What Will the CVS-Aetna Deal Mean for Employer-Provided Health Care?

What Will the CVS-Aetna Deal Mean for Employer-Provided Health Care?

The pharmacy giant CVS announced on Sunday that it had made a deal to buy the health insurance company Aetna for $69 billion. Analysts told the Boston Globe’s Janelle Nanos that the company had two goals in making this major acquisition:

The first is to accelerate the transformation of its 9,700 retail stores into health care supermarkets with wellness clinics for preventive care, vision and hearing services, telemedicine connections with doctors, and on-site nurse practitioners to assist with chronic conditions. The second is to fortify its business of managing pharmacy benefits, which oversees drug plans for employers and insurers, against a widely expected incursion by Amazon.com Inc.

The combination would also allow CVS and Aetna to make a more serious run at the insurer UnitedHealth Group, which has more than three times the revenues and customers of Aetna. United has a number of subsidiaries, including its own pharmacy-benefits manager, and one of its subsidiaries is in the process of acquiring a doctors group in Central Massachusetts, Reliant Medical.

Because most Americans get their health insurance through their employer or the employer of a family member, an event of this magnitude in the health care and insurance market is bound to have some consequences for employer-sponsored health plans, but as Andie Burjek finds out at Workforce, there’s some debate over how significant those consequences will be, or whether they will be positive:

David Henka, CEO of RxTE Health, a health care company that works with employers to implement reference pricing, does not believe that employers will see any material change in prices, services or outcomes due to the acquisition. “This is about consolidating internal administrative processes and creating more efficient and profitable merged companies,” he said. …

Others have a more optimistic view of potential change. The acquisition could do a lot of good in the overall health care market, said [Brian Marcotte, president and CEO of the National Business Group on Health]. It could create more convenience and access to primary and preventive care for consumers through CVS Health’s retail pharmacies and clinics. Also, it could improve care coordination and give consumers a better health care experience at a lower cost, he added.

Randy Barrett at Employee Benefit News hears from some health care experts who doubt that the deal will result in lower drug prices, with one even suggesting they might go up:

The deal is more likely “an information move,” says Brian Tolbert, benefits practice leader for Bernard Health in Nashville, Tenn., who is concerned it would give Aetna an unprecedented view into the prescription histories of CVS customers. “It will allow them to … skim the cream and go after a healthy membership,” he says, adding that the temptation to market directly to healthy customers would be irresistible. …

In fact, benefits consultant Patricia Sorowich, president of PBIRx in Milford, Conn., predicts the proposed deal could raise drug prices. “If you’re an Aetna member, you can expect they’ll push you to CVS and you’ll pay more money for prescriptions.” She also predicts employers may face higher premiums for that reason.

Tolbert also tells Barrett that the deal will likely be heavily scrutinized by anti-trust regulators in the Department of Justice, whom other insurers and PBMs will likely lobby to stop the deal. The main competitor targeted by this deal, as the Globe reported, is UnitedHealthcare, whose integrated business model is what other health care companies are now looking to emulate, according to Bloomberg’s Zachary Tracer:

The integration is part of a wide-ranging effort by health-insurance companies and the federal government to shift care away from paying for each service, and toward paying doctors and hospitals for taking better care of patients and keeping them healthier. The move, known as value-based care, challenges traditional reimbursement models and business strategies across the industry.

The UnitedHealth model of putting different parts of care under the same roof can remove perverse incentives from the system. Some critics have said that pharmacy-benefits managers, known as PBMs, have cause to push up drug prices to improve their profits, for example. Making them part of the same company that also delivers care and offers health insurance can ensure it doesn’t happen, said Craig Garthwaite, a professor of strategy at Northwestern University’s Kellogg School of Management.

At the Harvard Business Review, John S. Toussaint considers the big picture, commenting on how this deal reflects the changing landscape of health care in the US:

Why are [insurers] merging with doctor clinics? They have figured out the hospital business is beginning to be commoditized. Many functions of hospitals may become totally obsolete. New, nontraditional entrants are bringing fresh alternatives to the bureaucratic and autocratic management systems of traditional hospitals. Taking the care process to the patient — including all lab, x-ray, and diagnostic services — beats struggling to find a parking spot in a hospital lot or waiting on the phone for 20 minutes to schedule a visit. In other words, redesigned processes focused around the customer and supported by advancing technology result in much less need for many services traditionally delivered at the high-cost, low-service hospital.

To lower the cost of premiums, Aetna and CVS, UnitedHealth and Optum, and undoubtedly others are creating a marriage of the financing and delivery of care.