CVS Health announced plans to acquire Aetna earlier this week for $69 billion, and leaders across healthcare are examining what the deal could mean for the industry going forward.
The total effect of the deal on patients, healthcare providers and pharmacy prices is up for debate. If approved, healthcare is looking at a brave new world of healthcare delivery and consumerism.
Here, industry leaders respond to key questions about the deal and provide insight into what could happen next, and how healthcare providers should prepare.
Note: Responses were edited lightly for clarity and length.
Question: Are consumers winners or losers in this deal?
Herman Sanchez. Partner at Trinity Partners (Waltham, Mass.): "Following hot on the heels of Amazon looking to get into the Rx business, many see this as a hugely defensive move. Both the Amazon news and this are potentially disruptive to the whole pharma supply chain. The most worried are likely to be the big distributors (e.g., Cardinal, McKesson, AmerisourceBergen) as these deals will minimize the need for their services. Other managed care executives are likely to see this move as requiring them to capture more of the supply chain to drive value to their members and compete with Amazon or CVS/Aetna.
Patients might win; the merger likely would lower prices and improve access, which is beneficial for both the pharmaceutical industry and patients. "
Gurpreet Singh. U.S. Partner and Health Services Sector Leader of PwC (New York City): "This transaction is very exciting on a lot of different fronts because it's a cross collaboration between different players in the industry: providers, payers, retail and patient data management systems. As the market shifts more to providing services to the consumer, you get a reorganization of how each institution goes to market and it creates collaboration across institutions to achieve value for the consumers.
The impact for providers is a provocative one; for CVS and Aetna, they will now provide some level of first line support for patient care; it could be in an urgent care facility or major primary care, and that could impact the providers operating in the same market where CVS operates. Providers need to think about how that affects their primary and urgent care, and make the necessary moves."
Tom Borzilleri. CEO of InteliSys Health (Petaluma, Calif.): "Consumers will lose as they see less drug-price transparency, fewer choices for prescription drugs and perhaps even reduced choice in the pharmacies where they fill prescriptions. By purchasing Aetna, CVS could take business away from other pharmacy chains that fill prescriptions for Aetna customers by herding and incentivizing patients and doctors to send prescriptions to CVS locations.
Said another way, this merger could enable CVS to better hold onto pharmacy business that it could lose to emerging competitors like Amazon, by essentially steering Aetna members exclusively to CVS pharmacies for all prescription drug purchases. This would reduce consumers’ choices and likely lead to them paying copays set by Aetna/CVS for their prescriptions, with [consumers having] no idea whether a pharmacy two minutes down the road offers the same medication at a lower cash price than the required copay."
Mark Nathan. CEO of Zipari (Brooklyn, N.Y.): "The CVS acquisition of Aetna provides a great opportunity to improve consumer engagement in the healthcare industry.
There are two immediate takeaways from this deal: First, combining CVS Caremark PBM and Aetna’s customer data analytics and prescription plan information creates opportunities to optimize expenses and lower employer costs. Second, CVS' retail presence will allow customers and Aetna to save on costs and better educate the consumers on medical decisions through in-store interactions. For example, if consumers avoid emergency rooms and even urgent care by getting minor care directly at a CVS retail clinic, it would save both them and Aetna money.
In sum, any added focus on consumerism will help Aetna — or any insurer — better communicate with their members. As members begin to understand the value of the new system, plans will be able to work closer with them to find health improvements and cost savings. I'd expect to see these kinds of changes come out of the CVS/Aetna deal fairly quickly, and can only imagine that other health insurers will soon take similar approaches.”
Paula Muto, MD. Founder and CEO of UBERDOC (Lawrence, Mass.): "The announcement of the proposed CVS-Aetna merger is a proactive step to shake up an outdated system that does not put the patient first. I applaud any movement to reshape the delivery of healthcare in the U.S. [towards]better patient access, lower costs and enhanced patient outcomes. The current political climate to reshape healthcare policy has made patients fearful and confused about how to best manage their own care.
However, a partnership like this runs the long-term risk of limiting patient options to one network and limits competition. It will be fascinating to see if the antitrust issues sidetrack or slow down the deal but everyone can agree that consumers need more choice, more control, and more affordable healthcare. Technology and partnerships can move the needle to deliver these outcomes but let's always remember that what matters at the end of the transition is a better deal for the consumer not a smart business move for each partner."
