By Anna Wilde Mathews and Sharon Terlep 

The emergence of talks between Walmart Inc. and Humana Inc. creates pressure on the health-care companies that haven't yet made deals, amid the rapid-fire integration that is reshaping the business of managing health care.

A Walmart-Humana deal -- which is far from assured, as the companies are in early-stage talks about a variety of possible options -- would become the latest sign of the sector's rapid move toward combinations that unite different businesses under one roof. It would come in the wake of the $69 billion deal between drugstore chain and pharmacy-benefit manager CVS Health Corp. and insurer Aetna Inc., and insurer Cigna Corp.'s $54 billion agreement to acquire the biggest PBM, Express Scripts Holding Co.

The spotlight is on remaining companies such as Walgreens Boots Alliance Inc. and Anthem Inc., as well as smaller health insurers that could broaden their roles into different sectors, analysts said.

"Whether you're a payer, a retail clinic, a retailer, a PBM or a pharma company, you're thinking, 'how do I start to blur those lines and start playing across those lines,' " said Gurpreet Singh, Health Services leader at PwC.

U.S. drugstores are under pressure to move beyond dispensing prescriptions and selling candy, makeup and soda as Amazon.com Inc. chips away at the companies' retail business and cost-control efforts by insurers pressure drug margins. Amazon has also signaled it may go deeper into the health-care and pharmaceutical sectors, which would add to the threat.

Asked about the possibility of a deal during a call with analysts on Wednesday, Walgreens Boots Chief Executive Stefano Pessina said the pharmacy industry is in need of a major overhaul, but "I don't believe that the change is only possible if you merge with a health plan." He added: "The main transformation will be to adapt the stores to what the future customer will require."

Walgreens has nevertheless been pursuing a big deal. Resistance from federal antitrust regulators derailed the company's attempt last year to acquire rival pharmacy chain Rite Aid Corp. Instead, it agreed to buy about 2,000 Rite Aid stores for around $4 billion.

The Deerfield, Ill., company, with more than 13,000 stores in 11 countries, recently made an approach to drug distributor AmerisourceBergen Corp., The Wall Street Journal reported in February. Negotiations have since stalled, but could restart, according to people familiar with the talks. Walgreens executives declined to discuss Amerisource discussions when asked this week on an earnings call.

In the insurance sector, analysts said, smaller companies like WellCare Health Plans Inc. have long been seen as targets for acquisition. Centene Corp., a giant in the Medicaid space, has been growing rapidly through acquisitions, including its effort to take over nonprofit New York health insurer Fidelis Care. Centene "hasn't been sitting still," said Ana Gupte, an analyst with Leerink Partners LLC. "They have been growing well organically and inorganically."

Centene also recently invested in a PBM known as RxAdvance, a move that CEO Michael Neidorff highlighted at recent investor conference. "You'll be hearing a lot more about it," he said.

UnitedHealth Group Inc., parent of the biggest U.S. insurer, is already vertically integrated, with its ownership of a growing roster of doctor groups and surgery centers as well as its own PBM. The health giant has remained on the M&A warpath in recent months, including its announcement in December that it will buy DaVita Inc.'s big physician group.

Anthem, for its part, has embarked on a vertical move without a big acquisition -- it is starting its own PBM, set to launch in 2020, when its current PBM deal with Express Scripts ends. The insurer's new CEO, Gail K. Boudreaux, has said she is focused on strengthening Anthem's own operations and expects major savings and growth from the new PBM, which could serve Anthem's fellow Blue Cross and Blue Shield insurers, among other clients.

Asked about the Cigna deal at a recent investor conference, Ms. Boudreaux said it hadn't changed Anthem's thinking. "We love the capital efficiency of the model we have and feel really good about what we've done," she said.

Anthem, which has deep local market share, has the scale to "go it alone for a while," said Ms. Gupte. Down the road, analysts have said, Anthem may also have acquisition opportunities among other Blue Cross and Blue Shield insurers, an option that would be far more difficult for other major national insurers that aren't already Blue plans themselves. Anthem already has Blue plans in 14 states.

Write to Anna Wilde Mathews at anna.mathews@wsj.com and Sharon Terlep at sharon.terlep@wsj.com

 

(END) Dow Jones Newswires

March 30, 2018 15:59 ET (19:59 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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