Walmart, Amazon and CVS’ plan to disrupt healthcare services could benefit PE and VC

Rebecca Springer, Ph.D., is a senior healthcare analyst at PitchBook.

Amazon, Walmart and CVS are once again shaking up the healthcare industry with a series of acquisitions and partnerships that bring the retailers further into healthcare delivery. Chief among their goals: Bring innovation and increase access to care both in the home and at clinics and retail locations.

The acceleration of strategic activity by deep-pocketed newcomers to healthcare services has implications for VC and PE investors in spaces such as primary care, Medicare Advantage (MA), care coordination and value-based care enablement—portending potential exit opportunities as well as competition.

What’s driving the news

  • July 21, 2022: Amazon announces it will acquire One Medical for $3.9 billion; CVS had been in advanced talks to acquire the company.
  • Aug. 21, 2022: Bloomberg reports that CVS, Amazon and UnitedHealth are among bidders for in-home evaluation provider Signify Health.
  • Aug. 24, 2022: Amazon announces it will wind down Amazon Care, its employer-direct primary care business.
  • Sept. 5, 2022: CVS announces it will buy Signify Health for approximately $8 billion.
  • Sept. 7, 2022: Walmart announces a 10-year partnership with UnitedHealth Group to collaborate on value-based care, including the launch of a co-branded MA plan.


Healthcare strategy background

Walmart’s healthcare activity can be bucketed into three themes: Medicare and MA insurance distribution, whole-person primary care, and employer-direct virtual care.

In 2018, The Wall Street Journal reported that Walmart was exploring an acquisition of Humana, with whom it has offered a co-branded Medicare Part D drug plan since 2010. The rumored deal, which would have been in the range of $67 billion, never materialized, and Walmart instead pursued a more balance-sheet-light route. In October 2020, the company launched an in-house insurance brokerage offering Medicare, MA and Part D drug plans, and simultaneously launched a co-branded MA plan with Clover Health.

Although limited in scale, Walmart’s in-store healthcare offering is one of the most comprehensive among nontraditional healthcare entrants. The company launched Walmart Health in 2019 and now provides primary care, urgent care, labs, imaging, behavioral healthcare, audiology, dentistry and optometry at 26 retail locations.
The following year, Walmart also began a partnership with Oak Street Health, a MA-focused primary care provider, to open Oak Street clinics at Walmart locations in Texas. In June 2020, the company quietly acquired a medication management app from late-stage startup CareZone, which helps family members care for individuals with chronic conditions.

The third strand of Walmart’s healthcare activity targets a different patient demographic. In 2021, Walmart entered virtual care with the acquisition of multispecialty telehealth provider MeMD, which has since rebranded as Walmart Health Virtual Care. The program currently offers primary care, urgent care, men’s and women’s health, and behavioral health services through contracts with commercial payers and employers.

UnitedHealth partnership

Walmart’s 10-year partnership with UnitedHealth to collaborate on value-based care is in line with the retailer’s strategy of healthcare expansion through partnerships rather than M&A, but appears to be significantly more ambitious in scope. The collaboration touches on all three of the themes outlined above.

First, UnitedHealth and Walmart will offer a co-branded MA plan, to be piloted in Georgia, where the Walmart Health buildout is most advanced.

Second, Optum, UnitedHealth’s provider and clinical data subsidiary, will also provide Walmart Health clinicians with analytics and decision support tools. This should allow Walmart Health to build its capabilities as a risk-bearing provider through evidence-based interventions and population health management. If properly executed, the partnership will give Walmart the clinical advantages that payer-providers like Optum-UnitedHealth enjoy—the ability to use payer data and analytics capabilities to manage value-based care—without requiring Walmart to purchase a payer and pharmacy benefit manager (PBM).

Third, Walmart Health Virtual Care will be offered as a benefit in one of UnitedHealth’s commercial PPO plans. However, this arrangement appears to be a mutually beneficial add-on to a partnership that is at its heart a value-based care play.

Implications for PE and VC

PE- and VC-backed companies that help providers address social determinants of health (SDOH), address the challenge of access to care for rural populations or focus on Medicaid reimbursement should take note of Walmart’s healthcare play. The UnitedHealth partnership announcement notes that the companies hope to partner on commercial and Medicaid value-based care as well as SDOHs such as access to fresh food.

