By now you’ve certainly heard the news: CVS has announced plans to purchase Aetna for a record $69 billion, the largest-ever merger in the health insurance industry. CVS currently has roughly 10,000 pharmacies, and, if approved, the deal would allow the pharmacy giant to offer health care services and prescriptions to Aetna’s 22 million members.
Approval isn’t a certainty. As you’ll recall, the proposed mergers between Aetna and Humana and between Anthem and Cigna were both shot down by the Obama Justice Department because of the fear that the mergers would limit competition and reduce consumer choice in a number of markets. We don’t yet know how the Justice Department will respond to the CVS-Aetna deal. It is worth noting that we have a different administration with a very different mentality now, so it’s possible that there won’t be much pushback, especially since this merger isn’t between two carriers but rather between a carrier and a retail pharmacy chain; since it’s a vertical acquisition, it shouldn’t have the effect of limiting competition.
However, as CNBC reports, the Justice Department has moved to block a proposed merger between Time Warner and AT&T if CNN is not sold, so it’s difficult to predict whether there will be similar pushback on this deal. One possible argument is that the agreement would limit not the health insurance choices but rather the health care choices available to consumers. As the New York Times puts it, this “deal risks leaving patients with less choice of where to get care or fill a prescription if those with Aetna insurance are forced to go to CVS for much of their care.”
This acquisition, if approved, will have far-reaching effects on the insurance industry. The Times quotes CVS Health’s CEO, Larry Merlo, who said that the proposed “merger would establish a new way of delivering care, with nurses, pharmacists and others available to counsel people about their diabetes or do the lab work necessary to diagnose a condition.” Mr. Merlo believes the combined company “can make health care more affordable and less expensive.” At the very least, competing insurers will need to decide how they will respond.
Of course, the CVS-Aetna deal isn’t the only threat to other carriers. Online retail giant Amazon has been making a play to get into both the telehealth and prescription drug businesses. It’s easy to envision consumers being able to call a doctor, get a prescription, and then have that prescription delivered to their door through Amazon. With CVS-Aetna, members could go to a pharmacy with a retail clinic, get a diagnosis from a doctor or nurse practitioner, pick up their prescription just a few feet away, and use the insurance plan they have through the same company to pay for the office visit and the medication.
Long story short, the CVS-Aeta deal could certainly be disruptive for the market. Our hope is that it will create a new model that will give your clients some additional and lower-priced options. We’ll keep an eye on the deal and share what we know as we learn more.