CVS Health has reportedly placed a bid to buy Aetna, one of the nation’s largest health insurers.
The news broke on Thursday, October 26th that CVS Health has reportedly placed a bid to buy Aetna, one of the nation’s largest health insurers. In my mind, this potential deal makes a lot of sense due to recent market forces. As a former CVS employee, I’d like to share my initial thoughts.
UnitedHealth Group: A Powerhouse
UnitedHealth Group was already one of the largest health insurers in the country when they purchased the pharmacy benefit manager (PBM) Catamaran in March of 2015. UnitedHealth already possessed their own PBM, OptumRx, and merging it with Catamaran instantly made them one of the largest PBMs in the country. Having that kind of size created a lot of efficiencies and also provided them significant purchasing power when negotiating drug prices with pharmaceutical manufacturers.
In addition to likely influencing CVS and Aetna, UnitedHealth Group’s success has also contributed to health insurer Anthem recently announcing that they will be creating their own PBM (IngenioRx). Anthem has said that they will launch IngenioRx rather than continue to work with standalone PBM Express Scripts.
Recent Failed Mergers
In an effort to control costs and lower drug prices, multiple companies have attempted mergers in the last year and they have mostly failed. Earlier this year, the proposed mergers of insurers Aetna-Humana and Anthem-Cigna were both called off due to antitrust concerns. In terms of retail mergers, Walgreens spent a significant amount of time trying to buy Rite-Aid before eventually giving up and simply purchasing 600 stores outright. All of the above mergers failed because the mergers would reduce the number of competitors within the insurer space or retail drug stores. The beauty of a potential CVS—Aetna merger is that it will not reduce the number of competitors. Plus, the UnitedHealth Group deal with Catamaran proves that a health insurer-PBM merger can pass government trust concerns.
Amazon Is Looming
This is a poorly-kept secret, but there are significant rumors that Amazon is looking to jump into the PBM space. Amazon has a reputation for making shopping easy, something that isn’t always the case when it comes to patients receiving their medication. Amazon has significant buying power and is heavily-invested in technology. Earlier on Thursday, it was reported that Amazon received approval for wholesale pharmacy licenses in at least 12 states. Just the thought of Amazon entering health care from any angle is enough to make existing players skittish.
By buying Aetna, CVS would essentially be circling the wagons and walling itself off. They would be able to control everything from which doctors patients may see to where and how they can fill their prescriptions. Anyone with Aetna insurance would have a significant incentive to fill their prescription with CVS Caremark mail order or at CVS retail stores.
1. Amazon gets pharmacy licenses in at least 12 states: report. http://thehill.com/policy/healthcare/357396-amazon-gets-wholesale-pharmacy-licenses-in-at-least-12-states-report Accessed October 26, 2017.