What you need to know about the forces reshaping our industry.


December 4, 2017

CVS + Aetna: How the $69B merger could shake up health system strategy

Daily Briefing

    Read Advisory Board's take on this story.

    CVS Health Corp. plans to buy Aetna for about $69 billion in cash and stock, the two companies announced on Sunday.

    Pending shareholder and regulatory approval, the deal is slated to close in the second half of 2018, the New York Times reports.

    Proposed merger details

    Under the proposed deal, CVS CEO Larry Merlo would serve as CEO of the combined company. Aetna would join CVS as a standalone company, and Aetna CEO Mark Bertolini—while not serving an operational role in the combined company—would sit on the CVS board alongside two other Aetna executives, according to the Journal.

    If the deal goes through, Aetna shareholders will receive $207 per share in the form of $145 in cash and $62 per share in CVS stock.

    CVS', Aetna's vision for the future

    According to the Wall Street Journal, the proposed deal aims to combine Aetna's medical expertise with CVS' pharmacy locations to create sites for convenient, local care—and stem rising health care costs.

    For instance, CVS under the proposed merger plans to repurpose its nearly 10,000 pharmacies and clinic locations as community health centers with medical staff on hand to answer customers' health care and coverage questions, including how to manage costs. Pharmacists, NPs, and experts such as nutritionists would staff the centers, the Journal reports. And Merlo said physicians might at some point join too.

    The CVS locations also would have a dedicated space for wellness services and provide services related to hearing, vision, and nutrition, the Journal reports. The companies want customers to have better management of chronic illness, such as heart disease or diabetes.

    "This transaction is about growth and expansion, not contraction," Merlo said. He added, "We think of it as creating a new front door to health care in America."

    Similarly, Bertolini said joining forces with CVS would allow the insurer to provide its customers with a better way to access care. "It's in their community. It's in their home," he said. "This is about how to get the payer more involved at the local level."

    In a joint interview Sunday, the CEOs said the new company would be in a good position to curb rising health care costs, which Merlo said are growing at "an unsustainable rate." The merged company "can meet an unmet need in terms of improving access and reducing cost and helping people achieve their best health," Merlo said.

    The companies said the merger would save $750 million in costs.

    Further, Bertolini said that leveraging the insurer's health data with CVS' retail expertise would yield improved ability to treat chronic disease. "As we look at 50% of the population driving 80% of cost, we need to find a more convenient and more effective way to meet customers' needs," Bertolini said.


    The combined entity would have roughly $240 billion in annual revenue and significant bargaining power in negotiating with hospitals, drugmakers, and employers, Bloomberg reports. According to Axios, the combined entity would dethrone UnitedHealth Group as the biggest health insurer and pharmacy benefits manager. 

    According to the New York Times, several analysts have said the deal is a defensive move by both CVS and Aetna. A person familiar with the proposal earlier this year said CVS was spurred to make the offer in part by expectations that Amazon will enter the pharmacy business.

    And while health care consolidation has generally "led to higher prices and no better outcomes," Austin Frakt writes in the New York Times' "The Upshot" that the CVS-Aetna deal "might be different because their business lines complement each other." Specifically, this complementary structure could improve care for individuals with chronic conditions—by ensuring, for instance, that Aetna-insured people with chronic conditions stay on their drug regimen, thereby avoiding costly hospitalizations—potentially lowering costs and improving outcomes, Frakt explains. That said, "there's no guarantee at this stage." 


    While a merger between a drugstore and an insurer is viewed as less problematic than a merger of two companies in the same business, the deal is expected to face antitrust scrutiny, at least in part because both companies are "significant players in offering prescription drug plans to Medicare beneficiaries," the New York Times' 'DealBook' reports. At the same time, the Department of Justice (DOJ) last month blocked a "vertical" deal between AT&T and Time Warner. 

    Jennifer Rie, a Bloomberg analyst who follows antitrust issues, said, "Most vertical deals don't raise antitrust concerns, and the ones that do generally get approval to close with an agreement containing behavioral conditions." However, she added that DOJ "appears to be rejecting this kind of remedy given its approach to the AT&T-Time Warner deal."

    Bloomberg reports that the level of scrutiny the deal faces could hinge on whether it's reviewed by the DOJ or FTC. According to Bloomberg, retail mergers are usually handled by FTC (Terlep et al., Wall Street Journal, 12/3; de la Merced/Abelson, "DealBook," New York Times, 12/3; Diamond, "Pulse," Politico, 12/4; Pandey, Axios, 12/3; Langreth et al., Bloomberg, 12/4; Haefner, Becker's Hospital Review, 11/30; Frakt, "The Upshot," New York Times, 12/3) .

    Editor's note: TheDaily Briefing is published by Advisory Board Research, a division of Optum, which is a wholly owned subsidiary of UnitedHealth Group. UnitedHealth Group separately owns UnitedHealthcare.

    Advisory Board's take

    Lindsay Conway

    Lindsay Conway, Managing Director, Pharmacy Executive Forum and Oncology Roundtable

    Should the deal be finalized, I see two major implications for health systems.

    First, the merger would create a formidable new competitor for health systems in the population health business. If a CVS-Aetna company could expand access to clinical pharmacy services, then the new entity could potentially out-compete traditional health systems on both cost and quality of care for low-acuity patients. That's because most providers struggle with creating a financially sustainable model for delivering clinical pharmacy services. Drug therapy is an increasingly important strategy for managing complex and chronic disease patients, and pharmacists are ideally-positioned to provide medication therapy management (MTM). Yet in a fee-for-service environment, most health systems are unable to provide robust MTM, the absence of which contributes to avoidable complications, non-adherence, and sub-optimal patient outcomes.

    Second, the merger could affect health systems' retail pharmacy strategies. In recent years, many health systems have been investing in retail and specialty pharmacies to capture new revenue streams and improve continuity of care for their patients. It's likely, however, that as a result of the merger, patients' who receive their pharmacy benefits from CVS-Aetna would be encouraged to fill their prescriptions at CVS. The change would threaten not only health system-owned retail pharmacy revenues, but it could also compromise health systems' ability to coordinate medication management for their patients.

    Rachel Sokol

    Rachel Sokol, Practice Manager, Health Plan Advisory Council

    The move is likely the first of many health plan joint ventures or mergers with pharmacy organizations that highlight plans' need to go beyond traditional methods of medical management and seek new partners in addressing rising drug costs. The first iterations of these joint ventures focused on provider partnerships. Plans are now looking to pharmacy organizations (retail clinics and/or PBMs) to drive results as well. In particular, these partnerships offer three potential advantages:

    1. Support for medication adherence. An aging population and more medical (as opposed to surgical) treatment focus efforts on care plan adherence.
    2. Access to better real-time data. Health plans need to know how their members are doing to intervene if something seems awry. Pharmacy data present some of the most accurate information on how members are adhering to a care plan.
    3. Instant availability for care. Retail pharmacies present an opportunity to provide care after traditional provider hours to hopefully prevent the need for a higher acuity setting such as the ED.

    More on pharmacy and population health

    Have a Question?


    Ask our experts a question on any topic in health care by visiting our member portal, AskAdvisory.