The proposed $66 billion CVS Health Corp. and Aetna merger indicates that diversification is top-of-mind for healthcare companies, according to industry experts.
According to a statement from Aetna, the agreement will allow the insurer “to provide customers with high-value, integrated pharmacy plans that are driven by total cost and quality management, clinical superiority, a holistic, member-centric experience, and market-leading products.”
“If the merger is approved . . .which will no doubt go through a lot of scrutiny, the implications will likely have managed care executives rethinking traditional industry competitors,” says Bruce Carver, associate vice president of payer services, MedeAnalytics, a healthcare analytics provider.
“A move like this establishes a model similar to the market competition of UnitedHealth Group, which owns the PBM OptumRx,” Carver says.
In addition, Anthem announced that it is establishing its own PBM company, IngenioRx.
“This is the first significant change to the carrier markets in a long time. This purchase squarely puts CVS Health and Aetna ahead of UnitedHealth Group [M&A activity] on many fronts,” says Pramod John, CEO, VIVIO Health, a specialty drug management company.
“CVS Health and Aetna can now play the same game that UnitedHealth Group has been playing for a long time with both medical/pharmacy coverage and manipulating the numbers on both ends to provide the ‘best’ deal and lock out competitors,” John says.
Diversification vs. simple consolidation
“As healthcare becomes more holistic, integrated, patient-centered, and focused on value, we will see more diversification mergers versus simple consolidation within sectors of healthcare,” says Will Hinde, managing director of West Monroe Partners' Healthcare & Life Sciences consulting firm. “This will allow innovative organizations the ability to influence cost, access, and quality of care across the entire value chain, which should usher in powerful change.”
Following hot on the heels of Amazon looking to get into the pharmacy business, many see this as a hugely defensive move, according to Herman Sanchez, managing partner at Trinity Partners, a global life sciences consulting firm.
“Both the Amazon news and this are potentially disruptive to the whole pharma supply chain,” Sanchez says. “The most worried are likely to be the big distributors—e.g., Cardinal, McKesson, AmerisourceBergen—as deals will lead to an end around of their business. Other managed care executives are likely to see this move as requiring them to capture more of the supply chain to drive value to their members and compete with Amazon or CVS/Aetna.”
The potential merger is a classic example of horizontal corporate integration in healthcare, according to Jay Wolfson, DrPH, JD, distinguished service professor, Public Health, Medicine and Pharmacy, and senior associate dean, Morsani College of Medicine, University of South Florida Health.
“It is a natural part of what should be expected in an evolving managed care market,” Wolfson says. “It consolidates essential means of production within a single, national corporate vehicle. The new entity will have a built-in and expandable community primary care presence in CVS’ clinics, and will have increased benefit plan negotiating leverage because it will be able to optimize pharmaceutical costs. Having an integrated care and pharma data base for its beneficiaries and providers, more cost and outcome effectiveness can be engineered. Keeping people healthy and out of hospitals can become a stronger corporate incentive that can be augmented through telemedical options more closely linking patients and their families to a ‘mother ship’ of an integrated care system.”
Potential merger barriers
Data and technology systems aside, there are many barriers to close this deal, according to Hinde.
“The unsuccessful Anthem-Cigna and Aetna-Humana mergers indicate a tough road ahead for an acquisition on the scale of CVS and Aetna,” Hinde says. “The regulatory hurdles may simply be too high to surmount and the cost and distraction too great.”
A potential combination creates some very notable economies of scale and scope compared to the mergers that were blocked by the government last year, says Dan Delaney, managing director of HealthScape Advisors, a healthcare management consulting and analytics firm based in Chicago. “Both players have a national footprint that can be leveraged for purchasing power, and both have robust networks of clinics and telemedicine capabilities that can drive cost management through site of care optimization.
“Given that the CVS Health and Aetna merger would make CVS a direct competitor with Anthem’s core business, it’s likely that we’d see some required divestitures to accommodate regulators, particularly where there are overlapping businesses like in the Medicare Part D market,” Delaney says.