Walmart : Disruption in Healthcare Industry
On December 3rd 2017, New York times ran an article stating CVS’s intent to purchase Atena for a record price of $69 billion dollars. This deal would combine the drugstore giant with insurance capabilities of Atena. This in my opinion marks an important event, for disruption in US Healthcare. Here is my understanding of events, and why I feel this will trigger more events. I belief the next company to make a major impact in Healthcare is Walmart.
Walmart
The goal of Wal-Mart (Walmart) is to help people around the world save money and live better — anytime and anywhere — in retail stores or through their e-commerce and mobile capabilities. They strive to create a customer-centric experience that seamlessly integrates digital and physical shopping experience using innovation. The digital shopping experience includes their website and mobile applications, while the physical shopping experience includes their brick and mortar stores. Although they started in US they are an international brand with presence in 27 countries. Each week they serve nearly 260 million customers, who visit their 11,000 stores under 72 banners and e-commerce websites in 11 countries. They do business in 3 reportable segments — Walmart U.S., Walmart International and Sam’s Club. [1]
Although, Walmart was incorporated in Delaware in 1969, but the actual business started in 1945. Sam Walton founded the first store in 1945 in Newport, Arkansas while his brother opened a similar store in Versailles, Missouri in 1946. The time-line chart above gives a historical perspective of their development till 2014[1]. In 2014, Forbes released an article stating Walmart’s goal to become the #1 healthcare provider in the industry[2]. Before I begin, here is a brief about US Healthcare market.
US Healthcare
The total size of US healthcare market is about $3 trillion[1]. US health care industry is very fragmented and the eco-system is made-up of complex relationships between Providers (Hospitals, Physicians, etc.), Payers (Insurance companies), Pharmacies, Tech-players, Pharmaceuticals, employers and finally the patients.
Walmart is one of the very innovative companies of our time. Over the period of last 50 years they have successfully diversified their consumer segments, added new product lines and harnessed the power of technology to serve the customer. In 2014 Walmart has put forward an audacious goal to become the #1 health-care provider. However, they have invested and are preparing for this for some years now. In 2006 they started the $4 prescription for up to 30-day supply of commonly prescribed dosages.[5] After that they piloted care clinics, vision centers, pharmacy mobile apps and insurance in partnership with directhealth.com[6]. The picture below shows the different areas in health care that Walmart has invested in.
In this section we analyze Walmart’s innovation strategy, using a frameworks provided by Dr. Clayton Christensen. There are 3 main theories that are most applicable to Walmart’s situation — Jobs To be Done, Organizing for innovation and managing a disruptive scope. Jobs to be done framework.
Before we go to these frameworks, I believe the innovation type Wal-Mart is doing is “Low End Disruption”. This is because — its an new entrant in an already existing market. It is utilizing its already existing infrastructure (stores, online web and mobile) technologies to provide discount prices to win business at Low End Market.
According to the framework “Organizing for Innovation”, Resources, Processes and Profit formula determines what an organization can or cannot do. In the figure 4, I have aligned Wal-Mart to this formula. Their resources have been used to innovation. They did set-up Walmart Labs, to create their competence in e-commerce followed by mobile applications. In order to get into health care they have started to do a variety of things as you see on figure-3. One of my recommendations to Walmart CEO will be to start a new business unit — Wal-Mart Health if they have not already done that. Wal-Mart should maintain a disruptive scope, which means even if they are able to temporarily successful, they should keep disrupting. They have 2 interdependencies with their core business: Functional Interdependence is due to their utilization of store location, and Marketing or Brand Interdependence, since the customers believe in their customer centric focus. The health-care industry as I show in figure 2 is very complex and digital health is becoming a new reality. Thus, in order to be number one, my second recommendation to the Wal-Mart CEO will be to keep innovating and maintaining a disruptive scope.
Recommendations
Wal-Mart is playing at a variety of segments of health-care ecosystem, if we map their presence to figure 2, US Health Care System, we will see that they are trying to be an entrant in — Provider, Payer, Employer (since they employ 1.4 million people in US) and in Retail Pharmacy.