It would not be surprising to see Walmart look for partnerships with provider groups that serve rural, Medicaid or dual-eligible (Medicare and Medicaid) populations. Home care and care coordination services would be a natural fit. At the same time, UnitedHealth itself has been a voracious acquirer of late; Walmart may find ample resources to grow its healthcare footprint within the existing partnership.


Healthcare strategy background

Of the three retailers currently making headlines in healthcare, CVS’ healthcare foray is the most established. The company began offering walk-in medical services at its retail pharmacy locations in the early 2000s. CVS MinuteClinics and HealthHUBs currently offer routine physicals, screenings, immunizations, minor injury care and illness treatment, as well as mental health counseling provided by advance practice providers (APPs) and therapists, both in-person and virtually. CVS HealthHUBs offer an expanded suite of services designed to address SDOHs and chronic conditions, including wellness and health education classes, support for tobacco cessation, sleep assessments, and an expanded durable medical equipment (DME) range.

With its $69.8 billion acquisition of Aetna in 2018, the drug store chain began to move toward the vertically integrated payer-provider model of UnitedHealth, Elevance and Humana. Additionally, CVS’ (PBM), CVS Caremark, is one of the “big three” PBMs that together account for roughly 80% of market share. CVS has now assembled two of the three main components of a large payer-provider—payer and PBM—and is now working to grow the third component—the provider.

Signify acquisition

CVS’ announced $8 billion acquisition of Signify Health is the company’s first significant acquisition since Aetna. New Mountain Capital-backed Signify began as a value-based care enabler focused on episodes of care, but pivoted to providing in-home health evaluations, primarily for MA plans, following its March 2022 acquisition of VSS-backed Caravan Health.

CVS’ acquisition of Signify, coupled with its existing interest in connecting health and wellness services with DME products via its HealthHUB locations, suggests additional opportunities in remote patient monitoring. Companies that help clinicians observe patient vitals, prompt interventions and facilitate coordination across care teams—especially for common chronic conditions like diabetes—may find acquisition or partnership opportunities. Given CVS’ retail pharmacy presence and ownership of CVS Caremark, software and connected devices that support medication management and adherence may also be relevant.

Implications for PE and VC

CVS’ near-miss in acquiring One Medical—which provides concierge, hybrid primary care via both consumer-direct subscriptions and employer contracts—offers an additional window into the company’s ambitions within primary care. While CVS has until now focused on basic primary care provided by APPs, in May 2022 it announced the launch of CVS Health Virtual Primary Care, a comprehensive, physician-led primary care service, which is being sold to Aetna plan sponsors including self-insured employers. Patients can combine the virtual service with in-person visits to in-network providers including MinuteClinics, using CVS’ virtual care app to facilitate patient record interoperability and care coordination across providers.

A logical next step—which One Medical would have represented—would be for CVS to capture those in-person transfers by building or acquiring more advanced, in-person primary care capabilities, and complementary services such as labs. By offering full-service primary care, CVS could enhance its employer-facing offering while also leveraging its chronic condition management capabilities to pursue value-based care.

Primary care physician groups, especially concierge providers like One Medical, are an obvious target. Another possibility is offering “primary care plus” specialty care in areas such as women’s health or heart disease. Provider groups (brick-and-mortar or hybrid) as well as patient engagement and care coordination technology providers may find opportunities here. Finally, because there is an acute shortage of mental health counselors, it would not be surprising to see CVS try to expand its current mental health offering through an acquisition of or partnership with a virtual therapy provider.


Healthcare strategy overview

Amazon’s activity in the healthcare services space has been scattershot. The company entered the e-pharmacy space in 2018 with its $753 million acquisition of PillPack and has since begun selling prescription drugs online under the brand Amazon Pharmacy.

