As health care giants including CVS Health Corp. and Cigna Corp. spend billions on acquisitions that will transform them into vertically integrated powerhouses, their rivals Walgreens Boots Alliance Inc. and Humana Inc. are reportedly responding with a deal of their own.
Instead of combining, the pair are discussing a looser arrangement, according to the Wall Street Journal: They may take sizable stakes in each other and expand their existing senior-focused health care partnership. This would be a less risky path than betting tens of billions of dollars on an outright deal. But it would also be something of a half-measure may not offer much protection in a rapidly evolving market.
Such a deal would theoretically offer some of the benefits of a merger on the cheap. But “some” is the key word here. The two firms could split the cost of opening new clinics in Walgreens stores that serve Humana members. But they would also have to figure out a way of dividing any revenue or cost-saving benefit. That won’t be a problem for companies like CVS and Aetna Inc., which are set to close on their $69 billion megamerger soon.
Walgreens and Humana won’t always be aligned in their goals, and two sets of executives will have to approve any decisions, and may have trouble negotiating as a unit. That will likely render them less nimble and committed than CVS and Aetna. This partnership also lacks a key component that several rivals now have: a giant pharmacy benefit manager that can work to keep drug costs down. Humana’s PBM is a minnow compared to CVS, Express Scripts Holding Co. (which is about to be bought by Cigna), and UnitedHealth Group Inc.’s Optum.
This isn’t to say those big health mergers in the works will pay off. Both CVS’s acquisition of Aetna Inc. and Cigna Inc.’s takeover of Express Scripts Holding Co. have their risks, for example. But they at least represent a commitment to a strategy and a full consolidation of negotiating scale.
Walgreens CEO Stefano Pessina recently told Bloomberg News that he should have bought an insurer years ago. Tying his company’s fate to a piece of one isn’t likely to salve that regret.
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Max Nisen is a Bloomberg Opinion columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.