CVS to Buy Aetna: What the Merger Means for Health Care

Posted in: Employee Benefits

The news earlier this month that CVS will buy Aetna for $69 billion set off a wave of prognostication in the business media. What does the deal mean for consumers? Will it be good or bad for the health care landscape? And will it even go through?

Since everything hinges on that last question, let’s tackle it first: My prediction is yes, the deal will go through. Regulators have taken a dim view on the consolidation of health insurers in recent years. Most notably, Aetna’s purchase of Humana was blocked, and so was Anthem’s attempt to acquire Cigna. What sets the CVS/Aetna deal apart, however, is that this would be a vertical merger. There are elements at play here that may draw attention from the Justice Department, which, along with the Federal Trade Commission, reviews all mergers over a certain size. CVS Caremark, for instance, is a pharmacy benefits manager (PBM) — a third-party administrator for prescription drug plans that negotiates drug costs with drug manufacturers — that works with both Aetna and Blue Cross Blue Shield. There has been some question in recent years as to the efficacy of PBMs; regulators may want to explore, via this proposed merger, whether PBMs really drive down drug costs or whether they instead create an unneeded middle man in the market. Bottom line: The deal will go through, but regulators may hold it up for a while.

What does the deal mean for consumers?

CVS plans to transform its 9,700 brick and mortar pharmacies into key points of entry for basic health care. CVS and Aetna say the deal will be a huge win for consumers, providing more accessible and affordable health care alternatives for patients. The CEOs of both companies say the deal will be a shift toward value-based health care, as opposed to the current model of charging patients for as many services as possible. They say it will enable them to be more effective at care management and at making sure the right patients are engaged with the health care system at the right time. That, in turn, would help keep high-risk patients from falling into poor health, which can result in costly medical episodes. Further, if the deal lowers barriers for patients with chronic conditions, like diabetes, there’s a better chance those patients will follow their care plans and be less likely to end up in the hospital, which is a huge driver of medical costs nationwide.

On the other side of that coin, some say the deal will give too much control to CVS and could lead to limited choices for consumers. Some physicians feel — perhaps not unexpectedly — that pharmacy-based clinics will offer a lower quality of care than traditional private practices.

As to whether the deal will be good or bad for the health care landscape: It’s going to be a hugely disruptive, landscape-changing event. The deal will immediately blur the lines of what defines a retailer, pharmacy, health care provider, insurer, and Pharmacy Benefit Manager. Some say the merger will make it harder for new competitors to enter the market, resulting in an oligopoly of a few vertically integrated players. And, it’s widely expected we will see more of these types of vertical deals. United Health Group just announced its acquisition of 300 primary and specialty care clinics from DaVita Kidney Care for $4.9 billion; Walmart is rumored to be a possible suitor of health insurer Humana; Amazon won approval in twelve states in October to become a wholesale prescription drug distributor.

I predict this will be the beginning of a health care delivery landscape transformation and the first of many more deals to come. It remains to be seen whether it will result in a handful of behemoths in control of too much, or better choices, improved access, and lower cost for consumers. Either way, here at PSA, we’re keeping a close eye on the story.

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