The same year, Amazon created a nonprofit joint venture, Haven, with Berkshire Hathaway and JPMorgan Chase. The effort was intended to lower healthcare costs and improve care access for the three companies’ employees, but it did not progress beyond a small insurance pilot administered by Cigna and Aetna before it was shuttered in January 2021. Amazon’s next healthcare services iteration, Amazon Care, provided hybrid (in-person and virtual) primary care to Amazon’s own employees starting in 2019; Amazon Care subsequently signed a handful of employer clients.

One Medical acquisition

Amazon’s agreed acquisition of One Medical represents a pivot to buy rather than build. Amazon announced it will wind down Amazon Care by the end of 2022, shortly after it agreed to buy One Medical. Building physician practices de novo is slow even with ample access to capital, and startup medical groups that lack market power face an uphill battle in payer negotiations. With the acquisition of One Medical, Amazon would acquire the most recognizable brand in concierge primary care; a network of more than 200 brick-and-mortar locations, concentrated in Tier 1 markets; and crucially, One Medical’s payer contracts.

Implications for PE and VC

Future commercial contracts around value-based care: Connecting the dots, it is clear that Amazon is interested in providing value-based care—but unclear what path the company will pursue to that end. According to reporting from Business Insider, Amazon approached several commercial payers in an attempt to set up value-based care contracts for Amazon Care. However, payers were unwilling to move forward because they wanted stronger evidence that Amazon Care could lower costs. This is unsurprising given the inherent difficulty of delivering cost savings via primary care for commercially insured populations, even for well-established healthcare providers.

If Amazon wants to pursue value-based care for One Medical’s commercially insured patients, it will need to look at bundling for care episodes like maternity, orthopedic surgery or oncology—likely by acquiring a value-based care enabler and partnering with specialist physician groups and hospitals. Finally, like CVS, Amazon could benefit from bolstering its virtual mental health therapy offering through an acquisition, currently provided via One Medical on a limited scale.

The Iora Health question: Amazon’s agreed purchase of One Medical would include Iora Health, a senior primary care provider focused on MA contracts. One Medical acquired Iora for $1.4 billion in 2021 and has begun integrating under the brand name One Medical for Seniors. However, it is unclear what interest Amazon will have in pursuing senior care.

For One Medical, Iora represented a financial opportunity: Roughly half of the combined company’s revenue currently comes from the 5% of its patients in the MA plans that Iora contracts with. However, this financial incentive is negligible for Amazon, and Amazon’s healthcare plays so far have focused on younger, commercially insured workers. If Amazon wanted to jettison Iora via a carveout, it would likely have numerous interested private equity buyers, potentially at a discount to its 2021 purchase price given sagging multiples for publicly traded comps.

Antitrust investigations: The FTC’s investigation of the One Medical acquisition comes as a surprise because Amazon’s existing presence in healthcare is extremely limited. The FTC under the Biden administration has increased its antitrust enforcement activity in healthcare, but it has primarily focused on horizontal mergers among health systems that would consolidate regional markets.

The DOJ lawsuit to block UnitedHealth’s $13 billion acquisition of Change Healthcare is a closer analogy because it turns on the consolidation of data ownership, something the FTC is likely interested in given Amazon’s wealth of consumer data. We feel the antitrust case against Amazon and One Medical is weak, but the investigation highlights the increased political scrutiny that deals involving high-profile technology companies are likely to attract. PE and VC investors must be cognizant of this risk when considering exits to nontraditional strategics.

Retail disruption is a net positive for private players

For many PE- and VC-backed companies, nontraditional healthcare players increasingly represent potential acquirers, partners or even competitors—for patients or clinical talent. Despite narratives that assume large companies (particularly Amazon) will immediately dominate every sector they touch, our view is that the growing presence of retailers in healthcare is an overall positive for VC and PE investors in the relevant healthcare services and IT subsectors.

Buying is almost always easier than building in healthcare services, and these deep-pocketed newcomers are likely to provide numerous exit opportunities for VC- and PE-backed companies before they achieve the market density and vertical integration necessary to become dominant players on the order of the large regional health systems and payer-providers. For companies working to innovate in value-based care, health access and SDOH, the consumer data capabilities and retail infrastructure of companies like CVS, Amazon and Walmart may make them ideal partners.

Related read: PitchBook’s Q2 2022 Global M&A Report

Featured image courtesy of Walmart