Q: Will this deal really lead to lower prices? What does it say about consumerism in healthcare?
Timothy Hoff, PhD. Professor of Management, Health Systems and Health Policy at Northeastern University D'Amore-McKim School of Business (Boston): "Proposed mergers of this kind are always pitched as good for the healthcare consumer. But that's usually not the case. First, consolidation in the industry tends to result in higher prices and lower service quality over time. Bigger healthcare organizations with less competition and greater control within a service or product sector have little incentive to hold down prices, for example, and they usually don't.
This merger, which is unique in the sense of a care delivery and general retail organization buying an insurer, is a bit more troublesome in the sense of giving one very large organization that controls a good chunk of pharmacy services greater national and, in some areas, regional control over how these services are thought about and delivered.
Certainly for the millions of Aetna customers, there could be additional services offered to them in areas like primary care, medication management and prevention that enhance their experience. This could be true for others as well, if the merger enables CVS to create more access points for prevention-based primary care delivery or chronic disease management. But the retail model of primary care pushed by companies like CVS is one rooted in standardized services and efficiency at all costs. It is not a highly relational or physician-driven model, and is limited in patient needs it can meet. Rather, it is one built on more "fast-food" type care delivery emphasizing things like convenience and quick service. Some argue that this turn toward greater retail care enhances company bottom lines more than it does patient health outcomes."
Grant Geiger. Founder and CEO of EIR Healthcare (New York City): "The CVS and Aetna deal signifies the next chapter in the consumerism of healthcare, taking significant steps toward a single payer system. This is a shot across the bow to healthcare providers, hospitals and health systems, disrupting the traditional ecosystem. It reveals what's been behind the curtain for a while, such as the controlling position companies like CVS Health, who are negotiating drug discounts on the back-end, have in the healthcare equation. They along with the Pharmacy Benefit Managers and payers have all played a role in driving up drug costs to consumers. We can anticipate that the integration of CVS and Aetna will pose a direct threat to urgent care, minute clinics, independent pharmacies, as well as the outpatient and micro-hospitals we see today. Providers will have to stop a think twice on their strategic planning process."
Q: How will this deal affect providers?
Michael D. Williams, MD. Director for The UVA Center for Health Policy and Associate CMO for Clinical Integration of the University of Virginia Health System (Charlottesville): "It sets up an interesting question for CEO's of health systems small and large: can we/should be competing in the primary care space with Amazon and CVS (and who knows who else)?
We've already seen the rise of the convenience market/"hotelization" of healthcare with great (read: "expensive") emphasis on multiple aspects of patient experience wherein hospitals are competing to be the most luxuriously appointed in town, with the best food and the nicest staff, as well as having the best clinical outcomes. Amazon and CVS will likely always be better at that than a health system. Retail is their lifeblood.
As I've written elsewhere, I believe this will be double-edged for consumers, if approved. On the one hand, convenience will drive consumers (i.e. patients) to CVS for more and more primary/urgent care, which may be no bad thing for America's emergency departments. On the other hand, it's hard to imagine CVS/Aetna supporting as a wide a distribution of consumer choices for that benefit, not to mention any choice for pharmacy benefits."
Mr. Borzilleri: "While the deal will generate efficiencies for Aetna, it may not do the same for physicians and healthcare providers. It will impact providers by, in many cases, rerouting patients out of the doctor's office and into the clinics that are in CVS. Herding patients into CVS brick-and-mortar locations will reduce the number of patients that physicians will see within their population resulting in reduced revenues for doctors and practice groups, which will benefit Aetna by saving costs on those physicians' services. CVS will not only realize increased prescription transfers from competing pharmacy chains and independents, but they will see dramatic increase in general merchandise and retail product sales."
David Lareau. CEO of Medicomp Systems (Chantilly, Va.): "The CVS acquisition of Aetna is another step in the consolidation of the industry. Optum's recent acquisitions of clinical providers is another one. The continuing consolidation of hospitals, and their acquisition of medical practices is a third. This sets up an interesting competition among clinical delivery models. In the CVS/Aetna case, the merger of an insurance company with a ubiquitous community presence that is also a major provider of pharmaceuticals to individuals, will probably put additional pressure on primary care practices. Plans to use physician assistants and other physician extenders "under the supervision of physicians," along with the potential to provide on-site case management services, could drive more primary care docs into the hospital groups or may accelerate the transition to direct primary care (concierge) practices. One of the questions about this pharmacy/insurance combination is: where is the priority? Is it patient care, or is it the selling of pharmaceuticals?
