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Pharmacy giant CVS Health made it official Sunday night, disclosing its plan to buy the health insurer Aetna for $69 billion to create a powerhouse that plays the role of both healthcare payer and medical provider, the companies announced.
The deal, which values Aetna at $207 a share, would create a company with combined annual revenues of $240 billion, rivaling UnitedHealth Group, which said last week it could reach $225 billion in revenue in 2018. Terms of the deal call for CVS to assume Aetna's debt.
“This combination brings together the expertise of two great companies to remake the consumer health care experience,” CVS President and Chief Executive Officer Larry Merlo said in a statement announcing the acquisition. “With the analytics of Aetna and CVS Health’s human touch, we will create a health care platform built around individuals.”
Try as it might, but Aetna, the nation's third largest health insurer, couldn’t compete on its own with UnitedHealth Group, the nation's largest insurer, under CEO Mark Bertolini, who CVS said will now be one of three directors added to CVS’ board. Aetna aborted its effort to buy rival health insurer Humana last year in the face of antitrust scrutiny and didn’t have the resources to build doctor and outpatient care centers like United’s Optum unit has been doing.
UnitedHealth Group this year will eclipse $200 billion in annual revenue for the first time with a menu of health insurance products under its umbrella including Medicare, Medicaid and commercial as well as its OptumRx pharmacy benefit manager (PBM) and hundreds of doctor practices, outpatient surgery centers and urgent care facilities spreading across the country.
Enter CVS, which already has a network of more than 9,700 retail pharmacies in 49 states, the District of Columbia, Puerto Rico and Brazil and more than 1,100 Minute Clinic locations in 33 states. CVS already has the Caremark PBM and will certainly grow if regulators approve the acquisition of Aetna, which has 22 million health plan members in commercial, Medicare and Medicaid insurance products.
The deal with Aetna will allow the combined company to integrate “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,” Merlo said.
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In putting providers of medical care under the same umbrella as an insurance company, the deal is sure to trigger the interest of antitrust regulators, legal analysts say.
A new wrinkle for regulators examining the CVS-Aetna deal will be the PBM operations of the larger company . CVS in October agreed to form a PBM with Anthem, the nation’s second largest health insurer.
The Anthem partnership involves a five-year agreement with CVS Health for services effective Jan. 1, 2020. The PBM owned by Anthem is known as IngenioRX and is combining “member and provider engagement initiatives and market leading pricing with CVS’ point-of-sale engagement, such as member messaging and Minute Clinic.”
PBMs have been under fire of late, as some have questioned whether the drug purchasing middlemen are passing along all of the savings to employers or consumers that they could.
“The promises of consumer savings from past insurance company-PBM alliances are as fanciful as a unicorn,” David Balto, a former Federal Trade Commission lawyer who is director of the Coalition to Protect Patient Choice, which worked with doctor and hospital groups to fight Aetna’s acquisition of Humana.
"‘Consumers suffer by paying more and getting less choice for the vital drugs they need,” Balto said last week. “Moreover, this type of alliance would be a fertile environment for regulatory abuse.”
But other legal analysts say the CVS-Aetna deal is different.
“Rather than having a horizontal merger of two players in exactly the same industry, this deal would constitute a vertical merger between two firms in the same supply chain,” David Cadden, professor of entrepreneurship and strategy emeritus at Quinnipiac University said Sunday afternoon. “CVS/Aetna will argue that this merger will lead to significant cost savings that could be passed onto consumers. If they can demonstrate this, there is a significant probability the Department of Justice would approve it."
The deal promises to further narrow Americans' choices of where they pick up their prescriptions and receive their healthcare services, as I wrote earlier Sunday.
Even before reports surfaced more than a month ago that CVS would purchase Aetna, the trend to narrower health plan networks was on the rise. Health insurers and employers say they need to cull lists of doctors, hospitals and pharmacies so they can more closely monitor costs and quality, making sure health plan subscribers get a provider that helps them meet certain health outcomes and measures.
