CVS looks to create new model with $69bn Aetna deal
Listen to this article
Give us your feedback
Thank you for your feedback.
What do you think?
CVS Health, the largest drugstore chain in the US, has said its $69bn acquisition of health insurer Aetna will create a powerful company with enough heft to bring down the spiralling cost of healthcare in America.
CVS says it will turn its network of 9,000 stores into “healthcare hubs”, where pharmacists and other trained specialists such as nutritionists will offer medical advice and services rather than just dispensing prescription drugs.
By encouraging patients to access these “lower-cost sites of care”, CVS predicts it can reduce the rate at which people use more expensive services such as hospitals and urgent care centres, leading to big savings for Aetna and its clients.
Larry Merlo, CVS chief executive, says billions of dollars are being wasted on healthcare, especially on chronic conditions such as diabetes, because patients do not following instructions given by their doctors.
“We can help [patients] achieve their best health, and at the same time, reduce the cost of care that we’re incurring today,” says Mr Merlo.
One person briefed on the deal says owning an insurer will change the incentives for CVS. Whereas a standalone drugstore profits by serving as many customers as quickly as possible, an insurance company would want pharmacists and other staff to spend more time with patients so they do not end up accessing more expensive services, they add.
CVS believes the new model will also lead to efficiencies for the combined company, which will have annual revenues of more than $221.4bn and roughly $18.5bn in adjusted earnings before interest, tax, depreciation and amortisation.
The company is predicting $750m in cost savings in the first full year after the deal, announced on Sunday, closes.
CVS hopes to win business by passing on some savings to Aetna’s clients — the companies that pay a large proportion of their workers’ health costs, and the US government, which foots the bill for retirees and the poor. Healthcare costs in the US hit $3.3tn last year, a figure that is expected to rise to $5.5tn by 2025.
It also says the deal will lower prices for consumers, who are being asked to contribute an increasing share to the cost of healthcare out of their own pockets.
Some analysts have interpreted the move as a defensive measure amid rumours that Amazon is planning to bring its low-cost model to healthcare by selling prescription drugs online.
“CVS needs to overcome . . . the threat of Amazon’s entry into pharmacy,” says Ms Ana Gupte, healthcare analyst at Leerink.
However, one person briefed on the deal says CVS first considered making an offer for Aetna several years ago, long before any suggestion that Amazon would disrupt the pharmacy market.