The retail pharmacy CVS Health has proposed purchasing health insurer Aetna for $69 billion in a merger that spans business lines in the healthcare industry. The proposal comes less than a year after Aetna and Humana called off
their proposed merger—first announced in July 2015—when federal judges blocked it.
According to CVS Health President and CEO Larry J. Merlo, the merger of CVS and Aetna will “remake the consumer healthcare experience.” It will integrate doctors, pharmacists, and other health professionals with health benefits to create an easier experience for consumers.
"This is the next step in our journey, positioning the combined company to dramatically further empower consumers," Mark T. Bertolini, Aetna chairman and CEO, said in a statement
. “Together with CVS Health, we will better understand our members' health goals, guide them through the health care system and help them achieve their best health. Aetna has a proud tradition of continually innovating to address unmet consumer needs and providing leading products and services to the marketplace."
History of Consolidation
In 2015, when the healthcare industry was awaiting the outcomes of the proposed Aetna–Humana and Anthem–Cigna mergers, Austin Frakt, PhD, a health economist and a member of The American Journal of Managed Care®
)’s editorial board, commented during a discussion that health economists generally feel that consolidation in the healthcare market is not good for consumers.
“There’s unanimity on this issue that when you have consolidation among health insurers or providers, you generally don’t get good results for consumers,” Frakt said
during the Healthcare Reform Stakeholders Summit, Fall 2015. He added that generally the result is higher prices. Sometimes there will be higher quality of care, but not always.
Rita E. Numerof, PhD, the co-founder and president of Numerof & Associates, told AJMC®
that mergers that occur across business lines might not be scrutinized as much or in the same way as traditional mergers that may be blocked.
“We’re now looking for opportunities for integrating more diverse businesses,” she said. “I think that the [Federal Trade Commission] and other government agencies will look more favorably upon this assuming that their integrations in fact create value for consumers and don’t create monopolies that are going to create anti-competitive situations.”
Frakt wrote in a new post
for The New York Times
’ blog, The Upshot, that the proposed merger between CVS and Aetna is different from some of the megamergers that were blocked by federal judges in the past, because it will disrupt the pharmacy benefits management market and more closely align “management of drug benefits and other types of benefits in one organization.”
However, it’s important to note that these mergers that go across business lines face more challenges as they move into new business that is not core to the company’s current business. Integrating the businesses will be more difficult, as will creating value consistent with the original visions of each business. In general, half of all mergers and acquisitions fail, and theses cross-business mergers that get companies into new spaces will be even more difficult to do well.
What Consumers Get
According to CVS’ press release, the merger will benefit consumers who have access to an integrated, community-based healthcare experience. Consumers will have greater access to Aetna’s network of providers through CVS’ 9700 pharmacy locations and 1100 MinuteClinic walk-in clinics. The broader use of data analytics can help patients avoid unnecessary hospital readmissions, and patients with chronic diseases can receive better treatment through face-to-face counseling at stores and remote monitoring.
“With the analytics of Aetna and CVS Health's human touch, we will create a health care platform built around individuals,” Merlo said. “We look forward to working with the talented people at Aetna to position the combined company as America's front door to quality healthcare, integrating more closely the work of doctors, pharmacists, other healthcare professionals and health benefits companies to create a platform that is easier to use and less expensive for consumers."
Numerof echoed the belief that the CVS–Aetna deal could benefit consumers with greater access to convenient care at a lower cost. Another benefit of the merger could be greater leverage to negotiate drug prices, driving down those costs.
She was concerned that Aetna consumers might be driven to use CVS for prescription drugs, which would undercut consumer choice.
“I could envision that members who have an Aetna plan … have a situation where CVS becomes the preferred place for filling scripts and the price differential is such that it really drives business away from a Walgreens or other specialty pharmacies and so forth,” she said. “I think that this will be one of the areas that the FTC is going to pay attention to.”
With the blocked mergers of Aetna–Humana and Anthem–Cigna, the government clearly weighed in on the limits of market consolidation and that continued consolidation between large insurers would not be beneficial, Numerof said. The jury is still out regarding whether or not mergers across businesses will work, but the merger between CVS and Aetna represents a move to a market-based model being driven from the private sector, rather than Washington, DC, which Numerof thinks is good.
“A market-based model is one that’s focused on real transparency in cost and quality, accountability for care services across the continuum, and one that enables consumers to have real choice,” she said. “I think there’s real possibility in this merger.”