Transforming American Healthcare? Why the CVS-Aetna Merger Matters

Transforming American Healthcare? Why the CVS-Aetna Merger Matters

Many recent headlines have proclaimed that the nation’s largest retail pharmacy chain, CVS Health’s, $69 billion-acquisition of insurance giant, Aetna, will have the effect of profoundly reshaping the U.S. healthcare landscape. But is this also more of a sign that the healthcare industry is already being reshaped by healthcare consumerism? Are consumers smarter and thus driving companies (who can afford to make these big plays) to refashion their businesses to meet consumer needs?

Vertically challenged

The ongoing uncertainty and volatility around the future of the Affordable Care Act and the shift towards value-based care has highlighted the benefits of scale and vertical integration. We are seeing that impact in the form of mergers within hospital systems, big health insurers and pharmaceutical companies. The use of electronic health records and the synergies that can be created by truly understanding the customer, mean that sophisticated providers of healthcare services can now streamline costs through elimination of duplication and gross excess, becoming more effective competitors as a result. These vertical integration mergers are an attempt to do just that. 

Another catalyst influencing the trend of vertical integration is’s  entrance into the healthcare sector. In an effort to mitigate disastrous disruption, healthcare companies are on the defensive, and the timing of the announcement of the CVS-Aetna deal is surely not coincidental.

Although regulators have historically viewed vertical combinations across industries as beneficial to consumers in terms of potentially reducing cost and enhancing efficiencies, there is now cause for concern due to the sheer size of these deals and their ability to completely rock the healthcare industry. Now that the initial merger agreement between CVS and Aetna has been finalized, it must now be determined if the Federal Trade Commission (FTC) or Department of Justice (DOJ) will preside over the review process and subsequently decide if this transaction could potentially cause harm to competition and consumers. 

Another DOJ ruling that could have a significant impact on the CVS-Aetna merger is the AT&T and Time Warner Cable merger as it is the first significant vertical merger challenged by federal regulators in many years. Both review processes will be closely watched by the (healthcare) industry because it could catalyze further consolidation and integration between health plans and pharmacy benefit managers.

Survival of the fittest

The CVS-Aetna merger is certainly a significant move within the healthcare industry and a watershed event in healthcare antitrust. Regardless of the outcome, however, it may be that the larger, more sophisticated entities will recognize that it is in their best interest to continue to expand and increase efficiencies because, ultimately, this is the recipe for long-term survival.

Insights gained from the following Hosted Events calls: (UNH)(DVA)(HUM)(ESRX) – UnitedHealth & Managed Care’s Outlook as (CVS)+(AET) Merger Poses Biggest Competitive Threat To Date and (CVS)(AET) – Could Announced Healthcare Mega-Merger Face Same Roadblocks as AT&T and Time Warner?

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