Unlikely collaborators are teaming up to provide higher-quality, lower-cost services, and now the pressure is on for other industry players to innovate, too.

In this Q&A, adapted from a video conversation recorded this summer, Harvard Business School Professor Regina Herzlinger talks with MIT Sloan Management Review contributing editor Steven DeMaio about how companies in the health care industry are teaming up with unlikely collaborators to reduce costs, increase efficiency, and better understand and solve custwomers’ problems — a topic of interest to innovators in any sector. Herzlinger focuses specifically on partnerships between health retailers and insurers, such as the CVS-Aetna merger and the Walmart-Humana merger that’s in the works (details about these partnerships are evolving rapidly, particularly on the regulatory front). She also explains why hospitals and other providers must raise their game to compete.

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MIT Sloan Management Review: Regi, to start, can you give our readers some basic background to explain why retailers like CVS and Walmart are interested in joining forces with large health insurers like Aetna and Humana?

Herzlinger: It’s spelled “Amazon.” Amazon scares the you-know-what out of everybody who might compete with them. And for a long time Amazon was like a shy bride — on again, off again, are they going to enter the pharmaceutical space? They finally did. They bought a company that does mail-order pharmaceuticals. So why is CVS concerned? Well, its pharmaceutical division is highly profitable. And Walmart is also in competition with Amazon, not only in pharmaceuticals, but in many merchandise categories.

So CVS and Walmart thought that by joining with health insurers, they could sell health insurance products in their stores — and they could expand their stores to provide more convenient, higher-quality, lower-cost access to people for health care services.