When Sam Walton opened his Ben Franklin Variety Store in Newport, Arkansas in 1945, few imagined it would evolve to a global powerhouse operating from 11,400 retail locations in 26 countries serving 240 million customers weekly. In FY2021, its global operations produced $559 billion in revenues and $36 billion in free cash flow: U.S. operations accounted for $370 billion of these revenues and $29 billion of its free cash flow from activities in its 5342 U.S. store locations and eCommerce activity.
Last Thursday, Walmart (WMT) announced it plans to acquire telehealth provider MeMD and offer nationwide virtual health care services. Though terms of the deal were not disclosed, it’s no surprise. The company’s footprint in U.S. healthcare services has evolved from wellbeing and primary care services for its 1.6 million U.S. associates to a sophisticated omni-channel strategy to tap into the lucrative U.S. healthcare market. It’s youthful C suite (average age 51, average tenure in current role: 2.6 years) and longstanding adherence to core tenets (everyday low prices, everyday low costs) have served it well and hold particular intrigue for competitors and analysts who think healthcare ripe for disruption.
In investor presentations and SEC filings, signals about Walmart Health’s future strategy are clear:
Bricks + Clicks
eCommerce activity kept Walmart afloat during the pandemic and is seen as a significant opportunity to sustain revenue growth (8.7% n 2021), return on Assets (5.6% in 2021) and return on investment (14.0% in 2021). It invested $10.3 billion in its U.S. bricks last year (2.8% of U.S. revenues) including enhancements in its 188 distribution hubs and its 22 Walmart Health Clinics. Its go-forward strategy for U.S. healthcare will leverage omni-channel capabilities integrating traditional and alternative health, insurance and delivery and bricks with clicks.
The well-known Sam Walton philosophy of “everyday low prices” is the direct result of its second core tenet: “everyday low costs.” The company’s keen sensitivity to its fixed and direct costs is unparalleled. Last year, operating expenses were 15 basis points below its 2020 performance in the U.S. and after major investments were made in employee wellbeing programs and wage increases. For example, starting this month, all U.S. associates and their household members, including dependent children up to age 26, will be eligible for up to 10 no-cost counseling sessions per concern through One.Walmart.com/MyWalmartCares
Customized Primary Care Services is Walmart Health’s Front Door
The Walmart Health Model is multi-disciplinary: physical and behavioral health is integrated and whole person care the aim. Dentistry, optometry, nutrition and consumer preferences and values are primary foci in diagnostics and treatment plans. Over-the-counter therapies and nutrition are positioned beside prescription drugs in treatment recommendations. Sophisticated customer profiles empower customized services based on consumer profiles. And 24/7 digital access, telehealth and home delivery round-out Walmart Health’s convenience strategy.
Notably, in its January 10K filing and in investor presentations, the company acknowledges competitive risks and potential fallout from opioid addiction lawsuits that have implicated the company, but its Walmart Health strategy is clearly a platform for the company’s growth at home and abroad.
Telehealth is a disruptor sector: it expands access and convenience. Though some providers say it adds costs and unnecessary services, most think telehealth savings can be significant if integrated in care management effectively and geographic restrictions lifted. It’s a sector wherein valuations of companies like MeMD, Amwell, Teledoc and others are based on revenue potential and the prospects for scalable earnings growth more than EBITDA and operating margins today. It came of age during the pandemic and now is seen as a vital element in ‘bricks and clicks’ strategies for healthcare.
While attention to the Walmart-MeMD deal will focus on its expanded telehealth focus and positioning vis a vis Amazon Care, the bigger story is this: the U.S. health industry is at a crossroad. Healthcare delivery is decreasingly controlled by hospitals and physicians and healthcare financing no longer dominated by traditional insurers and employer-funded benefits. What mega players like Walmart, CVS, Walgreens-Boots Alliance, Amazon, UnitedHealth and others respond seems aligned with the bet that patients will behave as consumers and be treated as customers, services are convenient and readily accessible and surprise medical bills and sticker shock relics of the past.
This deal symbolizes the widening gap between healthcare’s future and its past. Walmart aspires to be a major player in its future.
“Walmart Deal Shows Expansion in Telehealth, New Front with Amazon”; May 8, 2021; Wall Street Journal
Rebecca Pifer “Telehealth use dropped in February for first time since September” May 5, 2021; Healthcare Dive
Approved for emergency use in U.S.: 3 (Pfizer & BioNTech, Moderna, Johnson & Johnson). Pfizer pursuing
Vaccines in development worldwide: 277 (93 in human testing)
Innovations:2 oral formulations, 7 nasal spray
Vaccinations: 56% of population have been vaccinated, 14% say they will not, and 31% are considering (Harris Poll)
Breaking News: the Biden administration supports temporary waivers for vaccine intellectual property protections to support vaccinations in hard-hit countries; drug manufacturers oppose the policy citing “last mile” logistical issues as major concern.
