After weeks of negotiations, CVS Health announced yesterday that it is buying Aetna, the health insurance giant based in Hartford, Conn., for $69 billion in cash and stock in a deal CVS CEO Larry J. Merlo claims “will remake the consumer health care experience.”
Indeed, if the acquisition passes the scrutiny of antitrust regulators intact, it “could ignite additional mergers in health care. Amazon is poised to enter the drug business in some fashion, leading to further disruption and uncertainty in the industry,” as Edward C. Baig points out for USA Today. CVS is based in Woonsocket, R.I.
“A key component of CVS's business is its CVS Caremark pharmacy benefit management subsidiary. The deal could help CVS encourage Aetna's health plan participants to use the CVS/Caremark mail order prescription system and shop at the pharmacy company's retail stores, which will be able to offer more in-store health services,” Baig continues.
“The mere possibility that Amazon will soon begin selling drugs has shaken the stocks of companies up and down the drug supply chain, from wholesalers to pharmacies,” observes Carolyn Y. Johnson for the Washington Post. The deal would expand CVS’s business beyond the business of selling drugs and negotiating drug prices, to managing all aspects of a patient’s health — and could shift its storefronts to become medical hubs, rather than aisles stocked with consumer goods that people can easily buy in other stores or online.”
At the same time, Johnson writes, it should make Aetna more competitive with UnitedHealth Group, which expanded into pharmacy care services, clinics and surgery care centers itself.
“I think it will create more consolidation among the insurers and retailers, blurring the lines,” Leerink Partners analyst Ana Gupte tells her. Gupte “recently pointed to retail giants Walgreens Boots Alliance or Walmart as potential ‘dark horse acquirers’ of the health insurer Humana.”
As CNBC.com’s Lauren Hirsch and Bertha Coombs report, “For Aetna, the deal marks a change in strategy after its attempted tie-up with Humana was blocked by a federal court on antitrust grounds. The two, like others in the insurance industry, had sought out scale to better negotiate costs with hospitals and PBMs.
“A CVS deal would be a so-called vertical integration — an acquisition along a company's supply chain — rather than a horizontal acquisition of a direct competitor. Such deals are thought to be less threatening to antitrust authorities.”
Although “critics worry that customers could also find their choices sharply limited,” yesterday “the two companies emphasized their ability to transform CVS’s 10,000 pharmacy and clinic locations into community-based sites of care that would be far less expensive for patients,” Michael J. de la Merced and Reed Abelson write for the New York Times.
“We think of it as creating a new front door to health care in America,” CVS’s Merlo tells them.
“The merger would establish a new way of delivering care, with nurses, pharmacists and others available to counsel people about their diabetes or do the lab work necessary to diagnose a condition, Mr. Merlo said. ‘We know we can make health care more affordable and less expensive,’” they continue.
In a joint interview with the Wall Street Journal, Merlo and Aetna CEO Mark T. Bertolini also emphasize cost savings.
“These costs are growing at ‘an unsustainable rate,’” Merlo says. “The combined company ‘can meet an unmet need in terms of improving access and reducing cost and helping people achieve their best health,’” write Sharon Terlep, Anna Wilde Mathews and Dana Cimilluca.
“Combining Aetna’s vast trove of data with CVS’s retail expertise will enable better treatment of costly chronic diseases,” Bertolini tells them. “‘This is about how to get the payer more involved at the local level. As we look at 50% of the population driving 80% of cost, we need to find a more convenient and more effective way to meet customers’ needs.’”
In a piece that analyzes myriad potential winners and losers if the merger plays out, Fortune’s David Z. Morris writes: “Participants in other comprehensive health-care programs, such as HMOs, sometimes complain that limited access to services — or even denial of care — can be a negative consequence of the push to cut costs. So whether patients wind up better off is a bit of a toss-up, and even years from now it may be in the eye of the beholder.
“That said, CVS has made some meaningful decisions recently that genuinely seem to put their customers’ health first. Most notably, they stopped selling tobacco products in 2014, and it may have actually helped people quit. So maybe — just maybe — we can expect them to prioritize patient care as they take greater responsibility for it.”
Alas, “just maybe” seems to be the new standard we live by.