Business

With merger, CVS aims to be good for your health

CVS Health’s chief executive, Larry J. Merlo, said in a statement that a merger with Aetna would “remake the consumer health care experience.”
Christian Hansen/New York Times/File 2016
CVS Health’s chief executive, Larry J. Merlo, said in a statement that a merger with Aetna would “remake the consumer health care experience.”

Underscoring the transformation in health care, the CVS deal to buy Aetna, one of the nation’s largest health insurers, has the potential for lowering costs, but also to further concentrate key services among a very few large companies.

The $69 billion merger, which still needs approval from shareholders and regulators, would combine CVS’s vast network of 9,700 pharmacies, 1,100 walk-in clinics, and its Caremark pharmacy benefit management business with Aetna’s expansive employer and government health plans. The insurer covers more than 22 million Americans.

The move comes amid seismic shifts in providing health care and related services.

Advertisement

In recent months, CVS has begun prepping for Amazon to eventually enter the pharmacy business, either as a retailer or possibly as some sort of pharmacy benefit manager. CVS sees the Aetna deal as a way to provide a broader range of services to millions more people through pharmacies that will be further transformed into walk-in clinics, lessening its reliance on drugstore sales.

Get Talking Points in your inbox:
An afternoon recap of the day’s most important business news, delivered weekdays.
Thank you for signing up! Sign up for more newsletters here

At the same time, health insurers are grappling with uncertainty in government programs, such as Medicare, and efforts by Republicans in Congress to undo the Affordable Care Act. Even before that campaign began, Aetna had sought to buy Humana, another large insurer, but the plan was squelched earlier this year by a court ruling, leaving the insurer with an unclear path forward.

To what extent a CVS acquisition of Aetna might lower costs remains to be seen. CVS can be expected to argue that by further expanding wellness programs — which would include an army of pharmacists and nurses — in its drugstores, costly chronic illnesses can be reduced. And by harnessing patient data, the combined company may be able to do a better job of finding the most suitable medicines for patients.

“The pharmacy is really real estate to improve consumer health,” said Dan Mendelson, who heads the Avalere health consulting firm. “These are much less expensive settings than hospitals and outpatient clinics. And it will have unsurpassed data capabilities, which will allow them to look at drugs differently and drive a new way of thinking about pharmacy benefits management.”

CVS Health’s chief executive, Larry J. Merlo, said in a statement Sunday that the merger would “remake the consumer health care experience. With the analytics of Aetna and CVS Health’s human touch, we will create a health care platform built around individuals.

Advertisement

“We look forward to working with the talented people at Aetna to position the combined company as America’s front door to quality health care, integrating more closely the work of doctors, pharmacists, other health care professionals, and health benefits companies to create a platform that is easier to use and less expensive for consumers.”

Express Scripts, the nation’s largest pharmacy benefits manager, is likely to be at a disadvantage after the merger, since it has no corporate affiliation with a health insurer. This explains why Tim Wentworth, who runs the company, last week acknowledged he’d be willing to partner with Amazon or an insurer.

A CVS-Aetna deal would also pressure other pharmacies, big and small. Walgreen, for instance, recently formed an alliance with Prime Therapeutics, another large pharmacy benefits manager, but would still potentially face the loss of any Aetna customers to CVS.

And independent pharmacies may face challenges trying to remain in Aetna networks that would be run by CVS, one expert said.

“If the deal goes through, the big players will get even bigger, and that will leave everyone else who contracts with them at risk,” said Linda Cahn, a consultant who advises health plans and employers on pharmacy benefit contract negotiations. This includes Aetna customers such as employers, unions, and government agencies, she added, because they will have to more closely scrutinize the cost of prescription drugs delivered through CVS pharmacy networks.

Ed Silverman can be reached at ed.silverman@statnews.com. Follow him on Twitter @Pharmalot. Follow Stat on Twitter @statnews.