CVS-Aetna Deal Aims to Create the Next Big Healthcare Vertical

Proposed merger could be major disruptor for payers and pharma

The proposed $69 billion merger of CVS and Aetna would create an interesting new vertical in the healthcare industry – one that can offer potential cost savings to employers and convenient retail access to basic care for consumers.

The acquirer, CVS, plans for Aetna to keep its management team and function as a subsidiary of CVS. Aetna, which has had trouble growing its membership of late, may be able to offer lower-cost pharmacy benefits through synergies with CVS.

As Aetna’s PBM, CVS could supply preferred-pharmacy and integrated in-store clinic offerings to Aetna members.  With 9,700 pharmacy locations and 1,100 MinuteClinic walk-in clinics nationwide, CVS is poised to offer what Aetna CEO Mark Bertolini called “high-touch interactions” with Aetna members to promote wellness or manage chronic conditions.

Company officials say CVS stores would expand to include space for clinical and pharmacy services including vision, hearing, nutrition and some medical equipment, functioning as “community-based health hubs” for members. High-tech health monitoring devices could direct Aetna members to a nearby CVS in-store clinic for quick evaluation, rather than to a hospital.

A combined Insurer-PBM-Drugstore-Clinic could prove disruptive on the business side, shortening the traditional pharma supply chain by two or three links at once, providing a lower-cost pharmacy benefit for self-insured employer groups nationwide. The larger potential benefit is for Medicare Advantage, where Aetna lags behind its peers in membership. With CVS retail locations serving as a ready provider of low-cost condition management for seniors, Aetna may be able to offer a more local, convenient and high-touch Medicare product.

With a GOP Congress set to make significant alterations to Medicare, Medicaid and the individual commercial market, the combined companies also might be in a better position to respond to the new paradigm, whatever it is.

Aetna’s enthusiasm for the deal is attributable to what I’ll call Optum-envy; having watched the stellar growth of UnitedHealth Group’s earnings over the past several years as it has fully deployed its Optum PBM and healthcare management and services businesses. CVS’ motivation likely stems from Amazon’s potential threat as a to-your-door PBM/pharmacy. But the combination has powerful potential, particularly if it can integrate to the extent that CVS clinic sites can serve as the “front porch” of Aetna members’ medical homes.

Already, there are whispers of another potential merger targeting Medicare giant Humana – possibly by another PBM.  And CVS and Anthem both confirm that they will continue with their agreement that CVS will help Anthem develop and launch its new in-house PBM, IngenioRx.

But there is much more to vertical integration than stacking healthcare businesses together inside the same corporate entity – the services, product innovations and care management capabilities developed by the merging entities will create the real value.

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