CVS Health will acquire Aetna in a mammoth $69-billion deal


Acquisition brings retail pharmacy and PBM together with a health insurer

Exactly a decade ago, CVS rocked the pharmacy world by winning a battle (with Express Scripts) to acquire Caremark, then a leading pharmacy benefit manager (PBM), combining two entities that nominally were enemies in the marketplace at that time. Now, CVS Health (the combined firm) is breaking the mold again, this time acquiring the No. 3 health insurer, Aetna, in a $69-billion cash and stock deal. The transaction is expected to close in the second half of 2018, and is subject to approval by CVS Health and Aetna shareholders, regulatory approvals and other customary closing conditions.

Many commentators on the deal, in the works for the past month, see potential in connecting with patients through the local pharmacy and/or retail clinic (CVS Health has 9,700 of the former, and 1,129 of the latter). “We look forward,” said CVS CEO Larry Merlo, “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.” CVS Health and Aetna expect to be able to coordinate care of patients with chronic conditions through “community-based health hubs” that CVS has been developing, while Aetna taps into an extensive network of healthcare providers.

The deal is also a proactive step at a time when healthcare delivery has perhaps never been more in turmoil, as Washington continues to wrangle with the Affordable Care Act, drug costs become a growing burden on patients, and the pharmacy and PBM industries look with some trepidation at the possible entry of Amazon into the pharmacy business. Yet, while the local-pharmacy element of the deal is truly a new factor, PBMs and insurers have been blending their practices for years. CVS Health is the No. 2 PBM and No. 2 chain pharmacy, and Aetna is the No. 3 insurer (by revenue). UnitedHealth, meanwhile is the No. 1 insurer and No. 3 PBM (through its OptumRx PBM). CVS itself has a prior deal to set up a PBM business for Anthem Health, another leading insurer—and this transpired after a merger between Anthem and Cigna (another insurer with a PBM business) failed earlier this year.

The acquisition is a mixed bag for the pharma industry: The contracting and supplier relationships with two customers will now become one, representing a further consolidation of the drug-buying market. On the other hand, more effective followup care could increase patient adherence to therapy, benefiting drug sales. The perverse incentives of PBMs to favor higher drug prices (because their own margins improve, especially when they can obtain deeper discounts) could dissipate—but that doesn’t necessarily translate into a better financial picture for manufacturers. Ultimately, the combination could bring some stability into what is becoming an increasingly unsettled healthcare-delivery structure in the US.

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