US pharmacy firm CVS to buy Aetna for $69 billion

With the merger, the companies together touch most of the basic health services that people regularly use, providing an opportunity to benefit consumers

CVS Health said on Sunday that it had agreed to buy Aetna for about $69 billion in a deal that would combine the drugstore giant with one of the biggest health insurers in the United States and has the potential to reshape the nation’s health care industry.

The transaction, one of the largest of the year, reflects the increasingly blurred lines between the traditionally separate spheres of a rapidly changing industry. It represents an effort to make both firms more appealing to consumers as health care that was once delivered in a doctor’s office more often reaches consumers over the phone, at a retail clinic or via an app. 

The merger comes at a time of turbulent transformation in health care. Insurers, hospitals and pharmacy companies are bracing for a possible disruption in government programs like Medicare as a result of the Republicans’ plan to cut taxes.

Congress remains at an impasse over the future of the Affordable Care Act, while employers and consumers are struggling under the weight of rising medical costs, including the soaring price of prescription drugs. And rapid changes in technology have raised the specter of new competitors — most notably Amazon.
 

A combined CVS-Aetna could position itself as a formidable figure in this changing landscape. Together, the companies touch most of the basic health services that people regularly use, providing an opportunity to benefit consumers. CVS operates a chain of pharmacies and retail clinics that could be used by Aetna to provide care directly to patients, while the merged company could be better able to offer employers one-stop shopping for health insurance for their workers. But critics worry that customers could also find their choices sharply limited.

The deal risks leaving patients with less choice of where to get care or fill a prescription if those with Aetna insurance are forced to go to CVS for much of their care.

On Sunday, the two companies emphasised their ability to transform CVS’s 10,000 pharmacy and clinic locations into community-based sites of care that would be far less expensive for patients.

“We think of it as creating a new front door to health care in America,” CVS Health’s chief executive, Larry J Merlo, said in an interview. The merger would establish a new way of delivering care, with nurses, pharmacists and others available to counsel people about their diabetes or do the lab work necessary to diagnose a condition, Merlo said. “We know we can make health care more affordable and less expensive.”

Mark T Bertolini, Aetna’s chief executive, said that by using CVS’s locations, the company can provide people with a better way of accessing medical care. “It’s in their community. It’s in their home,” he said. He added, “CVS has the draw. People trust their pharmacist.”

It is the development of community-based clinics — capable of delivering care with the technology and health information available from both parties — that could prove to be the biggest change brought about the deal. The hope would be that consumers would not only be able to see savings by going to a retail store to treat a sore throat but also have better oversight of a chronic illness, such as diabetes or heart disease. They could get advice on how to lose weight, or undergo tests to monitor their health.

“If they can drive the adoption of the care delivery model, that’s a big deal,” said Ana Gupte, a senior health care analyst for Leerink Partners.

The merger agreement came as another factor weighs on the minds of all in the health care industry: Amazon, which has been rumoured to be preparing for an entry into the pharmacy business. Jeff Bezos, the Amazon chief executive, and his e-commerce juggernaut have already overturned many industries: book buying, retail shopping, groceries and Hollywood, using fierce customer loyalty and enormous reach as cudgels against incumbent players.

But CVS and Aetna have had a business partnership dating back seven years, and have steadily converged into similar visions of how the health care industry was evolving. Conversations about a deeper bond eventually crystallised into deal talks within the last two months, according to a person with direct knowledge of the discussions.

Done deal
 

• The transaction, reflects the increasingly blurred lines between the traditionally separate spheres of a rapidly changing industry

• The merger comes at a time of turbulent transformation in health care

• Insurers, hospitals and pharmacy firms are bracing for a possible disruption in govt programs like Medicare as a result of the Republicans’ plan to cut taxes

• The merged firm could be better able to offer employers one-stop shopping for health insurance for their workers