Consolidation in Healthcare: What to Make of It?

TL;DR

Walmart potentially acquiring Humana shows the increasing trend of vertical integration in healthcare, while companies like Amazon, JP Morgan, and Berkshire Hathaway are also entering the industry.

Transcript

so how you have the a 16 SZ bio team here and I think we wanted to spend a few minutes talking about a lot of the headlines that are hitting in health care in in the very in recent weeks so going back to late last week there was news that Walmart's in the early stages of potentially acquiring Humana so this is large retail chain buying large insure... Read More

Key Insights

• 💋 Walmart's potential acquisition of Humana marks the integration of a retail chain with an insurer, showcasing the trend of vertical integration in healthcare.
• 😤 The consortium formed by Amazon, JP Morgan, and Berkshire Hathaway represents a different approach, with large employers teaming up to explore potential healthcare solutions.
• 🎁 The healthcare industry is undergoing significant changes, presenting opportunities for disruption and innovation.
• 🎯 The PBM industry is a target for disruption, with Amazon potentially becoming a PBM themselves.
• 👶 Entrepreneurs can leverage the changing landscape to focus on areas where new technologies can be applied and increase efficiencies.
• 👶 Gene therapies and cell therapies are emerging as new complexities in the industry, presenting opportunities for a digital PBM logistics chain.
• 💱 Digital therapeutics and genomic PBS may have parallels in the changing healthcare landscape.

Questions & Answers

Q: What are the implications of Walmart potentially acquiring Humana?

Walmart's acquisition of Humana signifies the merging of a major pharmacy chain with a large insurer, leading to increased vertical integration in the healthcare industry. This move could have significant effects on the overall value chain and potentially decrease costs.

Q: What are the possible outcomes of the consortium formed by Amazon, JP Morgan, and Berkshire Hathaway?

While these large employers joining forces may have some impact on local markets, their geographic dispersion limits the extent of their influence. On the other hand, companies like Walmart and CVS, being more localized, can potentially drive more value due to their ownership of patients and touchpoints.

Q: Could Amazon disrupt the pharmacy benefit manager (PBM) industry?

The PBM business is ripe for disruption, and Amazon's entry into the industry can be seen as an opportunity to drive innovation and increase transparency. Amazon could potentially become a PBM themselves rather than acquiring an existing one.

Q: As an entrepreneur, what opportunities exist amidst the changing healthcare landscape?

Entrepreneurs can focus on areas where there are gaps in the value chain due to increased vertical integration. One potential opportunity is the application of new technologies, such as digital therapeutics or a digital PBM, which can streamline distribution and increase efficiencies.

Summary

In this video, the speaker discusses the recent headlines in the healthcare industry, including Walmart's potential acquisition of Humana and the consolidation happening within the value chain. They also address the partnership between Berkshire Hathaway, Amazon, and JP Morgan, and the potential for disruption in the industry. The speaker explores the possibilities for entrepreneurs and predicts the emergence of a digital therapeutic PBM and a digital logistics chain for gene therapies and cell therapies.

Questions & Answers

Q: What is remarkable about Walmart potentially acquiring Humana?

The remarkable aspect is that Walmart is not only a major retail chain, but also a pharmacy chain. This vertical integration between a retailer and an insurer signifies a shift towards increased integration within the healthcare industry.

Q: How are the various players in the healthcare industry integrated into one giant monolith?

The various players in the industry include pharmaceutical companies, drug wholesalers, pharmacies, specialty pharmacies, and pharmacy benefit managers (PBMs). The integration of these players ensures that drugs are produced, distributed, and accessible to patients while controlling costs and ensuring the right drugs reach the right patients.

Q: What is happening with Walmart, CVS, Berkshire Hathaway, Amazon, and JP Morgan in the healthcare industry?

Walmart is potentially acquiring Humana, CVS has partnered with Aetna, and Berkshire Hathaway, Amazon, and JP Morgan are teaming up to make a healthcare-related play. These large players are consolidating across different segments of the value chain, leading to increased vertical integration.

Q: How does the geographic dispersion of large employers impact the consortium formed by Berkshire Hathaway, Amazon, and JP Morgan?

While this consortium consists of large employers, the fact that they are geographically dispersed makes it difficult for them to negotiate favorable deals in local markets. The impact of this consortium may be less significant compared to local players like Walmart and CVS.

Q: What could happen if Amazon becomes a pharmacy benefit manager (PBM)?

Currently, PBMs are highly consolidated and their margins are often criticized. Amazon, known for disrupting industries, could see an opportunity in the opaque PBM business and potentially enter the market as a PBM itself.

Q: What are the possibilities for disruption in the healthcare industry?

Although there is mass consolidation happening among the large players, there are also opportunities for disruption due to the rapidly changing landscape of healthcare. Entrepreneurs could focus on areas like digital therapeutics, which could act as a digital PBM, or the application of new technologies made possible by full vertical integration.

Q: What opportunities open up with full vertical integration for the application of new technologies?

Full vertical integration eliminates some of the transactional frictions associated with dealing with multiple players in the value chain. This creates opportunities for entrepreneurs to apply new technologies that were previously hindered by these frictions.

Q: Do you have any predictions for Amazon's involvement in the healthcare industry?

The speaker believes that Amazon will use partnerships to learn about the industry but may not acquire major players. Instead, they may pursue their own ventures or build new businesses. However, they always have the potential to surprise.

Q: What other businesses could emerge in the healthcare industry?

The speaker predicts the emergence of a digital logistics chain for gene therapies and cell therapies, as these advanced treatments present new complexities from a logistical and drug handling standpoint. The increasing shift towards cell therapies might make this prediction a reality sooner.

Q: What is the similarity between digital therapeutics and genomic PBS?

The speaker draws a comparison between digital therapeutics and genomic PBS (pharmacy benefit managers). They suggest that, similar to how there were not enough genomic tests initially, digital therapeutics may face a similar situation where demand exceeds supply. This highlights the potential for growth in the digital therapeutics industry.

Takeaways

The healthcare industry is going through significant changes, with major players acquiring or partnering with each other to achieve vertical integration. This consolidation may lead to decreased costs and increased value. However, there is also room for disruption, particularly in areas like digital therapeutics and logistics for advanced treatments. Entrepreneurs should focus on where the industry is heading and consider the application of new technologies and the emerging needs within the value chain. Additionally, the involvement of companies like Amazon and Apple brings further unpredictability and potential for innovation in the healthcare space.

Summary & Key Takeaways

• Walmart's potential acquisition of Humana signifies the integration of a major retail chain with a large insurer.

• Vertical integration is becoming more common in healthcare, with various players across the value chain joining forces.

• Companies like Amazon, JP Morgan, and Berkshire Hathaway are also entering the healthcare industry, indicating significant changes on the horizon.