CVS-Aetna: What's the deal?

The latest buzz in healthcare circles since the weekend has been the CVS-Aetna merger. For a lot of people, its news that your neighborhood drug store is big enough to buy out an insurance behemoth like Aetna. For perspective, CVS does about $178 billion in annual revenue while Aetna does about $63 billion. Together, they are worth about $241 billion. In contrast, UnitedHealth Group, the largest insurer in the country did about $184.8 billion in annual revenue in 2016 and is projected to be in the low $200 billion mark in 2017.

So, what is it about CVS, a pharmacy and Aetna, an insurer coming together in a $69 billion deal that has the healthcare community abuzz?

CVS has over 10K retail locations and a large Pharmacy Benefit Management (PBM) business, which is its mainstay. Aetna is the third largest insurer in the country servicing about 22.2 million members enrolled in commercial, Medicare, Medicaid and other plans.

In 2015, Aetna propositioned a merger with Humana, which did not see the light of the day due to a Federal Court antitrust decision. Aetna has been a leader in the diverse commercial insurance business and looked to leverage Humana’s Medicare Advantage and government business through that deal.

Aetna worked on The Affordable Care Act exchange business too, which didn’t prove to be very affordable for Aetna. While UnitedHealth Group has diversified into not just being an insurer but also a PBM and other health services, Aetna’s core business has been insurance. On the other hand, CVS’s core business has been PBM and its drugstores, some of which house retail clinics. With this deal, CVS expects to leverage Aetna’s insurance business and also get hyper local with healthcare services delivery through its physical locations.

It’s to be seen how patient outcomes improve and costs savings are garnered. For one thing, PBMs have time and again been blamed for the number of levels and middlemen involved that drives the cost of drugs up. On the other hand, CVS and Aetna are from two different ends of healthcare and each lacks the knowhow and infrastructure of the other. Consolidation and finding true costs savings will require time and effort before anticipated outcomes are seen.

If UnitedHealth Group’s leverage of its PBM arm, OptumRx is observed as an example, which has proved profitable for UnitedHealth Group; over time, costs savings and streamlined services can occur where, from insurance coverage to service delivery will happen under the same roof.

So, ultimately what the end consumers can see with this deal, is insurance plans with lower copayments and perhaps, premiums, better prescription drug prices through the leverage CVS gains with the drug makers and a distribution system that is cost effective and services a combined CVS-Aetna membership.

Unlike Aetna & Humana, this is seen as a vertical merger between two companies offering diverse healthcare services. The next step for it is to pass through the regulators before it becomes a reality. 

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