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.

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 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.

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