The news about CVS’s proposed acquisition of Aetna hit the healthcare industry this past weekend like a bolt from the blue. But for many, as the initial shock wears off what remains is a mix of confusion and uncertainty. What is the rationale? Where is the upside? What does it mean for healthcare as we know it today?
On the surface, this move may seem strategically incremental; after all, both Aetna and CVS are long-standing companies whose mature business models are related but do not overlap significantly. The reality, however, is this is a bellwether event with the potential to redefine the competitive healthcare landscape. How, exactly? By aligning incentives across critical components of the healthcare value chain, allowing for further blurring of traditional roles within the healthcare system.
Take, for example, CVS Minute Clinics. These have been around for many years, but until now, CVS’s model has focused on consumer convenience with the ultimate aim of selling more prescriptions. Now, with full ownership of the health insurance premium dollar underpinning key populations being served, CVS would have an entirely different motivation: leveraging its Minute Clinics to deliver downstream cost avoidance, primarily at the expense of the hospital. And, even as many traditional health systems struggle with the economics of population health because their overall performance is inextricably linked to the success of their hospitals, CVS-Aetna would have no such baggage.
Expanding Understanding of Consumer Behavior
The synergies in the partnership would not be limited to care delivery. At its core, CVS is a retail operator with a strong understanding of consumer behavior backed by robust customer data. Aetna would complement this with a huge data warehouse containing rich information on healthcare costs, quality and utilization patterns. Combined, these data assets would formulate the basis for true “big data” analytics that would inform optimization of both care delivery and consumer engagement.
While the deal would bring clear advantage to CVS and Aetna, what are the implications for the consumer? Expanded choice, broadened access, and lower cost. We can anticipate that in short order Aetna would introduce a new portfolio of insurance products that center on CVS primary care and pharmacy programs. One area where this would likely materialize early on: Medicare Advantage, where management of chronic conditions either makes or breaks financial performance and relies heavily on frequent primary care interactions with proactive prescription management.
How to think about strategic implications
For health systems, the impact of these market changes would be profound. Bold leaders need to respond quickly, mitigating the risks and embracing the opportunity. Some important areas for focus:
• Invest in building patient loyalty through continually improving consumer experience, access, affordability, and cross-continuum interconnectivity. These are areas where CVS excels.
• Focus on speed to decision and execution. Despite its size, CVS-Aetna has proven ready to respond to market opportunities through this proposed deal. The combined organization would be backed by large-scale resources.
• Leverage partnerships to achieve market objectives. The CVS-Aetna move would do just this, and would give the combined organization a competitive market advantage over healthcare providers as soon as integration is complete.
• Focus relentlessly on operational efficiency and quality excellence. As non-traditional delivery competitors like CVS expand their influence, these measures will only increase in importance.
For years, there has been talk about transformative change in healthcare. The proposed CVS-Aetna deal is one that will help drive it forward. For incumbent players, particularly health systems, it is an important reminder that the landscape can change quickly, and standing still does not equate to preserving the status quo.
Zachary Hafner is National Partner, Consulting at Advisory Board. Sihyun Choi is Vice President, Consulting at Advisory Board. Both serve healthcare organizations through Advisory Board’s strategy consulting practice.
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