In the case of Optum's acquisition of clinical providers, the challenge is a bit different. Who is setting the agenda: the providers or the payers? And who provides the case management? With hospitals acquiring practices but still being led, for the most part, by executives who have been focused for their entire careers on "filling the beds," what comes first: Occupancy rates, or patient health? And then there is the specter of Amazon getting into some kind of direct-to-patient model.
[There are several] different approaches but all [have] the same challenge. At some point, the delivery of care has to become more efficient. Does size lead to efficiency, or only to dominance and the elimination of competition? The next few years will force the country to address the costs of healthcare, particularly for federal programs like Medicare and Medicaid. As reimbursements are cut, and as regulations, quality measures and all the bureaucratic requirements increase, will we end up where the U.K. did: one system for most people, and a separate private system for the wealthy? Here's to hoping that this consolidation turns out to do more good than harm."
Q: Was this the right move for CVS and Aetna?
Joe Benardello. Chief Strategy and Marketing Officer of IKS (New York City): "This was the right move, albeit a defensive one, for CVS and Aetna to remain competitive in healthcare today. A potential for this integration, should we solve the problem of data accuracy and integrity, is to finally, at long last, starting to unlock the power of health data. Not in some far-off artificial intelligence dream, but in practical applications for healthcare today that can result in better, safer care."
Chris Bevolo. Executive Vice President of ReviveHealth (Nashville, Tenn.): "CVS was already positioning itself to be a major player in healthcare delivery, and the pharmacy side of this is significant. By adding the financial and health data capabilities of Aetna, they're changing the game in terms of how consumers first interact with a provider and how care is delivered. As a national player with established retail and service roots, they should set a new standard among consumers that traditional healthcare systems will have no choice but to follow.”
Zachary Hafner. National Partner of Consulting at Advisory Board (Washington, D.C.): "This deal would bring a heavyweight to the market. The combined organization would have many important parts of the healthcare value chain under one roof, including expansive access to convenient primary care, big data, pharmaceutical cost advantage and an economic model that aligns the incentives toward prevention and condition management. 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 is Medicare Advantage. Management of chronic conditions either makes or breaks financial performance for Medicare Advantage plans and relies heavily on frequent primary care interactions with proactive prescription management."
Q: What market forces drove CVS Health to acquire Aetna?
Bruce Carver. Associate Vice President of Payer Services for MedeAnalytics (Emeryville, Calif.): "The markets that currently operate outside of traditional healthcare (e.x. Amazon) are a major driver for this partnership between CVS and Aetna. Consider the way in which consumers access goods and services; this has radically changed over the past few years. This shift is creating a greater need to change the way in which we monitor and access our own health information. This merger is a way for the healthcare industry to address this. However, as these changes occur, the ways in which we currently measure and monitor safe and effective access to care needs to be established. The industry must consider a few things, including how we measure high quality care, what data sources we leverage to measure quality and how both payers and providers will be prepared to make these shifts and remain competitive in the market.
Concepts of value-based care and population health with enough downside risk has market segments thinking differently about their role in the healthcare market. This partnership will continue to blur the lines within the traditional healthcare delivery system. As the industry looks to reduce inefficiencies and improve care coordination, providers and payers need to work together in a way that creates administrative cost efficiencies. This partnership will enable that collaboration while eliminating some of the contract barriers around value-based care. Additionally, this will allow both payers and providers to more effectively track towards value and focus on providing consumers with high quality, cost-effective care.
Health insurance plans have made significant investments in consumer transparency tools that integrate seamlessly into how consumers get information. Smartphone apps, portable wearable devices and EHRs are just a few examples of how consumers are more [efficiently]educating themselves on medical costs and quality. Health plans can expand their analytic capabilities to learn new insights into data that allow them to target member populations who are at higher risk or already have established chronic conditions based upon how the consumer gets information today.
This partnership also breaks down traditional data silos and allows them to integrate seamlessly to more effectively manage costs. For example, the Aetna/CVS merger could allow employers and consumers to own more of their healthcare and pharmacy benefits, which could save the industry millions. By creating pharmacy benefits that incentivize people with chronic conditions (e.g. diabetes, high blood pressure) to fill and adhere to their medications, the industry could prevent avoidable hospital admissions that cost over $100 billion a year. An integrated insurer, like CVS and Aetna, could establish such incentives."
