CVS, the largest pharmacy chain in the United States is planning to buy Aetna, the oldest insurer in the U.S. The deal could be worth $66 billion, according to the latest reports. It’s believed that CVS pursued Aetna because of the news that Amazon is going into the pharmacy business as well. Twelve states have already given Amazon a pharmacy license.
There’s reason for CVS Health to be wary of the possible entry into the prescription market that is worth $560 million. Aside from prescription and OTC medicines, CVS pharmacies sell various merchandise, from cosmetics to light bulbs to toiletries, which are also sold on Amazon.
If the plan of CVS pushes through, the company will have more control over prices. Pharmacy retailers would be able to resist the threat of Amazon’s entry into the market but also stand against the demand by consumers and regulators for transparency and lower prices.
Plus points for CVS
A CVS-Aetna partnership means that CVS will gain about 46.7 million Aetna members. This signifies that the prescription services of CVS will be utilized by most of the members, and will bring more customers to CVS drugstores. As of 2016, there are 9,600 CVS pharmacies cross the United States.
The partnership will give CVS the advantage to negotiate lower prices with drug manufacturers. Because it will be handling a health insurer, CVS could make new deals with them tying drug prices to how well patients recover.
Pros and cons
Those who are in favor of the partnership believe that this will improve efficiency, streamline operations, merge supply chains, standardize processes and reduce fixed costs.
Consumer advocates on the other hand think that consumers will not benefit from the promised savings. The president of the Public Citizen consumer advocacy group, Robert Weismann said that CVS already possesses the market power the company needs. But it would not have an advantage in the negotiation for pharmaceutical price even if it links with Aetna. Likewise, Aetna has the same market power to negotiate with providers on its own.
Weismann added that through the years, consolidation of healthcare organizations actually brought more costs to consumers. He said that most of the larger companies look for clever ways to make consumers pay more.
Bigger playing field
The deal, if all goes well, would be the first time that a pharmacy benefit manager, an insurer and a retailer would have a tie-up. If CVS Health gets to own Aetna, which is an insurer, it would make it difficult and challenging for Amazon to perform in the field. Because Amazon operates under specific regulatory constraints, it will be very difficult for the company to buy a health insurer. The constraints act as a red flag to insurers that could be approached by Amazon.
While CVS Health could face some regulatory obstacles in its bid for Aetna, it is seen as a systematic progression for the company that has been turning into a health-care provider for several years. It got Caremark pharmacy benefit manager in 2007 and became CVS Caremark. In 2014 the company replaced its name with CVS Health.
CVS Caremark, which is a CVS Health subsidiary, is a pharmacy benefit management (PBM) company. The function of a PBM is to work with insurers to determine which drugs are cost-efficient and most beneficial to patients. Drug manufacturers are usually approached by PBMs for discount negotiations.
Aetna and CVS have actually tested a business relationship in 2010 when they inked a work contract.