Yesterday’s 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 counter-productive 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 incented fulfillment of maintenance medications through retail. Mail order growth stalled and soon nearly all PBMs had similar retail offerings. More recently, United Healthcare (and its Optum Rx 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.
What to expect, and when
The arrangement must go through regulatory approval, which will require significant resources from both organizations. Although large transactions in other areas (such as AT&T and Time Warner) were challenged, many observers feel that the transaction will be approved. If so, employers can expect the 2018 procurement season to have significant noise:
- At least two major pharmacy providers — Anthem and CVS — are undergoing major delivery changes that will not be finalized by 1/1/19.
- Other key providers across the continuum will likely review their current strategies including large stand-alone PBMs like Express Scripts and other key delivery players like Walgreens and Rite-Aid in the retail space and Cardinal Health, AmerisourceBergen and McKesson in the wholesaler space.
- There’s a possibility that players such as Walgreens and Humana will look to copy this arrangement through some sort of strategic alliance.
- Both entities offer Part D solutions so these offerings may be amended in the future.
Longer term, while the combination creates a new player, it’s unclear if other options will become less available resulting in fewer options. For instance, in certain business segments, will integrated players no longer allow pharmacy to be carved out to another provider, or make it more difficult to do so? There has been speculation that other parties — notably Amazon — might enter the pharmacy space in some capacity. While their entry is still in play this transaction may result in other players assessing different entry strategies.
Mercer will follow these developments so that plan sponsors can make informed decisions regarding their impact. As the various entities focus on their new strategies, understanding how these align -- or don’t align – with your strategy will be increasingly important.
David Dross was quoted in this New York Times article about the merger.