CVS is getting ready to acquire health insurance company Aetna for $69 billion, according to recent reports. This would continue the current trend of disrupting traditional divisions in the healthcare industry, which is already bracing for possible instability because of proposed changes to government programs like Medicare. It would also be one of the largest mergers in the history of the healthcare industry.
CVS already provides some coverage through a pharmacy benefits manager, or PBM. PBMs provide health plans for insurance companies and employers, and manage the benefits and treatment costs for those organizations. Merely selling pharmaceuticals from a brick and mortar establishment doesn’t generate a substantial profit, so PBMs can be used to bring in more revenue. Aetna covers more than 22 million members, which would significantly extend the scope of CVS’ coverage in the insurance field. Although the merger will be reviewed by regulators in the Trump administration, they are expected to be relatively open to this merger. A merger between two companies in disparate spheres of the healthcare industry is less alarming than consolidating two firms in the same business, which could reduce competition and harm consumers.
How would this impact consumers? According to Amanda Starc, associate professor of strategy at Northwestern’s Kellogg School of Management, consumers are not likely to see a drop in the price of prescription drugs. While CVS may be able to negotiate lower drug prices from manufacturers, it is not guaranteed that they will extend these lower prices to consumers. However, they might be able to better align costumer’s pharmacy and health care benefits as an integrated insurer. This could incentivize buyers to stay up-to-date on their regular medication so that they do not have more hospital costs in the future.
This merger is likely not only in motion because of CVS’ desire to expand their revenue scope but also because of fears over Amazon’s expected encroachment in the healthcare industry. According to some predictions, Amazon will enter the healthcare market slowly to avoid possible regulatory issues. When it does, it is possible that they would partner with or acquire a large PBM, innovate a smaller-scale PBM, or establish a brick and mortar pharmacy. But whichever their method, Amazon’s rapid expansion in web services and beyond could pose a definite threat to existing healthcare companies.
Image Credit: Consumerist
