Drugstore operator, Walgreens Boots Alliance and health insurer, Humana are reportedly in preliminary talks to deepen their partnership, which could include the two companies taking up equity stakes in each other.
In an interview at the 2018 Forbes Healthcare Summit in New York City, Walgreens Boots Alliance Chief Executive Officer and Executive Vice Chairman Stefano Pessina said his company and Humana were exploring the prospect of moving their relationship beyond the Kansas City clinical pilot program.
Prospects for deal look good, but uncertainty remains
Without being specific about the modalities of a future partnership, Pessina said: “If the concept works, we intend to expand that concept. However, Pessina said they could pursue a joint venture, a commercial agreement or “another form of partnership.”
Pessina insisted that the two companies did not have to go into full integration.
While it is not yet clear what form an expanded partnership would take, Pessina in October expressed his earlier desire for Walgreens to have bought a health insurer.
Purchasing a health insurer could help Walgreens position itself as “a broader health-care company helping to transform patient experience, while lowering costs.”
However, there have been mixed messages from Walgreens about the prospects of a deal. The company’s executive vice president and global chief financial officer, James Kehoe told the annual Credit Suisse Healthcare Conference in mid-November that: “We’re not in a hurry to make a deal.”
Uncertainty about whether the deal would succeed, has so far kept executives of the two companies tight lipped.
Were the deal to succeed, it would expand on a partnership between the two companies, following the setting up of a pilot program (announced in June) that saw the opening of two senior-focused care centers in existing Walgreens stores in Kansas City, Missouri, to serve Medicare patients. The partnership provides in-person primary care, pharmacy services and health plan guidance.
The idea behind the clinics is that they should go beyond check ups and appointments and instead focus on building relationships with patients, helping them manage chronic conditions and understand their health plan benefits.
Walgreens says they have been impressed by the results of their partnership with Humana so far, with Pessina saying: “The first reactions of people have been very, very good.” This is a sentiment shared by Kehoe, who said although the pilot program just had two clinics, “the initial signs are very, very positive and that’s a big deal.”
This portends well for the prospect of the two companies agreeing to a deal.
Humana is reportedly also excited about the prospect of a deal, with its president and CEO, Bruce Broussard saying an early finding of the pilot program with Walgreens “is that the convenience of the store is highly appreciative.”
“I suspect that we will do some other stores before we conclude on this particular offering. And I think being able to do a few more stores will also give us the confidence in being able to scale it,” Broussard was quoted saying.
The Wall Street Journal reported that the proposed deal between the two companies is meant to secure new avenues of growth for Walgreens and to capture more of what consumers spend on healthcare.
Disruption, competition could give deal impetus
Reports speculate that Walgreens and Humana are entertaining thoughts of a deal because of increased competition following CVS’s acquisition of Aetna for $69 billion set to be finalized soon, while Amazon acquired Pillpack, an online pharmacy that ships presorted medication to 49 states, marking its entry into the pharmacy space.
The CVS and Aetna deal has already received preliminary approval from the U.S. Department of Justice. The deal will see Aetna pushing its 22.1 million members to CVS pharmacies and retail health clinics which operate inside the pharmacy’s stores.
CNBC reported that the discussions between Walgreens and Humana could be illustrative of the disruption that pharmacies and health insurance companies are facing due to new pressures. “Consumers can now get their household goods online and in convenience stores. The health-care industry is undergoing dramatic transformation amid regulatory scrutiny over rising costs,” the website reported.
Pessina says he is not losing any sleep about the Amazon deal and the threat it could pose were the internet giant to set up physical pharmacies.
Pessina said he did not think Amazon would be a big threat: “It will be another competitor, but I don’t think we’ll disappear because of Amazon. We’ll adapt.”