Emerging Care Delivery Models Where Payers and Providers Become One

The trend of reducing health care costs through global capitation and aggressive contracting from payer/provider integration has and will continue to expand in the health care market. This combination will provide a solid singular force in reducing cost and improving outcomes. Recent announcements of unusual entities entering the market, such as Amazon, CVS, and Walmart, are an example of this phenomenon. Developers and utilizers of clinical pathways should be aware of these new models and how pathways may need to be adapted in light of these atypical models. The principles and structures of Kaiser Permanente and the National Institute for Health and Care Excellence (NICE) may represent future models of care. Providers, pathways developers, and payers alike should take note of these new models.

According to the Kaiser Family Foundation survey of employer health benefits, health insurance premiums have been rising faster than wages.1 Between 2012 and 2017, workers’ earnings grew by 12% while premiums went up by 19%. Between 2007 and 2012, premiums increased twice as fast as workers’ earnings. Controlling these costs for one’s own employees is critical to a company’s profitability and, even better, in developing their model for sale to others.  

New care models are developing quickly, some of which are being created and executed by atypical entities from some of the largest retail operators in terms of sales, number of employees, reach, and use of innovative systems (eg, CVS and Amazon). The future of clinical pathways is very much dependent on the success or failure of new and emerging care delivery models. Clinical pathways will need to shift from physician delivery in a traditional primary care provider (PCP) office to retail outlets served by nurses and nurse practitioners. 

In December 2017, CVS announced acquisition of Aetna,2 allowing the drugstore chain to control even more of consumers’ health care dollars. In January 2018, Amazon announced it was teaming up with Berkshire Hathaway and JPMorgan Chase3 to launch its own internal health insurance—together, this trio has over 1 million employees. 

The most recent announcement in this arena comes from Walmart, the world’s largest retailer, who may potentially be buying or partnering with Humana, one of the largest health insurance companies. With CVS and Amazon both angling for a piece of the rapidly growing health care market, Walmart is following suit in order to keep up. Walmart is one of the biggest pharmacy operators in the country with over 1.5 million employees, so extending its reach into health care with Humana could make sense. If these ventures are successful, presumably these new groups will be able to provide insurance for nonemployees as well.

Behind these acquisitions and mergers is the common goal of efficient and effective care that is driven by private entities. These new models all have a common foundation that already exists within Kaiser Permanente (a payer/provider combined under global capitation) and NICE (a strong buyer). 

Many anticipate that Amazon specifically will disrupt health care as it has in other industries, particularly in the business of selling prescription drugs.4 Through thoughtful purchasing and distribution, Amazon may truly change the market. This thoughtful purchasing will come from application of NICE principles, wherein health economic outcome data used by a strong buyer can “control” prices; a team like Amazon, Berkshire Hathaway and JPMorgan Chase would also be able to deliver this. It is unlikely that this will result in the building of new health care complexes; instead, this trio will bring technology tools to bear on making health care more transparent, affordable, and simple.

It is helpful to examine the intricacies and motivations underlying the newest potential acquisition or merger between Walmart and Humana, as it provides insight into the shift from physician care delivery in a traditional PCP office to retail outlets as well as the forces at work behind one of the strongest buyers. 

Behind the Walmart/Humana Deal

According to The Wall Street Journal, Walmart and Humana are discussing a range of options, including a merger—considering Humana’s value, a full-on acquisition may be too much for Walmart. However, a strategic partnership or a similar collaboration may work to the retailer’s advantage: With its scale and customer relationships, Walmart can benefit in several ways from a stronger position in health care. It has been reported5 that the reasons behind this deal involve 3 key factors:

1. Lower health insurance costs

Walmart, as the United States’ largest private employer with about 1.5 million Americans on its payroll, spends about $500 million on domestic health care costs. This may seem like a pittance for a company that generates $500 billion in annual revenue, but with about $14 billion in adjusted net income, $500 million makes up a significant percentage of its bottom line.5 By trimming some of those costs, providing its own health care to employees would drive growth at a time when Walmart has struggled to grow profits due to intense competition from Amazon and other retailers and grocers.

Acquiring Humana could also help Walmart improve its health insurance offerings, making it more appealing to prospective employees, as health insurance is often the most important part of a compensation package after salary.

