Current Events

CVS-Aetna merger

Many of you have already heard the news: CVS is buying Aetna for $69 billion.  As the New York Times reports:

Together, the companies touch most of the basic health services that people regularly use, providing an opportunity to benefit consumers. CVS operates a chain of pharmacies and retail clinics that could be used by Aetna to provide care directly to patients, while the merged company could be better able to offer employers one-stop shopping for health insurance for their workers.

But critics worry that customers could also find their choices sharply limited. The 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.

I have been a fan of retail clinics.  Offering more choice and convenience is a good thing, especially if it is less expensive.  Increasing access hours to care is also a positive.

Cost savings

However, I am skeptical that there will be substantial savings from increased use of retail clinics.   Most of health care spending, however, isn’t from taking care of kids with coughs or annual check-ups.  The real cost of health care is treating patients with severe diseases and/or multiple comorbidities.  These more severely ill people–who make up the lion share of Aetna’s costs–need to see specialists, not PCPs.  Secondly, the thought that there will be significant efficiencies from merging to very different business entities, markets and cultures likely is wishful thinking.

The one key area where there could be cost savings is through lower drug prices.  As Austin Frakt argues, oftentimes, drug prices rise with PBMs, and PBMs negotiate rebates for payers.  By reducing these rebates and cutting out the middleman, drug prices may be able to fall as CVS would now internalize these savings as part of Aetna.

One benefit of the merger is that health plans can internalize cost offsets.  If there are expensive pharmaceuticals that reduce hospitalizations, by owning a pharmacy benefit manager (PBM) and health plan, the combined company can realize these savings and make informed decisions on pharmaceuticals taking into account cost offsets.

The business of health care

What does CVS get out of the deal? Likely, CVS sees that getting relatively healthy people into CVS (i) builds trust in their brand, (ii) people will buy stuff while getting their health care, (iii) patients will be required/encouraged to fill their prescriptions with CVS.  As described above, Aetna will likely get lower drug prices by cutting out (i.e., internalizing) the PBM middleman.

On the business front, it is likely that Express Scripts–another PBM–will be a target for acquisition.  Bloomberg posits that the deal could portend a run health care businesses takeovers.  Could Wal-mart buy Humana? That is what one analyst proposes.

One thing is certain: the health care world is not going to stay the same for long.



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