WASHINGTON, December 6, 2017: CVS has announced they will acquire health insurer Aetna for $69 billion. This merger between a retail pharmacy chain and one of the largest health insurance companies in the country could be a real game-changer in both industries.
This highly unorthodox transaction stems in major part from the tremendous uncertainty that dominates the healthcare market. Obamacare, aka the Affordable Care Act (ACA), is failing. Health insurance costs are rapidly rising, even as the number of insurance coverage choices are dwindling for many Americans. Worse still, the funds available from Congress to cover insurance company losses are in jeopardy and are already out of control.
The Republican-controlled Congress generally wants to repeal the ACA and replace it with a better law, though Republicans can’t seem to agree on how that should be accomplished. Every Democrat in Congress refuses to repeal the ACA. But almost in the same breath, they do recognize that the law needs some major adjustments.
It is uncertain as to what will finally happen in Congress. However, all companies in the healthcare market will need to become more efficient, costs and improve the healthcare experience for the majority of Americans.
CVS believes there must be a consolidation of services.
In a statement, CVS Health President and Chief Executive Officer (CEO) Larry J. Merlo said,
“This combination brings together the expertise of two great companies to remake the consumer healthcare experience. With the analytics of Aetna and CVS Health’s human touch, we will create a healthcare platform built around individuals. We look forward to working with the talented people at Aetna to position the combined company as America’s front door to quality health care, integrating more closely the work of doctors, pharmacists, other healthcare professionals and health benefits companies to create a platform that is easier to use and less expensive for consumers.”
The idea is to put the consumer at the center of healthcare delivery, while reducing cost.
Aetna CEO Mark T. Bertolini described his vision as “creating a new front door for health care in America.”
“We want to get closer to the community because all health care is local. What was going to draw people into an Aetna store? Probably not a lot. We looked for the right kind of partnership.”
More changes are coming to the healthcare market.
Possibly driving the merger is the speculation that online retailer Amazon is actively looking to enter the pharmacy business. Traditional pharmacies like CVS fear that Amazon will upend the drug sales and distribution system as it currently functions. Given that Amazon has already transformed consumer retail buying habits, leading to ever-worsening returns for most bricks-and-mortar retailers to date, that fear is reasonable.
As a result of the relentless Amazon onslaught, traditional retailers have been forced to close or scale back to counter Amazon, which continues to grow at a rapid pace by selling the same products at lower prices. Brick-and-mortar pharmacies fear this is the writing on the wall for their own traditional business model. They anticipate that their own sales will decline as well. This not only hurts the bottom line. It also means the retailers are in a weaker position to negotiate competitive drug prices with pharmaceutical companies.
The CVS / Aetna merger will reduce costs and provide new opportunities.
The companies may offer innovative healthcare plans with low co-pays when consumers seeks care at one of CVS’s MinuteClinics. The company’s growing number of such clinics could expand further after the Aetna deal is final. The company would also offer a seamless way to manage the relationship between insurer and retailer.
Other companies have already started to react to this news. Another competing pharmacy retail chain, Walgreens, is in discussions with Fed-Ex, seeking a relationship that would enable Walgreens to offer home deliveries to consumers. Express Scripts, the largest pharmacy benefit management (PBM) organization in the United States according to Wikipedia, said they might be interested in working with Amazon.
Whenever there is uncertainty in markets, firms look to become more efficient in order to help ensure their survival. The proposed CVS / Aetna deal is just one example of this phenomenon. With more mergers likely the delivery of medical care and drug distribution will see changes.
Let’s just hope those still-evolving changes really do benefit the consumer in the long run.