Breaking News: The Centers for Disease Control and Prevention recorded 182,874 wasted doses as of late March, three months into the country’s effort to vaccinate the masses against the coronavirus. Of those, CVS was responsible for nearly half, and Walgreens for 21%, or nearly 128,500 wasted shots combined. However, the CDC acknowledges that accurate data about vaccine waste is problematic due to differences in reporting methods used by states.
Look ahead: Requiring vaccines for access to public life is an issue to watch. In 1905, the Supreme Court ruled that states could require vaccinations for children attending public school. In December, the Equal Employment Opportunity Commission issued guidance stating that employers are legally allowed to require employees to be vaccinated before they return to offices. But 25 states are considering legislation that could limit a company’s ability to require vaccines for students, employees or the public.
Joshua Eaton, Rachana Pradhan “CVS and Walgreens Have Wasted More Vaccine Doses Than Most States Combined”; May 3, 2021; KHN
Update: Vaccine Manufacturer 1Q 2021 Financial Results
Last week, Pfizer announced it would seek full approval of its vaccine with BioNTech from the FDA and Astra Zeneca, the British vaccine maker indicated it might do the same, skipping the emergency use authorization route taken by Pfizer, Moderna and J&J. According to company financial reports for the 1st quarter 2021, vaccine manufacturing has been profitable for Pfizer and Moderna:
Pfizer: $4.9 billion in profits on $14.6 billion in revenues– up about 45% from $3.4 billion in the first quarter of 2020 on revenue of $10.1 billion. It expects $26 billion in sales for its COVID-19 vaccine this year. Pfizer and BioNTech have shipped 430 million doses of the vaccine to 91 countries and territories and expect to deliver 1.6 billion doses through the end of the year.
Moderna: Total revenue was $1.9 billion for the 3 months ended March 31, 2021 vs. $8 million for the same period in 2020. A total of 102 million doses were recognized as revenue. Product sales were $1.7 billion for the three months ended March 31, 2021 from sales of the Company’s COVID-19 vaccine. Net income was $1.2 billion for the three months ended March 31, 2021 compared to a net loss of $(124) million for the same period in 2020.
J&J: “2021 First Quarter Sales of $22.3 Billion reflecting strong growth of 7.9%, operational growth of 5.5% and adjusted operational growth of 6.0%” Financials for its single dose vaccine, approved for emergency use February 27,2021, were not provided.
“AstraZeneca Weighs Seeking Full U.S. Approval for Covid Shot, Skipping Emergency-Use Application”; May 8,2021; Wall Street Journal
Investor Relations: Johnson & Johnson
CDC: Fertility Rate Dropped During Pandemic
Per the CDC, the fertility rate dropped by 4% last year compared to 2019, the lowest it’s been in nearly 50 years: there were 55.8 births per 1,000 women aged 15 to 44– the sixth straight year the number of births in the U.S. have fallen.
Centers for Disease Control and Prevention’s National Center for Health Statistics
GAO: Access to Behavioral Health Decreased during Pandemic
According to the CDC, in 2019, an estimated 52 million adults in the United States were reported to have a mental, behavioral, or emotional disorder, and 20 million people aged 12 or older had a substance use disorder. This GAO report found behavioral health problems increased while access to care, especially for low-income populations, decreased during the pandemic. Highlights:
Centers for Disease Control surveys found about 38% of respondents reported symptoms of anxiety or depression from April 2020 through Feb. 2021—up from 11% in 2019.
Emergency department visits for overdoses and suicide attempts from mid-March to mid-Oct. 2020 were up 36% and 26%, respectively, from 2019.
“Behavioral Health: Patient Access, Provider Claims Payment, and the Effects of the COVID-19 Pandemic”; April 30, 2021; Government Accountability Office
Study: Medicaid Enrollment Increased 5.2 million during Pandemic
Researchers analyzed Medicaid enrollment data from the Centers for Medicare & Medicaid Services for all 50 states and Washington, DC, from January 2019 through September 2020. Highlights:
From January 2019 to September 2020, Medicaid enrollment increased from 48.2 million to 51.8 million (+7.5%) in expansion states and from 17.2 million to 18.8 million (+9.3%) in non-expansion states.
