- CVS’ deal to acquire the health insurer Aetna could change healthcare in ways Americans will actually feel.
- Yes, it will better incentivise keeping prices low at more stages in the healthcare payment cycle – from drug manufacturers, to pharmacy benefit managers, to the insurer.
- More important, though, turning CVS pharmacies into lower-cost care facilities could provide a tangible benefit to sick people.
Most of the time, healthcare mergers are not something everyday Americans can feel. That is to say, they don’t fundamentally change what people do when they’re sick.
CVS Pharmacy’s $US69 billion deal to acquire the health insurer Aetna – the second-biggest deal of the year – is different. It could actually make treatment simpler and easier for Americans, and it catches a bunch of trends in the market that push costs down.
There are two big streamlining ideas at work here.
First there’s the “synergies,” business-speak aspect of all this. The trend in the tangled world of paying for healthcare has been to get big and own your own stuff. That is why, according to the Deals Intelligence team at Thomson Reuters, health-insurance mergers-and-acquisitions deals doubled in 2017 from the previous year, totaling $US93.1 billion.
The way this cost cutting plays out for the better can be seen in the case of the insurer UnitedHealth Group, which has been building up its internal pharmacy benefit management to great success. Pharmacy benefit managers are the gatekeepers between insurers and a patient’s medical treatment, and CVS already has one. Ideally it ensures that the PBM is incentivized to keep costs for the insurer as low as possible.
This is what we’re trying to simplify here:
For the most part, though, this doesn’t fundamentally change Americans’ experience when they get sick. PBMs are faceless entities, and insurance is a foreign language to a lot of people.
This is where the second streamlining idea in this CVS acquisition comes into play in a way we haven’t really seen yet in this market.
CVS’ CEO, Larry Merlo, said on a call Monday morning that the company would be “promoting lower-cost sites of care” after this acquisition. That means turning brick-and-mortar stores into treatment centres and hiring medical staff. That’s expensive, but it will keep sick people out of more expensive hospitals, which keeps costs down for insurers and ultimately customers.
And unlike a lot of new urgent-care facilities hitting the market to do this very thing (keep people out of hospitals), CVS comes with a ton of brand familiarity.
Plus, quarter after quarter CVS has seen that its other businesses are outperforming sales in its retail channel. Turning brick-and-mortar stores into healthcare facilities is one way to make good use of them.
Lingering over all of this is the specter that Amazon will soon enter the market. That has the industry worried and looking to beef up in the face of powerful new competition.
Better find a dance partner.
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