After months of speculation, CVS Health formally announced its decision to acquire Aetna on December 3. The deal will merge the largest pharmacy, the third largest PBM, and the third largest insurer. Perhaps most significantly, the deal represents a shift in pharmacy and in its value to health care.
The deal is still subject to antitrust scrutiny, but many analysts believe the deal will go through without a hitch. The merger would fall under the category of a so-called vertical integration, which sees parts of the production path merge together. In this case, that would be insurance and drug benefits. Horizontal mergers—the joining of two competitors, like the failed Walgreens/Rite Aid merger earlier this year—have previously been more difficult to pass through antitrust regulations, since they more directly impact consumer choice.
Some argue, however, that the deal will limit consumer choice. David Balto, the former Policy Director at the FTC and current Director of the Coalition to Protect Patient Choice, told Drug Topics that this deal “raises serious concerns for employers and consumers.” He pointed to the recent AT&T/Time Warner merger—which has come under intense antitrust scrutiny—as evidence that vertical integrations are not always assured.
Under this new deal, he said, CVS will be able to use its “gatekeeper position to prevent Aetna customers from using the pharmacy of their choice.” He added that the deal would give CVS more power to increase the price of drugs, and that the deal would be like “giving steroids to rebate schemes,” which he said are already problematic.
B. Douglas Hoey, MBA, CEO of NCPA, said in a statement that the deal will not lead to reported cost savings. He pointed to UnitedHealth’s 2015 acquisition of Catamaran as an example, saying that since that merger drug prices continued to increase. He said that this deal deserves close scrutiny over “whether this acquisition will lead to higher drug prices and fewer quality and convenience options for consumers.”
Hoey did concede that the deal could result in savings if CVS and Aetna contain the costs PBMs add to prescriptions.
Up next: The Death of Traditional Pharmacy?
So how would this deal affect pharmacists?
Hoey called on regulators to look at the previous actions of both companies. In 2015, he said, Aetna was fined $1 million by CMS for “significant disruption to patients and community pharmacists that occurred as a result of the company’s inaccurate representation of ‘in-network’ pharmacies in some plans.”
CVS, he continued, is “already the pharmacy benefits manager for Aetna, and independent pharmacies have been foreclosed from Aetna’s Part D preferred networks for the last two years. Consolidation of the two companies will only strengthen their ability to steer patients to CVS/Aetna-owned retail or mail-order pharmacies.”
Balto echoed similar concerns, saying that the deal could “hamper the ability of community pharmacies to compete.”
In a statement provided to Drug Topics, NCPA said that “When given a level playing field independent community pharmacies are more than ready to compete and thrive. Too often the marketplace, dominated by powerful PBMs, makes that a challenge. That is why further consolidation is always a concern.” According to NCPA, this deal could show how CVS has been “escaping accountability for their business practices.”
John Norton, the Director of Public Relations at NCPA, clarified. PBMs’ business models, he said, are “enabled by a lack of transparency. Momentum to make them operate in the open is gaining steam (just look at the proposed Part D rule and what they want to do with DIR fees).” He said that CVS partnering with Aetna is almost an acknowledgement of that, as CVS seems to be shifting its focus by moving forward into the primary care arena.
The Death of Traditional Pharmacy?
And, at least according to CVS, is to shift focus to a new health care arena.
In its statement announcing the proposed merger, CVS stressed that the deal will be creating new centers of health care. The current model, CVS said, isn’t working for consumers. To fix that, CVS says it will combine its resources with Aetna’s to give access to “high-quality care in lower cost, local settings whether in the community, at home, or through digital tools.”
CVS added that pharmacy locations will be become much more than just pharmacies, but will “space[s] for wellness” and include: clinical and pharmacy services, vision, hearing, nutrition, beauty, and medical equipment.
All of that fulfills what CVS sees as a hole in the market. CVS CEO Larry Merlo put it this way: “…The traditional health-care system lacks the key elements of convenience and coordination that help to engage consumers in their health. That's what the combination of CVS Health and Aetna will deliver." The end goal of the merger, then, is to create small-scale health clinics that combine a variety of health services at what CVS claims will end up costing patients less than other traditional methods.
But is Merlo right? Paula Muto, MD, FACS, a practicing vascular and general surgeon for more than 20 years, says that there is room in the system for this type of clinic. Muto is the CEO and Founder of UBERDOC, a service that connects patients with a specialist. She told Drug Topics that current government and insurance regulations have affected the system in such a way that doctors can no longer identify patient needs.
Muto said that CVS is local and can provide symptom or pain relief 24 hours a day, and that only an ER can offer that same level of service. “But it is also expensive and inconvenient and being sick is already an inconvenience - why shouldn’t it be easy to seek care?” she added. “Why have we put barriers in place? Probably because the value of a doctor-patient visit is no longer visible.”
Because they are responding to inefficiencies of the current, Muto concluded, they are filling a needed niche.
Health care then—and pharmacy with it—is shifting as a whole. CVS is making the move to fill a needed hole in the health-care system, but also because it is reading the larger signs of how pharmacy is going to fit into that shifting landscape.
Many analysts have speculated that the deal is due in part to pressure from Amazon’s potential move into the business. But there may be other factors at play. As Adam Fein of Drug Channels—an oft-quoted expert in the economics of pharmaceuticals—noted, CVS is also responding to pressure from other vertically integrated PBMs already in the market. UnitedHealth owns OptumRx, Humana has its own internal PBM, and Prime Therapeutics is owned by 14 not-for-profit Blue Cross and Blue Shield health plans. CVS has had trouble entering the medical benefit department, and a deal with Aetna could move that forward.
Also of note, UnitedHealth announced that it was buying DaVita Medical group and its nearly 300 medical clinics, only days after CVS’ announcement. Clearly, PBMs and insurers are looking for ways to bring health services in new ways.
On the pharmacy side, Walgreens recently announced that it is partnering with NewYork-Presbyterian to bring telemedicine services to patients through kiosks located at pharmacy locations. These kiosks will enable patients to consult with physicians and will, similar to CVS’ plans, create a new health clinic space in a pharmacy.
If CVS—by far the largest and most profitable pharmacy operator, and a company willing to spend $77 billion to get into the insurance world—is right, then the future of health care is integration. The pharmacy of the future will no longer be only about dispensing pills, it will be about providing a variety of health services. It will be about value, rather than volume.
As Perry Cohen, CEO of The Pharmacy Group, told Drug Topics, the deal “shows that retail pharmacy needs to find new revenue streams to maintain profitability.” Traditional retail pharmacy is dead—Amazon and others will come along to beat pharmacies on price and accessibility. The challenge for pharmacies is to add value where value is needed.