflicting the U.S. economy.

Walmart has been buying healthcare for its workers directly from providers in six different regions — bypassing insurers who usually negotiate with doctors and hospitals. The idea has been to squeeze out middlemen and drive down costs in the same way that the retail giant’s tough bargaining has brought down prices for shoppers.

Walmart has been testing its new plans, known as accountable-care organizations, or ACOs, for two years. ACOs, which can be set up by employers on their own or with an insurer’s help, limit consumers to a smaller group of care providers.

Tracer and Hammond write for Bloomberg.