CVS Brings One-Stop Shopping to Health Care

Most firms following a purchase have inevitable goals in mind—boosting market share, perhaps, or diversifying earnings. however shop operator CVS Health corporation. has somewhat grander ambitions for its $67.5 billion purchase of health underwriter Aetna INC.: dynamical the means Americans visit the doctor. The deal would produce a behemoth that might attempt to shift a number of Aetna customers’ care aloof from doctors and hospitals and into thousands of CVS stores. “Think of those stores as a hub of a brand new means of accessing health-care services across America,” says CVS Chief military officer Larry Merlo. “We’re transportation health care to wherever individuals live and work.”

The acquisition would mix the biggest U.S. drug-store chain with the third-biggest health underwriter. CVS conjointly manages drug edges plans for thousands of employers and insurers, a business that would facilitate steer a number of Aetna’s twenty two million customers to CVS pharmacy counters after they fill a prescription. Already, CVS has 1,100 MinuteClinics in its pharmacies, wherever nurse practitioners and medico assistants offer routine care like grippe shots or wrapping sprained ankles. It’s conjointly making an attempt out hearing and vision centers during a few locations. If the merger goes through, CVS plans to make mini-health centers in more of its nine,700 stores, turning them into places wherever Aetna members—and customers of rival insurers—get convenient low-level take care of ailments and chronic diseases. And having a {better|a more in-depth} tie to wherever customers area unit treated might facilitate Aetna better manage their ailments earlier, a lot of efficiently—and less expensively.

Although some on Wall Street say CVS’s interest in bulking up could be a defensive move driven by persistent rumors that Inc. might enter the pharmacy business, the corporate appears to own a distinct rival in mind: UnitedHealth cluster INC. the largest U.S. health underwriter, UnitedHealth has been increasing its OptumCare arm, that owns clinics and surgery centers, because it seeks to realize a lot of management over however care is delivered to its customers. UnitedHealth in agreement on Dec. six to amass concerning three hundred doctor practices from DaVita INC. when placing AN agreement in Jan to amass the patient surgery chain Surgical Care Affiliates INC.

Even before the DaVita deal, about 30,000 doctors were related to with OptumCare. They treat UnitedHealth’s members, further as customers of rival health insurers. the corporate doesn’t own drugstores, however its pharmacy profit manager serves sixty five million people—compared with ninety million members at CVS’s PBM. UnitedHealth’s profits and share performance have outpaced those of the many different massive health firms in recent years.

“The path here has been diode by UNH/Optum,” Matthew borsh, AN analyst at BMO Capital Markets, aforesaid during a analysis note concerning the CVS-Aetna set up. “We see a daring strategy to match (and presumably leapfrog) the health-care/PBM integration strategy.”

The integration is an element of a wide-ranging effort by insurance firms and also the centralized to shift care aloof from paying for every service and toward paying doctors and hospitals for taking higher care of patients and keeping them healthier. The approach, called value-based care, challenges the industry’s ancient compensation models.

Putting completely different aspects of care beneath a similar roof can also take away perverse incentives from the system. for instance, some critics have aforesaid that PBMs contribute to drug worth hikes as a result of they cash in on back-end rebates and charges extracted from drug company firms. creating them a part of a similar company that delivers care and offers insurance will guarantee it doesn’t happen, says Craig Garthwaite, a academic of strategy at Northwestern’s food manufacturer faculty of Management. once completely different components of the system mix, “everyone’s profit motives area unit aligned at providing care that results in sensible outcomes,” he says.

CVS and Aetna say they’ll be able to scale back prices by directive some patients to lower-cost sites of care in CVS stores, keeping them out of emergency rooms and hospitals. concerning seventy p.c of the U.S. population lives among three miles of a CVS location, consistent with David Larsen, AN analyst at Leerink Partners.

“This goes to be appealing to an enormous variety of individuals,” says Ingrid Lindberg, president of Kobie promoting INC. and a former chief client expertise officer at health underwriter Cigna corporation. “There’s an outsized majority of individuals WHO area unit actually driven by ease and convenience once it involves their care.”
Ateev Mehrotra, a academic at Harvard school of medicine, says his analysis has found that retail clinics, by creating care a lot of convenient and accessible, truly raise health-care prices as a result of individuals visit them a lot of typically. That’s dangerous news if you’re conjointly AN underwriter. “The majority of visits we have a tendency to see at retail clinics represent new utilization,” he says. “Because of that, in distinction to the people that have aforesaid retail clinics would scale back health-care outlay, we’ve seen it increase health-care outlay.”

Debating such outcomes might stay an instructional exercise if the CVS dealings doesn’t gain government approval. Courts and regulators tend to travel straightforward on “vertical” mergers, like CVS-Aetna, that mix firms at completely different levels within the offer chain, like makers with retailers. The logic is that the mixture will improve potency and lower costs for shoppers. Authorities tend to stress a lot of concerning “horizontal” mergers, that mix firms at a similar stage of production. In Jan a judicature blocked Aetna’s projected horizontal merger with Humana INC., a fellow health underwriter.

In advisement the CVS-Aetna deal, the Department of Justice or the Federal Trade Commission might attempt to confirm “whether there’s a long economic profit to a technique that harms rivals even though it suggests that a short hit to profits,” says Jennifer Rie, a senior analyst at Bloomberg Intelligence.

CVS won’t get a free pass. In Nov the Justice sued to prevent the merger of AT&T INC. and Time Warner INC., conjointly a vertical combination. The CVS-Aetna dealmakers area unit creating the case that their combination would bring new services to the market, like the planned pharmacy clinics. that would persuade regulators to allow the proposal an opportunity. In distinction to AT&T-Time Warner, says eating apple Rubin, AN antimonopoly professional person and partner at MoginRubin LLP, “it’s a a lot of credible story that the vertical merger is said to innovation.”

The acquisition rests on AN untested strategy, however, and a few on Wall Street question whether or not the businesses will persuade enough shoppers to change to their in-house services. Says John Schroer, a health portfolio manager at Allianz world Investors: “Health care could be a terribly difficult business, and it’s not very easy to mention it’s a brand new world and simply copulate this fashion.”

THE BOTTOM LINE CVS operates nine,700 drugstores. By shopping for Aetna, it needs to funnel a lot of of the insurer’s customers into health centers at its retail locations.