Originally published on Apr 10, 2018.

Walmart continues its’ aggressive acquisition strategy with PillPack, as part of their omni-channel transformation and new healthcare focus. Walmart is additionally rumored to be looking at an acquisition of $37B insurance giant Humana.

Current Landscape

Walmart started in pharmacy as early as the 1970’s. More recently, Walmart shook things up 12 years ago in 2006 with a $4 prescription program that covered nearly 300 generic drugs. Since then, Walmart has continued to expand their pharmacy capabilities and volume as well as partnerships, including compliance packaging.
Admitting the need to adapt is important for retailers; CVS and Walgreens are desperate to keep customers coming in-store, although much of their offering other than pharmacy is available elsewhere, (*cough* Amazon *cough*) cheaper and more convenient. Walmart, however, is embracing the omni-channel approach as it sees the success of rival Amazon. Walmart has made over 20 acquisitions in the past few years as part of their “digital push.” On the healthcare side, there are two companies that Walmart is looking to bring into the mix as it gears up to compete with today’s market pressures: PillPack and Humana.

Pill Pack

We first touched on Amazon acquiring an online pharmacy such as HealthWarehouse.com as recently as two months ago (https://goo.gl/vvAqMg). Two months later, Walmart makes their move by acquiring PillPack for “under $1 billion.” It is rumored that Amazon had also been looked at acquiring the business. An online pharmacy has inherent advantages for Walmart, including: Adherence, Customer Satisfaction, Cost-Savings, New Markets and Profitability.

Adherence
PillPack and other compliance packaging has proven to be extremely effective in helping consumers take their medication as prescribed. Compliance packaging has the day and time clearly labeled for each dose – no need to try and remember the last dose taken. Better adherence leads to better results; more volume for pharmacies is just icing on the cake.
Customer Satisfaction
Compliance packaging also leads to a more satisfied customer. Walmart’s e-commerce push is focused on a demographic with a higher socio-economic status; an aesthetically pleasing and convenient prescription is right in line with that focus.
Cost-Savings
Although there is significant cost to develop an online pharmacy business, once established the operations are very much automated. Leveraging massive pharmacy automation machines and centralized shipping, the act of dispensing medication can be made more efficient than employing a local, full-time pharmacist with staff and a physical pharmacy.
New Markets
This is a great way for Walmart to break into new pharmacy models as it continues to diversify and mount a challenge to Amazon’s multi-faceted healthcare entrance. What PillPack specifically brings to the table is that it currently supports most major insurance companies and has technology on delivering unit-dose medication. With these two capabilities, the company is suited for not only a direct-to-patient mail-order pharmacy but can also expand into various “closed-door” pharmacy activities such as serving facilities including hospice, behavioral health and correctional. Humana’s Kindred acquistion plays into this as well (more on this later).
Profitability
Making PillPack profitable is going to be easier after the acquisition: Walmart, through ClarusONE (McKesson partnership), leverages the purchasing power of the third-largest group in the United States.

Humana Acquisition

The PillPack announcement comes on the heels of a rumor that Walmart was looking to acquire the insurance behemoth Humana. Seven years ago, Walmart launched a co-branded Medicare Part D card with Humana; and this acquisition would allow for various synergies when combined with Walmart’s current activities and PillPack’s capabilities.
SMLXL

Consolidating Big Business
PHARMACY: In regards to size by revenue, Walmart pharmacy stands at a respectable #5 with an estimated $20.5B in 2017 revenue [1] and Humana comes at #8 with an estimated $6.3B in 2017 revenue [1].
PBM: Humana Pharmacy Solutions stands at #4 with 7% market share [2].
DISTRIBUTION & SOURCING: ClarusONE, a partnership Walmart has with McKesson, is the #3 with 23% of generic drug purchasing volume in 2017 [3].
Kindred Healthcare
Humana’s Kindred Healthcare acquisition into the Long Term Care sector could be powerful for Walmart as it would extend reach into patient homes.
Pill Pack Acquisition
Folding all three pharmacies into one (Walmart Retail, PillPack Mail Order/Long-Term-Care and Humana Mail Order) for volume, while utilizing PillPack technology stands to make the union extremely powerful.

What’s Next: The Strategy of Amazon Healthcare Trio & Mounting a Successful Challenge

Five Rivers RX saw the online mail-order pharmacy model as an interesting part of the supply chain as it keeps the industry current with the “delivery” trend while adding valuable efficiencies.
Recently, companies in the supply have looked vertically to protect their business model and keep consumers flowing through. However, the Amazon Healthcare Trio upends all of those efforts; if Amazon is able to control the consumer through benefits administration, they could skip the massive oligopolies along the way: (1) Cigna-Express Scripts ; (2) UnitedHealthcare-OptumRx ; (3) Aetna-Caremark-CVS-Red Oak ; (4) Walgreens-Amerisource.
Can’t wait to see what is next!
References:
[2] Market share numbers courtesy of Drug Channels (http://www.drugchannels.net/2017/12/the-cvs-aetna-deal-five-industry-and.html).
[3] Purchasing volume numbers courtesy of Drug Channels (http://www.drugchannels.net/2018/02/meet-power-buyers-driving-generic-drug.html).

 

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