2. Evolve with Amazon

Since Doug McMillon became CEO of Walmart in 2014, he has focused on adapting the company for the future so that it will be better positioned to compete with Amazon. He has raised wages, cleaned up stores, and, in his boldest move thus far, he has bought Jet.com, putting its founder Marc Lore in charge of Walmart’s e-commerce operations. After this acquisition, Walmart’s e-commerce growth skyrocketed, as the company rapidly expanded its grocery pickup program and added features like free 2-day delivery for orders.6

3. Increase reach to shared customers

Walmart and Humana target similar markets. With stores spread across the country, Walmart focuses on middle- to low-income Americans, and its average shopper is about 50 years old. Humana’s strength is with older Americans, as it is the second-largest provider of Medicare Advantage plans, holding 17% of that market.5 Older Americans are also less likely to shop online, making them ideal customers for Walmart to leverage; the retail chain can count on them to make regular visits and to buy other things when they visit Walmart stores. As the babyboomer generation ages into retirement, the Medicare population is expected to expand. Medicare Advantage should be a growth engine in the insurance industry, giving Walmart a valuable growth market and an opportunity to add new customers to its retail business. 

Learning From NICE and Kaiser Permanente

While these unique entities will start with their employees and move to the broader general market, their success is very much dependent on their exercise of NICE-like forces and delivering care in the efficient and effective manner of Kaiser’s global capitated provider system. 

NICE provides national guidance and advice to improve health and social care. But NICE is more commonly viewed as the leader in pharmaceutical evaluation and pricing as a result of their analytics and buying strength. Kaiser Permanente is both horizontally integrated within departments and vertically integrated across its health plan, hospital, and medical group; operating as a combined payer/provider under global capitation. It is also integrated across primary care, specialty care, outpatient care, and inpatient care. Many point to the Kaiser Permanente model, where provider and payers are the same, as the most efficient form of care delivery. This aligns financial incentives to provide high quality, affordable care and manage population health rather than generating high volume of services. Both the Kaiser Health plan and their medical group are aligned and accountable for a global budget and only contract directly with one another for the provision of medical services. All 3 stakeholders share in the goal, reflected in the organization’s capitated payment system of keeping patients healthy while optimizing utilization. This alignment is crucial in Kaiser Permanente’s effort to maintain affordability for their purchasers and members.

This focus on reducing costs through aggressive contracting and payer/provider integration has and will grow, as demonstrated by a national survey in which health systems executives rated their increasing integration of themselves as providers with payers (Figure 1). With Kaiser as the description of a fully integrated model, almost all executives surveyed viewed that model as their future. This points to the broader, national move to a Kaiser-like model of care delivery.



As a result of market forces moving toward a NICE and Kaiser system of cost control and care delivery, those responsible for the development of clinical pathways must start with this new end in mind—an end that looks like Kaiser Permanente and NICE, ie, global capitation and strong buying. This holistic approach to delivering care allows for a comprehensive approach that must be embodied in clinical pathways to deliver on the promise of cost-effective, quality care, even through unconventional and powerful retail providers operating like Kaiser and NICE. 


1. Kaiser Family Foundation. 2017 Employer Health Benefits Chart Pack. Kff.org.
https://www.kff.org/slideshow/2017-employer-health-benefits-chart-pack/. Accessed April 18, 2018.

2. Bresnick J. CVS Health to buy Aetna for $69B, altering payer landscape. HealthPayer Intelligence. https://healthpayerintelligence.com/news/cvs-heath-to-buy-aetna-for-69b-altering-payer-landscape. Published December 4, 2017. Accessed April 18, 2018.

3. Amazon, Berkshire Hathaway and JPMorgan Chase & Co. to partner on U.S. employee healthcare [news release]. Business Wire. https://www.businesswire.com/news/home/20180130005676/en/Amazon-Berkshire-Hathaway-JPMorgan-Chase-partner-U.S. Published January 30, 2018. Accessed April 18, 2018.

4. Johnson CY. Fears of Amazon moving into prescription drug sales are already disrupting health care. Washington Post. https://www.washingtonpost.com/news/wonk/wp/2017/10/27/fears-of-amazon-moving-into-prescription-drug-sales-are-already-disrupting-health-care/?noredirect=on&utm_term=.33256b4f2233. Published October 27, 2017. Accessed April 18, 2018.

5. Bowman J. 3 reasons Walmart would buy Humana. The Motley Fool. https://www.fool.com/investing/2018/04/07/3-reasons-walmart-would-buy-humana.aspx. Published April 7, 2018. Accessed April 17, 2018.

6. Bowman J. 1 year later, Wal-Mart’s Jet.com acquisition is an undeniable success. The Motley Fool. https://www.fool.com/investing/2017/10/03/1-year-later-wal-marts-
. Published October 3, 2017. Accessed April 18, 2018.