David Dross. National Managed Pharmacy Practice Leader of Mercer (New York City): "The announcement that CVS has finalized negotiations to acquire Aetna for $77 billion seems to underscore the healthcare market's growing preference for vertical integration. The goal of the vertical model is to reduce fragmented care and align provider incentives. Some observers have noted that having different medical and pharmacy providers, each managing their own space, may be counterproductive to patients and providers.
In fact, the last several years have seen significant transition in pharmacy delivery models in the direction of integration. After CVS acquired Caremark, the new organization introduced the “Maintenance Choice” program, which incentivized fulfillment of maintenance medications through retail. Mail order growth stalled and soon nearly all [pharmacy benefit managers] had similar retail offerings. More recently, UnitedHealthcare (and its OptumRx division) began marketing a coordinated program in which member health is improved by more holistic management across the medical/pharmacy continuum.
CVS/Aetna intends to take this a big step further by melding CVS's physical footprint with stores and walk-in clinics with Aetna's medical networks. It's unclear how this delivery will coordinate with Aetna's existing physician network and if there is any financial impact to in-network physicians. But there is the potential that Aetna will be able to drive its members into more appropriate settings to access primary care -- converting unnecessary ER visits into retail clinic visits."
Jean Drouin, MD. CEO and Co-Founder of Clarify Health Solutions (San Francisco): "The recent Aetna-CVS and Optum-Davita Medical Group deals signal the rise of new forms of clinical integration, with payers actively getting into healthcare delivery. From a payer perspective, CVS-Aetna will now be able to test, at scale, the ability of pharmacy-delivered healthcare services to better coordinate care and manage patients outside of the traditional hospital and office settings.
CVS had already made significant moves in this direction, with its removal of cigarette products and installation of the Epic electronic medical record system in its pharmacies. This significant investment in [technology] meant to coordinate care is as telling as the acquisition of a large payer. Capturing the potential value of vertical integration will depend on the ability to truly deliver more efficient care, which in turn will demand the deployment of the same types of advanced analytics and workflow optimization technologies used routinely in industries such as banking, retail and logistics. The rise of large vertically-integrated players means that the capital required to make such investments may finally be available."
Q: Post-acquisition, will the combined company succeed?
Michael Hunn. Founder and President of Hunn Group LLC – Healthcare Advisors (Orange County, Calif.): "I believe it will be a great challenge for a retail-oriented CVS to culturally align with a health insurer like Aetna and simultaneously attract new market share in employer-sponsored insurance and pharmacy benefits. If CVS and Aetna can align their strategic goals this could be good for both employers and consumers in slowing down escalating premiums and prescription costs. This transaction will only succeed with the right CEO leadership at the top.
Disruptive healthcare consolidation is trending and this could lead to very positive innovations in premiums, reimbursement methodologies and incentives that dramatically reduce costs and co-pays for consumers, however, consolidation has also led to higher prices and less competition. Past performance in not a predictor of future success. We can expect to see more consolidation attempts —time will tell which model will be successful. Let's hope that consumers are not harmed in the process."
Eric McDonald. CEO of DocuTAP (Sioux Falls, S.D.): "The proposed acquisition of Aetna by on-demand healthcare giant CVS only further confirms the importance of retail in the healthcare ecosystem. In the past, we've seen payers, like Optum, acquire retailers, but this is the first time a retail organization is stepping into the driver's seat to enable better accessibility and affordability for consumers. This is something every politician has tried to figure out, and in executing this acquisition CVS is making an incredibly bold statement to the rest of the industry. CVS will now be able to expand their healthcare services beyond that of a retail clinic to a true urgent care model, providing more comprehensive, on-demand healthcare in more convenient locations.
Hot on the heels of Amazon's push into the space, we're seeing a big move in on-demand healthcare to help patients feel more empowered to make better decisions about their own care. Amazon knows consumer trends better than anyone, so it makes sense that CVS would take a similar approach. But while Amazon is focused more on digital/virtual healthcare, CVS has the hands-on experience necessary to understand the importance of providers in the on-demand healthcare equation."
