Walmart Expands into Health Insurance Exchanges

Las Vegas—Since Walmart introduced its $4 program for generic drugs and over-the-counter medications in 2006, the largest retail company in the United States has become a major figure in healthcare. The company is now hoping to expand, partner with insurers, and educate and enroll customers in the health insurance exchanges.

For 30 years, Walmart has leased space to insurance agents to sell their products. In the fall of 2005, when the first people enrolled in Medicare Part D, Walmart allowed health plans in more than 3500 stores. Marcus Osborne, Walmart’s vice president of health and wellness payer relations, said the company has closely monitored how the agents operate and how people purchase coverage.

In the past year, Walmart has worked with Humana, Cigna, WellPoint, Coventry Health Care, Anthem, and UnitedHealthcare. They can continue to sell their own plans but also must offer choices of other company’s plans to people interested in enrolling in the exchanges. Walmart has also adopted a brand (“Healthcare Begins Here”) that offers an education and support guide to understanding the exchanges and information on other options, such as private insurance, Medicare, and Medicaid. Walmart has also developed a partnership with Towers Watson in which people are available in the stores, online, and on the telephone to answer any questions or concerns about the exchanges. In addition, Walmart has a relationship with Jackson Hewitt in which people can receive tax preparation, apply for subsidies on the exchanges, and provide support on how to obtain insurance coverage.

“I do not mean this to disrespect the health plans and managed care groups that are building these products [for the exchanges], but retail is not something they tend to know well,” said Mr. Osborne, who spoke during a session at the Pharmacy Benefit Management Institute’s conference. “Selling products to a consumer and figuring out how to do that right and build products and segment to the needs of that consumer is a very hard thing to do. Groups like Procter & Gamble and Johnson & Johnson and Coca-Cola have literally spent decades and in some cases centuries trying to build that capability. It is hard to do.”

Walmart can help health plans develop lower cost options that are attractive to consumers, according to Mr. Osborne. He said premiums are now high in large part because of administrative costs associated with distribution for insurers. They pay for agent commissions, marketing fees, and technology investments that are not directly tied to providing better care. Some plans have indicated they hope to decrease administrative costs by 20% to 30% by taking advantage of Walmart’s retail expertise and ability to understand customer needs. Each week, 150 million people shop at Walmart stores, according to Mr. Osborne, so health plans can reach people directly without much marketing or administrative burden. “I really believe that the public exchange space and health insurance overall is essentially going to move into a retail product,” Mr. Osborne said.

Walmart already has experience transforming healthcare through its $4 program for 30-day supplies that has expanded to cover hundreds of drugs. Mr. Osborne said Walmart noticed wide variations in prices for the same drugs at different pharmacies. Payers, particularly large self-insured groups and the federal government, were particularly concerned with the differences.

For instance, an unnamed large self-insured employer on the West Coast found the cost of generic simvastatin was as low as $4 and as high as $55 depending on the pharmacy, according to Mr. Osborne.

“No disrespect to any of you who are pharmacists or in the profession, but simvastatin is a commodity,” Mr. Osborne said. “They are from the same manufacturers, [and] the pills look the same. There is fundamentally no distinction in the basics of selling the prescriptions, yet you saw massive variation. You saw it across the entire chain.”

When Walmart launched its $4 program, 99% of the generic copays in Walmart pharmacies were >$5. Company executives decided to make the medications all cost $4 regardless of a person’s copay or deductible.

“There was no genius in this,” Mr. Osborne said. “We said, ‘OK, if I know this threshold, what if [we] went 20% lower? What if [we] went to $4.’…It was an opportunity for us to say, ‘If we were really interested in creating value for consumers, we should be more aggressive [and] try to make price matter more in healthcare.’”

Since the $4 program began, Walmart’s customers have saved >$7 billion. Mr. Osborne said other studies indicated Walmart’s program plus the responses of competitors that followed with similar initiatives save the healthcare system >$10 billion per year.

Researchers from the University of Pittsburgh and the RAND Corporation identified adults through the Medical Expenditure Panel Survey who purchased drugs (pills, tablets, or capsules) through the $4 programs in 2007 [Arch Intern Med. 2011;171(5):468-469]. They then calculated the potential cost savings of people who did not take advantage of the $4 programs but could have saved money if they used them. Of the 13,908 people filling at least 1 prescription in 2007, 55% (n=7690) used a drug normally available in the $4 programs. Only 5.9% (n=4628) used a $4 programs, while 60.2% could have filled their prescription through the programs. If each of the potential users switched to the $4 programs, the authors estimated there could be $5.8 billion in savings.

“We are not attempting to promote Walmart or any other specific pharmacy as the place for patients to fill their prescriptions,” the authors wrote. “It appears, however, that the majority of savings comes from a small proportion of individuals, and if policy makers and clinicians can direct these individuals to low-cost generic drug programs, patients, payers, and taxpayers could save enormously.”

Mr. Osborne said the $4 program has helped improve adherence as well. Internal data from 3 large health plans showed the launch of Walmart’s program and competitors’ responses were the top reason people continued taking their medications.

“It was not just the low cost, it was [also] the certainty of the cost [that improved adherence],” Mr. Osborne said. “There is no complexity to it. It is just $4. You did not have to major in math. You just had to have $4…When you make price matter in healthcare, you get better results. When you can use price as a lever to influence consumers, you will get better results. It is not to say it is the end-all, be-all, but it certainly helps.”

Still, the healthcare industry remains challenging and sometimes difficult to understand. Like many companies, Walmart is confused and concerned by the discrepancy in costs for the same procedures or tests. For instance, Mr. Osborne said that the 5 largest employers in Ohio found that the price for a healthy labor delivery ranged from $5000 to $50,000, even though there was no correlation between price and quality and price and outcomes such as 30-day hospital readmittance rates. He also cited 2011 data from California’s Office of Statewide Health Planning and Development that the costs of hip procedures varied from $25,000 to $140,000 with no improvement in quality or outcomes.

To that end, in October 2012, Walmart introduced a “Centers of Excellence” program in which employees receive no out-of-pocket costs for heart, spine, and transplant surgeries at the Cleveland Clinic in Cleveland, Ohio, Geisinger Medical Center in Danville, Pennsylvania, Mayo Clinics in Rochester, Minnesota, Scottsdale/Phoenix, Arizona, and Jacksonville, Florida, Mercy Hospital Springfield in Springfield, Missouri, Scott & White Memorial Hospital in Temple, Texas, and Virginia Mason Medical Center in Seattle, Washington.

 “[The Centers of Excellence program] is the recognition that this massive distribution of costs from a provider perspective,” Mr. Osborne said. “Without that cost bringing better outcomes and higher quality seemed unjustified. We have seen [the discrepancy] in spinal surgery, in orthopedic events, and in a number of categories.”