Healthcare is one-sixth of the U.S. economy. It is a $3 trillion industry. And it is hopelessly broken.
On Monday, The Wall Street Journal reported that Walmart (WMT) was in early talks to buy or partner closely with Humana (HUM), the giant healthcare maintenance company.
The news was a wakeup call. Disruption is coming, and it is going to remake the sector with modern tools.
Humana is a special prize. Its managers have embraced digital transformation. This means its $21 billion pharmacy benefit program, plus its sprawling private Medicare businesses, offer a treasure trove of data.
Walmart owns one of the largest private data-analytics operations in the world. Its Bentonville, Ark., headquarters is home to a 40-petabyte data cloud. There, analysts monitor sales and inventory in real time on massive touchscreen smart boards. They are able to quickly see patterns in the data and turn that into actionable intelligence.
It is the nerve center of the of 20,000-store retail chain. Presumably, Walmart would bring this powerful tool to Humana.
The companies already work together on Medicare drug plans. Humana has 4.9 million enrollees in so-called Part D plans, making it the third-largest provider in the country. It’s also active in Medicare private plans. Medicare Advantage has 3.5 million participants, or 17% of the total U.S. market.
In some ways, Walmart managers are looking over their shoulders …
Amazon.com (AMZN), its chief retail rival, began making noises about a foray into healthcare in early 2017. By December, CVS (CVS) and Aetna (AET) tied the knot in a deal worth $69 billion. Last month, Cigna (CI) agreed to buy Express Scripts (ESRX) for $67 billion.
The Seattle online behemoth has the largest cloud computing platform in the world. Today, its Amazon Web Services provides infrastructure to all of its business segments, including ecommerce, artificial intelligence, logistics and data analytics.
In April 2017, Amazon started selling prescription drugs in its Japanese online store, with the help of a local partner. In November 2017, it started selling medical supplies and private-label, over-the-counter medicines in its U.S. stores. And in January, the company announced it was working with Berkshire Hathaway (BRKA) and JPMorgan (JPM) to reduce employee healthcare costs.
Together, the three firms have 840,000 employees. Numbers like that generate a lot of data.
Related story: Tech Giants Set to Tackle the Healthcare Crisis
Data is the common denominator of the push by big tech into healthcare.
Verily, the life sciences division of Alphabet (GOOGL), has a plan to break into managed care. CNBC reported in February that Verily will jointly bid with partners for contracts to provide health insurance for hundreds of thousands of participants.
The policies, called population health, involve Verily making a proposal to a single payer to reduce healthcare costs. If Verily delivers, it gets some portion of the savings.
Given the machine-learning chops of its sister company, Google, it all makes perfect sense. The strength of all the Alphabet companies is using artificial intelligence to understand large data sets.
If all goes as planned, Verily is going to get a lot of data to analyze.
Still, disrupting healthcare is not going to be easy. It is fraught with scads of politically connected go-betweens, legendary price opacity and complicated relationships between insurers, health providers and consumers.
What is different this time is data analytics. Software is making choices more informed. It is eliminating fly-by-the-seat-of your-pants strategies that, quite frankly, have led to the current mess.
A good way to play the rise of big data analytics is Splunk (SPLK). I began recommending the maker of data visualization software in September of 2017. The stock drifted in the $60-$65 range before exploding to $82 in December, following spectacular financial results.
Splunk shares ultimately reached $109 in March 2018. The stock looks very attractive on this pullback to the 50-day moving average at $97.
The appeal of Splunk is its wide acceptance, and its subscription model.
The software is not open-source. Many system operators do not even use it as intended. It is more a Swiss army knife that allows IT professionals to quickly see patterns in large sets of data.
Splunk’s business is booming, and it is doing so at the expense of competitors like Cloudera (CLDR).
Healthcare and tech are a natural fit. The digital revolution will ultimately see them merge into one.
Jon D. Markman
P.S. The current pullback in stocks is unveiling some incredible bargains in the tech space. To see how you can get the very best names to own, complete with timely, actionable buy signals, delivered straight to your inbox, click here.