I feel their situation is like that of GM’s On-Star [8]when they started, they are trying to focus on everything with their concierge service. However, Wal-Mart may be different given their structure and international reach. If Wal-Mart truly believes they can do this well, they should create sub-business units within their Wal-Mart Heath, mapping to the US Health Care ecosystem. If the company continues to follow the current path, then their core business profit formula will interfere with the new business where they are entrant. Also, health care is very complex, which needs experienced resources both in domain and ability to run this unit as a start-up. They are not truly focused on any one segment of US health care ecosystem.
Business Segment: Wal-Mart Health
Wal-Mart’s 2016 10K1 does not talk about the business unit Wal-Mart Health. One of my recommendations to start with will be to create a separate reportable business segment with a separate P&L and structure. Within this business segment, Wal-Mart could create sub-business units for provider, payers and pharmacy.
They can also, look at the other large health care conglomerates such as Kaiser Permanente[9]. Before this change of creation of sub-business units, they should determine if they truly would like to be in the provider space or their announcement was meant to be number one in health care period. Their actions of be in insurance exchanges with 7000 plans and partnership with Direct Health signals they want to be in payer space as well.
Purchase or Merger
Wal-Mart’s 2016 Balance Sheets as shown in 10K[3] shows they have more than $9 Billion in cash and cash equivalent. In order to emerge as a leader I feel they should look for purchasing businesses that are cutting edge in health care. Together with their reach to the customers and a cutting edge business unit they can improve their foot hold in the industry.
Focus on Digital & Analytics in Health
Wal-Mart has its own e-commerce digital business unit — Walmart Labs. Within the Walmart Labs they could create a digital health initiative, starting with the development of some app which is a FHIR[10] based product. This app can be integrated to their existing pharmacy based mobile application.
Implementation Risks
Walmart is one of the large companies of our time. They a huge network of stores and customers both in US and internationally. US health-care is one of the complex ecosystems in the world. If Walmart does not follow the new business unit recommendation and carry on with their existing system. The core business will always overshadow the new innovation idea. Other bigger companies such as IBM that has similar interests and have expressed that by purchasing Truven Health[11] will lead this market. The incumbent health industry veterans might rise into their digital and analytics initiatives and lead this space.
Conclusion
Walmart has a unique opportunity. It has the necessary Resources, Processes and Profit Formula to achieve their goal to be the #1 health care provider in US. I believe following the principles and recommendations laid out here, will certainly focus Walmart to the right direction.
For this paper in pdf format see here
Author’s Note:
Taposh Dutta Roy, leads Innovation Team of Decision Support at Kaiser Permanente. These are his thoughts based on the CVS’s announcement, Walmart’s actions and industry analysis. These thoughts and recommendations are not of Kaiser Permanente and Kaiser Permanente is not responsible for the content. If you have questions Mr. Dutta Roy can be reached via linkedin.
Sources:
[1] https://news.walmart.com/news-archive/2006/09/21/wal-mart-cuts-generic-prescription-medicines-to-4
[2]http://www.slate.com/articles/business/moneybox/2014/10/walmart_and_health_care_partnership_with_directhealth_com.html
[3] Wal-Mart 2017 10K (http://stock.walmart.com/investors/financial-information/sec-filings/default.aspx)
[4] https://www.forbes.com/sites/dandiamond/2014/10/06/walmart-announces-ambitious-goal-to-be-the-number-one-healthcare-provider/#8c9b7a35be11
[5] https://www.beckershospitalreview.com/finance/17-fascinating-statistics-on-the-current-state-of-us-healthcare-spending-finances.html
[6] https://news.walmart.com/news-archive/2006/09/21/wal-mart-cuts-generic-prescription-medicines-to-4
[7]http://www.slate.com/articles/business/moneybox/2014/10/walmart_and_health_care_partnership_with_directhealth_com.html
[8] https://hbswk.hbs.edu/item/lessons-from-running-gms-onstar
[9] https://en.wikipedia.org/wiki/Kaiser_Permanente
[10] https://www.hl7.org/fhir/overview.html
[11] http://www-03.ibm.com/press/us/en/pressrelease/49474.wss
