Just What the Doctor Ordered
by Richard D. Kocur
While the Republican Congress remains paralyzed over how to repeal and replace Obamacare, recent activity among two of the healthcare industry's largest players could signal a new approach to delivering access to affordable healthcare. CVS, the nation's largest pharmacy chain, recently announced that it is acquiring Aetna, one of the nation's largest insurers, for a reported $69 billion. This move has the potential to re-draw the lines of the U.S. healthcare map and serve as a new model for the delivery and management of care.
The proposed merger is a result of two major factors. Since 2015, when the insurance industry and millions of Americans began to feel the true impact of Obamacare in the form of massive financial losses and skyrocketing premiums, the healthcare debate has centered on how to "fix" the current system. How's that working out? In addition, the rumblings of Amazon's potential entry into the drug wholesale market has reverberated within the healthcare industry like the footsteps of a giant just over the horizon.
The CVS-Aetna merger offers a paradigm shift in how to think about achieving the major goals of healthcare: access and affordability. In the proposed merger, CVS, with close to 10,000 stores in the United States, could become a one-stop-shop for basic healthcare services. This could include non-emergency services, preventative screenings and immunizations, prescription drugs, and chronic disease counseling. Some of these services are already available at CVS through its Minute-Clinic store formats, found in approximately 10% of CVS locations. From Aetna's perspective, the merger makes it easier and potentially cheaper for its clients to access care as well as obtain prescription and over-the-counter medication.
The combined power of CVS-Aetna could also help address one of the largest cost-drivers in the healthcare system: prescription drugs. The two companies have been working together on this front for several years with CVS's Express Scripts, a Pharmacy Benefits Manager (PBM), providing prescription drug services to Aetna members. Combined, the newly formed company could potentially be in a better negotiating position with the pharmaceutical industry to lower costs of many prescription drugs.
A final factor underlying the proposed merger's impact on healthcare is the potential for streamlined sharing of patient data and information. Bettering communication between provider, patient, and insurer could lead to lower costs and Aetna and CVS already possess sophisticated patient information platforms. If these platforms can be integrated such that it is easier and more efficient for patients to coordinate follow-up care or access preventative care services, the cost implications could be dramatic.
The Obama administration had long resisted consolidation in the healthcare market, blocking or scaling back previously proposed mergers between Aetna and Humana as well as Anthem and Cigna, and Walgreens and Rite-Aid. It is unclear whether the current administration will be open to such a significant change in the healthcare landscape. Given the inaction of Congress on healthcare reform, however, the CVS-Aetna merger may be just what the doctor ordered.
Richard D. Kocur is an assistant professor of business at Grove City College. He specializes in marketing and business strategy and has over 25 years of experience in the healthcare industry.
