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CVS Health’s Acquisition of Aetna: Rise of Community Based Health Care

CVS Health’s Acquisition of Aetna: Rise of Community Based Health Care
January 11, 2018

CVS Health’s $69Bn blockbuster acquisition of one of the prominent payers – Aetna Inc. — is not a surprise as the U.S. healthcare industry moves toward achieving the economic benefits of scale and vertical integration that promotes better collaboration in the care continuum. This deal blurs the line between payers and providers by combining a strong network of 9,700 drugstores and 1,100 walk-in clinics operated by CVS with Aetna’s 22 million members across the country. The acquisition is testimony to the healthcare industry trend of providers of health care services having their own health plans for better alignment of patient outcomes and financial incentives.

But the deal is significant in healthcare market for more reasons than one. Firstly, CVS is operating in a highly saturated Pharmacy Benefit Management industry plagued by slow growth and diminishing profit margins. The deal provides CVS access to Aetna’s 22 million members, which will improve footfall in their retail chain. It would also provide CVS better lobbying power to bargain with pharmaceutical manufacturers to further lower drug costs. Secondly, this deal can also be seen as an attempt to fend off potential competition coming from Amazon which is eyeing the pharmaceutical business. Amazon, given its strong presence in the ecommerce business with large distribution networks and exceptional coverage of US states, is surely a threat to traditional pharmacy chains. Amazon could leverage its distribution network to disrupt the way drugs are delivered to patients. To fight this, CVS Health needs large financial resources, which comes from this acquisition. Finally, this acquisition will help CVS develop a community-based healthcare management model that would allow it to provide pharmacy management, healthcare solutions including primary care, and healthcare management under a single roof and enable them to move up the value chain instead of existing merely as a PBM. For Aetna, the deal helps them expand the number of providers, clinics, and pharmacies in their network, making them more competitive in the post Obamacare era. With access to CVS’ pharmaceutical retail chain, Aetna can also position itself as a one-stop platform for healthcare solutions for all its members.

It remains to be seen whether CVS will pass on any cost savings arising out of this deal to patients, but consumers will have better access to more personalized health care services in their community hub at a lower cost. With CVS retail stores turning into community medical hub with primary care, drug management, and healthcare management, access to all the health care services will be made available under one roof. But reduced cost and personalized services may come at the cost of flexibility in the choice of pharmacy stores and primary care provider.

While the acquisition looks great on paper – the fact remains that they are two large individual entities and the challenge to weed out duplicate processes, people, and technology needs to be addressed for CVS to achieve the full potential of such a large scale consolidation.

References

https://seekingalpha.com/article/4131025-cvs-and-aetna-risks-worth-rewards

https://www.nytimes.com/2017/12/03/business/dealbook/cvs-is-said-to-agree-to-buy-aetna-reshaping-health-care-industry.html

https://cvshealth.com/newsroom/press-releases/cvs-health-acquire-aetna-combination-provide-consumers-better-experience

http://money.cnn.com/2017/12/03/investing/cvs-health-aetna-merger/index.html

https://hbr.org/2017/12/what-the-cvs-aetna-deal-means-for-the-delivery-of-u-s-health-care

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