Health Care Is Eating the Economy. Will Walgreens Sate the Dow?

(Bloomberg) -- With the addition of Walgreens Boots Alliance Inc. to the Dow Jones Industrial Average, the storied stock-market gauge now looks a lot more like the health-care heavy U.S. economy.

The giant drugstore chain joins UnitedHealth Group Inc., the largest U.S. health insurer by number of members, and drugmakers Pfizer Inc., Merck & Co. and Johnson & Johnson in the 30-company Dow average. Health care accounts for almost a fifth of U.S. economic output.

Walgreens is the biggest drugstore chain by U.S. retail pharmacy sales. Placing the company in the Dow alongside big drugmakers and a sprawling health insurance conglomerate that also employs thousands of doctors gives a fuller picture of how Americans spend on getting and staying well.

Health Care Is Eating the Economy. Will Walgreens Sate the Dow?

At the same time, though, there is upheaval throughout the health-care industry.

CVS Health Corp., Walgreens’s biggest competitor, is merging with insurer Aetna Inc. in a deal that would more closely connect providing care with paying for it. Similarly, insurer Cigna Corp. has agreed to take over pharmacy-benefit manager Express Scripts Holding Co. in a deal that could have large ramifications for how many drugs are priced -- and leave less opportunity for purer retail pharmacies like Walgreens to profit. The Trump administration has also made driving down drug costs a priority.

All that comes against the backdrop of continued woe in the retail business, thanks to the market power of Amazon.com Inc. and other online retailers -- pressure to which Walgreens hasn’t been immune. Amazon has also been thought to be eager to dip its toes into health care in some form. (Amazon, priced at $1,734.78 a share as of Tuesday’s close is an unlikely candidate for inclusion in the price-weighted Dow.)

Replacing the shrinking industrial bellwether General Electric Co. with Walgreens make the Dow look more like modern American business. The question is, for how long.

©2018 Bloomberg L.P.