Enrollment gains were significantly negatively associated with increases in unemployment, in both unadjusted (estimate, −0.14%) and adjusted (estimate, −0.20%).
Peggah Khorrami, Benjamin D. Sommers “Changes in US Medicaid Enrollment During the COVID-19 Pandemic”; May 5, 2021; JAMA Network
Study: Hospital Mortality Rates for Covid Admissions Improved as Pandemic Progressed
Researchers analyzed records for 20,736 adults with a diagnosis of COVID-19 admitted to 107 acute care hospitals in 31 states from March through November 2020. Highlights:
3271 patients (15.8%) died in the hospital during the study period.
Mortality rates were 19.1% in March and April, 11.9% in May and June, 11.0% in July and August, and 10.8% in September through November.
Compared with March and April, the adjusted odds ratios for in-hospital death were significantly lower in May and June (odds ratio, 0.66) July and August (odds ratio, 0.58) and September through November (odds ratio, 0.59)
Roth et al “Trends in Patient Characteristics and COVID-19 In-Hospital Mortality in the United States During the COVID-19 Pandemic”; May 3, 2021; JAMA Network
Study: MA Enrollee Churn Higher in Non-Provider-Sponsored Plans but Increasing for All
Background: Medicare Advantage (MA) plans enrollment has grown from 25% of Medicare eligible population in 2010 to 42% in 2021. The top 15 Provider sponsored MA (PSPMA) plans have seen enrollment growth of 86%. HMA researchers analyzed enrollment churn for plan years 2016 through January 2021 comparing the Top 15 PSPMAs to the top 5 non-PSPMA plans (Anthem, Centene/WellCare, CVS Health, Humana, and UnitedHealth Group). Findings:
In 2016, 3% of the enrollees in a PSP (without Kaiser Permanente) switched, whereas 7.7% switched among the top non-PSPs. In 2020, 5.3%of beneficiaries switched from a PSP (without KP) compared to 9.7%who switched from a non-PSP in 2020.
Among non-PSPs, the percentage of unique beneficiaries who switched to another parent organization between 2016 to 2020 ranged from approximately 17.5% to 33.7%. While PSPs, on average, had lower churn, performance also varied across individual organizations from under 8% to 33.6% over the same period.
Mary Hsieh, Nate Smith, Narda Ipakchi “Are Medicare Advantage Plans Forgetting to Close the Back Door? Provider-Sponsored Plans Lead in Medicare Advantage Member Retention”; May 6, 2021; Health Management Associates – The authors used August 2020 MA Enrollment Data
Administration Releases $1.4 billion Older American Act Funds
While recognizing May 2021 as “Older Americans Month,” the administration released funds designated in the American Rescue Plan:
$750 million for “drive through,” and “grab-and-go” meals for seniors who used community center meal programs that closed due to COVID-19.
$460 million for Home- and Community-Based Services (HCBS) i.e., assistance with household chores, grocery shopping, transportation for essential services, case management and others.
$145 million for the National Family Caregiver Support Program to assist caregivers to provide in-home support such as counseling, respite care, and training.
$44 million for programs addressing fall prevention, chronic disease management, and detecting and reducing depression.
$10 million for State Long-term Care Ombudsman programs to safeguard the health and welfare long-term care facility residents.
May 3, 2021; The White House
Studies: Out of Pocket Costs for Prescription Drugs in Commercial, Medicare Part D Lower in Competing Drug Classes, Not Across the Board
Background: In 2018, the US spent $476 billion on prescription drugs– 80% for brand-name products which saw retail prices increases of 9.1%/year on average over the past decade. However, rebates negotiated by insurers are not necessarily reflected in the out-of-pocket prescription drug costs borne by patients. Patient spending at the pharmacy counter—including copayments, coinsurance, and deductibles—accounted for 14% of all US prescription drug spending in 2018. For patients in Medicare Part D plans, cost-sharing is typically a fixed percentage of a drug’s list price (25% of drug costs until patients reach the catastrophic coverage phase). Thus, Part D beneficiaries may be adversely affected by increasing list prices and may not benefit directly from rebates. Recent studies about out of pocket costs for prescriptions:
Commercially insured: Boston researchers studied changes in median out-of-pocket spending among all patients and stratified by insurance pharmacy benefit design, (including high-deductible insurance plans and plans with any number of deductibles or coinsurance) for 79 brand-name drugs from January 2015 to December 2017.Highlights: Median increases were 16.7% (13.6%-21.1%) for list prices, 5.4% (3.9% to 11.7%) for net prices, and 3.5% (1.4%-9.1%) for out-of-pocket spending from 2015 to 2017. Changes in out-of-pocket spending were not correlated with changes in list prices or net prices: among 53.7% of patients who paid any drug deductible or coinsurance, median out-of-pocket spending increased by 15.0%and changes were moderately correlated with changes in list prices but not net prices.
