We have scant facts about the reported bid of US drugstore giant CVS to purchase insurance giant Aetna for a tidy sum of $200 per share, or $66 billion plus. This may have been in development for weeks or months, but wisely the sides are keeping mum. According to FOX Business, “an Aetna spokesperson declined to chime in on the reports, saying the company doesn’t “comment on rumors or speculation” and to Drug Store News, a CVS Health spokesperson did the same. Aetna’s current market cap is $53 billion, so it’s a great deal for shareholders if it does happen.
Both parties have sound reasons to consider a merger:
- CVS, like all retailers, is suffering from the Amazon Effect at its retail stores
- Retail mergers are done with the Walgreens Boots Alliance–Rite Aid merger going through considerable difficulties until approved last month
- The US DOJ and Congress has signaled its disapproval of any major payer merger (see the dragged-out drama of Aetna-Humana)
- It has reportedly had problems with its pharmacy benefit management (PBM) arm from insurers like Optum (United HealthCare), and only last week announced that it was forming a PBM with another giant, Anthem, called IngenioRx (which to Forbes is a reason why this merger won’t happen–this Editor calls it ‘hedging one’s bets’ or ‘leverage’)
- Aetna was hard hit by the (un)Affordable Care Act (ACA), and in May announced its complete exit from individual care plans by next year. Losses were $700 million between 2014 and 2016, with over $200 million in 2017 estimated (and this is prior to the Trump Administration’s ending of subsidies).
- It’s a neat redesign of the payer/provider system. This would create an end-to-end system: insurance coverage from Aetna, CVS’ Minute Clinics delivering care onsite, integrated PBM, retail delivery of care, pharmaceuticals, and medical supplies–plus relationships with many hospital providers (see list here)–this Editor is the first to note this CVS relationship with providers.
We will be in for more regulatory drama, of course–and plenty of competitor reaction. Can we look forward to others such as:
- Walgreens Boots with Anthem or Cigna (currently at each others’ throats in Delaware court)
- Other specialized, Medicare Advantage/Medicare/Medicaid networks such as Humana or WellCare?
- Will supermarkets, also big retail pharmacy providers, get into the act? Publix, Wegmans, Shop Rite or Ahold (Stop & Shop, Giant) buying regionals or specialty insurers like the above, a Blue or two, Oscar, Clover, Bright Health….or seeking alliances?
- And then, there’s Amazon and Whole Foods….no pharmacy in-house at Whole Foods, but talk about a delivery system?
UPDATED. In seeking an update for the Anthem-Cigna ‘Who Shot John’ court action about breakup fees (there isn’t yet), this Editor came across a must-read analysis in Health Affairs
by David Dranove, DOJ’s economics expert, about the arguments underpinning the DOJ and court denial of the merger. Retailer-payer mergers will likely avoid the market dominance argument that doomed the previous round of insurer mergers. But, if any of these negatively affect “national accounts” employers and large local employers negotiating power and have the whiff of monopoly–a market situation where there’s only one seller of PBM, or one drug buyer (monopsony)–DOJ will simply unpack these arguments. Reading this, it confirms this Editor’s opinion that the smaller Blues–the multi-state (e.g. Highmark, Regence) and independent Blues–may want to sell because they have literally nowhere to go. They are hemmed in geographically (BCBSA rules), they are under scrutiny because of market dominance, and according to this article, there are two class-action lawsuits representing purchasers and providers that attack the Blue Cross Blue Shield Association’s assignation of territories as violating the Sherman Anti-Trust Act, using the arguments made in Anthem-Cigna.