CVS Health and Aetna on Wednesday closed a $69 billion deal for CVS to acquire the country's third-largest insurer, creating what the Wall Street Journal calls "a new industry giant."
Closing the deal
CVS and Aetna last December announced plans to merge. At the time, the companies said they planned to combine Aetna's medical expertise with CVS' nearly 10,000 pharmacies and clinic locations to create sites for convenient, local care—and stem rising health care costs.
CVS will operate Aetna as a standalone insurance unit and plans to keep the brand to reference insurance products.
Shareholders from each company approved the deal in March and the Department of Justice approved the merger in October.
The deal was finalized when New York and New Jersey—the last of 28 states that needed to OK the deal—gave their approval this week.
According to Aetna and CVS, the merger will lead to more than $750 million in savings after the second year as a result of cuts in medical costs and corporate expenses as well as the integration of operations.
What patients can expect in 2019
CVS CEO Larry Merlo said the newly combined company soon will launch pilots for several new initiatives. In those pilots, CVS will remodel some existing locations to develop a hub-and-spoke setup, Merlo said. Within a given geographic area, there would be a main pharmacy that offers a broad array of services as well as several other drugstores that refer patients to that location when appropriate.
Merlo said a few of the pilot stores will open in the first half of 2019 and that he thinks the company will be able to tell quickly which aspects work well.
Also as part of the pilots, CVS will test upgraded MinuteClinics and efforts to help patients with issues including nutrition and health plan offerings, Merlo said. He added CVS wants to "act as that integrator" for patients' needs, helping them access transportation or food.
The big focus for the company, according to Merlo, will be on care management for asthma, behavioral health, cardiovascular disease, diabetes, and high blood pressure.
Merlo said the merged company has the capability to make health care less fragmented for consumers. "We have the capabilities to connect the dots in a very differentiated way."
Industry analysts have said the two companies will face a challenge combining their diverse set of assets, from CVS' network of pharmacies to Aetna's Medicaid managed care business.
Sam Glick, a partner with consulting firm Oliver Wyman, a unit of Marsh & McLennan Co., said, "Bringing these parts together is hard." He added, "The industry and consumers will be watching closely to see if one-plus-one is really greater than two."
Some consumer advocates have warned that the merger could create what the Journal calls a "corporate goliath" that will reduce patients' options and result in higher prices.
But Merlo said the new CVS will change the health care industry for the benefit of patients. "We are leading change in health care by challenging the status quo ...In doing so, we will continue to deliver on our purpose of helping people on their path to better health" (Richman, Fierce Healthcare; 11/28, LaVito, CNBC, 11/28; Jaspen, Forbes, 11/26; Wilde Mathews/Al-Muslim, Wall Street Journal, 11/28).
Advisory Board's take
Rachel Sokol, Practice Manager, Health Plan Advisory Council
While we've known this deal would be coming for some time, its closure—as well as the recent news about Walgreens and Humana considering investing in equity shares of each other—is just further proof that the health care industry is entering a new era of vertical integration.
First and foremost, many of these deals are about better sharing of and access to data. Whether Aetna and CVS sharing retail information or Cigna and Express Scripts sharing information on prescription pick-up dates, these partnerships show that having quick access to real-time data is now a must in the industry. With it, plans are seeking to create a cycle whereby they can create new, ubiquitous member touchpoints (that reach further into member's lives), and generate data that helps to feed an enterprise information hub—helping the plan act more quickly.
All of this underlies what I believe are three new competitive standards for health plans:
- Lower drug spending: It's no surprise that two of the largest recent deals have involved PBMs. Clearly, any way to improve drug price transparency or provide cheaper pharmaceutical options to members will go a long way.
- Smart network routing: Plans are increasingly incorporating more sites into their networks—whether they own them or not. This allows them to capitalize on this first point of network entry to send the member to a cost-effective second site.
- Leveraging point of care insights: Plans increasingly have to use the new data they are generating to help members and providers at the point of care and make the care episode as efficient as possible.
So while not every plan can partner with a PBM or retailer, all plans will be expected to meet these new competitive standards. They'll be expected to lower drug costs, use data to better know their members, and carefully route them to the best, most cost-effective next site. These are the new competitive standards all plans will have to be accountable for due to this greater integration.
Join us at 1 pm ET today, Thursday November 29, to learn more about what vertical integration means for the health plan value proposition.
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