Medicare Part D: USC researchers analyzed the relationship between prescription drug retail prices, rebates and out-of-pocket costs examining 3322 unique branded National Drug Codes used by Medicare Part D enrollees from 2014-2018: Highlights: list prices were 34% to 61% higher than mean net prices. The ratio of rebate to net prices was higher and increased faster for drugs with branded and generic competitors (from 83% to 172%) than for drugs with only branded competitors (from 61% to 115%) and those without generic equivalents (from 33% to 49%).
“Association of Drug Rebates and Competition with Out-of-Pocket Coinsurance in Medicare Part D, 2014 to 2018”; May 5, 2021; JAMA Network
Rome et al “Correlation Between Changes in Brand-Name Drug Prices and Patient Out-of-Pocket Costs “; May 4, 2021; JAMA Network
BLS April Jobs Report: U.S. Employers Added 266,000 Jobs but Hiring Slowed
Unemployment rose to 6.1% as employers added 266,000 jobs in April—the first increase since April 2020. Highlights:
Transportation and warehousing employers cut jobs. Temporary-help employment fell by 111,000. Manufacturing employment was down 18,000—predominantly in motor vehicles, where semiconductor-chip shortages idled some factories. Retail jobs fell by 15,000, despite robust consumer spending this spring.
Employment in health care changed little in April (-4,000), as a job gain in ambulatory health care services (+21,000) was largely offset by a job loss in nursing care facilities (-19,000). Health care employment is down by 542,000 since February 2020.
The labor-force participation rate, or share of people working or seeking work, was 61.7% last month–the highest rate since August.
18.3% of employed people were “teleworking” in April, down from 21% in March.
Note: in some circles the April jobs report has been touted as “the big miss” having been preceded by predictions of 1.3 million by Goldman Sachs and 1.25 by Morgan Stanley. The reality is this: economic cycles are rarely confined to a single calendar month. Stay tuned. Pundits think s say the April figures suggest that President Biden’s aggressive $1.9-trillion American Rescue Package, which allocated $1,400 stimulus checks to millions of households, among many other measures to help consumers and businesses, was sorely needed.
U.S. Bureau of Labor Statistics April 2021 Jobs Report May 7, 2021
John Cassidy “Don’t Panic Over One Weaker-Than-Expected Jobs Report”; May 8, 2021; New Yorker
The National Academies’ Consensus Report: Empanelment Key to Primary Care Effectiveness and Value
The new National Academies’ Consensus Report calls for urgent government action to address primary care funding citing OECD data showing that about 5% of U.S. health care spending goes to primary care, versus an average of 14% in other wealthy nations. Among recommendations:
Construction of new health centers, especially in underserved areas that are frequently home to minority communities, and to expand primary care teams, including nurse practitioners, pharmacists and mental health specialists.
Payment reform for physicians to reward improved health among their patients.
Empanelment: Medicare and Medicaid, as well as commercial insurers and employers should provide their workers with health benefits, should require their members to declare a primary care provider or assign one if they refuse.
National Academies of Sciences, Engineering, and Medicine 2021. Implementing “High-Quality Primary Care: Rebuilding the Foundation of Health Care”; The National Academies
Telehealth: Satisfaction High
The Healthcare Information Management Systems Society (HIMSS) Market Intelligence survey of 509 individual consumers who had completed at least one telehealth video visit in the past 12 months was conducted in March. Highlights:
Except for Baby Boomers, about half of all generations prefer video visits for primary care.
Preference for specialist care via video ranges from 15% to 67%, with younger patients preferring this form of care.
67% of respondents expect telehealth to cost less than traditional visits because they are virtual, shorter, and have minimal overhead office expenses.
75% of patients were satisfied with the care they received from a video-based telehealth visit.”
58% of respondents indicated they are not willing to switch their specialty care provider even if offered a 50% discount, but would be willing to switch their primary care provider.
Convenience is the top driver of telehealth use. The biggest barrier: Poor video/audio quality.
On average, out-of-pocket costs for patients were higher for in-person appointments ($34.68) compared to video appointments ($29.40).
Most respondents indicated they would be willing to use a health app if asked by their doctor, with more than half preferring an app designed especially for doctor‒patient use. Nearly four out of 10 respondents use a health app, with about 60% sharing the data with their doctors.