Q: What effect will this deal have on future mergers and acquisitions? What do you expect to see in the future?
Richard Morino. Director of Strategic Solutions at LexisNexis Risk Solutions Health Care (Atlanta): "While we may still see some market consolidation mergers, we should expect more M&A activity that integrates siloed players. It will not be surprising to see public insurers either acquire or be bought by companies such as Walgreens or Walmart, who can offer both pharmaceuticals and retail space for clinical work.
Health systems may counter by acquiring more physician groups and outpatient facilities. This will allow them to retain strong bargaining positions for contract negotiations with the new integrated healthcare companies.
However, health systems that enter into ACOs and alternative contracts will benefit from a 360-degree view of members' health that comes from medical and pharmacy claims. Typically, an individual health system will only deliver a small percentage of a patient's entire care regimen and will have very limited information on drugs being prescribed outside of their offices."
Mr. Singh: "Going forward, providers will consider the acquisitions they should make as consolidation happens. For example, a strategic choice for a Catholic-based provider may not be to acquire a smaller physician group; it may be to acquire capabilities moving forward. That will depend on the regions each of our provider clients operate in; some need to gain scale to achieve the right cost of care delivery. The name of the game is to have higher medical quality at a lower cost, which will drive ACO metrics in the future.
I do think as we are talking about delivering and financing care, those two things will drive many providers and health systems to think about whether they should create a joint venture with a payer or acquire the payer so they can own the risk continuum of financing through the delivery of care."
Mr. Sanchez: "Industry implications include increased negotiating power on large market drugs and fewer mouths to feed in the value chain. Higher priced [specialty] drugs will likely not be too affected by the merger, but certainly larger market drugs (e.g., diabetes, cardiovascular) are going to have potentially big players pushing hard on price and value to patients to drive share, especially given the history here for these companies. I wouldn't be surprised to see Walmart step in and continue this trend; that and a player extracted from the value chain will mean lower prices."
Dr. Williams: "The great healthcare consolidation is now reaching into the retail space. I anticipate that regulatory approval of the acquisition of Aetna will spur Amazon and others (Google?) into more aggressive moves into healthcare. We've already seen literally thousands of physician practices acquired around the country over the past five years or so. This move reflects the same motivator: controlling costs and improving margins...for businesses. Health systems sought to control market share through securing the supply chain of patients; CVS went to the other end to the continuum and is attempting to control supply through owning the checkbook.
By expanding their primary care network, likely steering Aetna patients to their own clinics in an already expansive physical footprint of CVS's, they become very much like a 'baby' Kaiser Permanente. I mention Amazon in light of the fact that they now own a widely distributed physical footprint where health-conscious consumers regularly spend their money, Whole Foods. They also have wholesale pharmacy licenses in 12 states — physical footprint and pharmacy combo. I wouldn't be surprised to see them look to hire nurse practitioners and physicians and start building clinics into some of their Whole Foods units."
Q: What does this deal mean for the future of healthcare?
Richard Rakowski. CEO of Medically Home Group (Boston): "There is a lot of buzz right now about what this merger means for the future of healthcare. We see it as a proof point that the industry is starting to listen to consumers' desire for on-demand goods and services. The Amazon's and Ubers of the world have nurtured instant gratification and consumers are expecting that in all of their interactions. Healthcare is one of the last industries to be transformed into this modern experience. With the CVS-Aetna deal, we see that CVS is looking toward the future — one where care is brought directly to patients' doors and administered in the comfort of their own homes. The current healthcare model is burdened by the unsustainable fixed costs of hospitals; by bringing care to patients’ homes, we will be able to provide longer care with better patient connections and outcomes without these fixed costs. We expect to see more health organizations embracing this approach in the coming years."
Al Babbington. CEO of PrescribeWellness (Irvine, Calif.): "This merger between CVS and Aetna reinforces what we have long known: that the preventive care services pharmacies offer are invaluable both to the patients receiving care and to our healthcare system, which bears the financial burden of the mismanaged chronic diseases that land so many Americans in the ER. Community pharmacies are not just a places where patients transactionally refill medications but are trusted healthcare destinations, serving local members of their community by going "beyond the fill" every day through important preventive services like immunizations, blood pressure screening, medication reviews and diabetes coaching. We need to assure that consolidation does not eliminate choice. Consumers should be free to choose the pharmacy of their choice."