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CVS Health to Begin Important Work of Integrating Aetna

Following a favorable court decision, CVS Health now embarks on its mission to integrate health payer Aetna.

CVS Health to integrate health payer Aetna

Source: CVS Health

By Kyle Murphy, PhD

- On the eve of Christmas, Judge Richard Leon of the United States District Court for the District of Columbia decided against halting the integration of the two companies in a merger valued at $69 billion.

“Based on CVS’s constructive and appropriate representations, I am satisfied that, so long as these measures remain in place, the assets involved in the challenged acquisition will remain sufficiently separate,” he stated in his order (via CNBC).

Leon raised doubts about his willingness to approve the CVS Health-Aetna merger around the middle of December. The judge raised concerns about the lack of a sufficient challenge brought forth by the Department of Justice, noting that lawyers representing the federal government were “tone deaf” and “unnecessarily defensive.” Leon asked for and received assurances from lawyers representing both CVS Health and Aetna that the two companies would function independently pending his review.

With the court’s decision unlikely to unravel the merger, CVS Health must now tackle the challenge of bringing the health payer into its fold.

“The merger creates a company that’s singular in its size and scope, combining CVS’s nearly 10,000 stores and 1,100 clinics with Aetna’s 22 million enrollees. It also includes CVS Caremark, a leader among pharmacy benefit managers,” reports Max Nisen of Bloomberg.

Addressing the fragmentation of healthcare will begin at home for CVS as Aetna is integrated.

“We look at the industry and we define it as one that's fragmented, and often times care is uncoordinated,” CVS Health CEO Larry Merlo told attendees of a November investor conference. “It does not place enough of a focus on outcomes or managing the patient in a holistic way and all of that leads to — pick the adjective that you want to use, wasteful, avoidable, preventable spending that amounts to billions of dollars.”

According to Nisen, Merlo’s experience overseeing CVS Health’s acquisition of Caremark should bode well for the integration of Aetna:

The early days of the Caremark combination were marred by integration issues and contract losses. But Merlo, who helped successfully absorb a number of large acquisitions of other drug chains while leading its stores, turned the acquisition around after taking over as CEO in 2011. The firm’s PBM unit is one of the largest in the country, and is an enormous source of revenue in its own right that drives much-needed traffic to CVS stores.

CVS Caremark is a clear fit with Aetna, the country’s third-largest insurer and previously a huge client. Bringing Aetna in house allows for further integration of drug and medical benefits for enrollees, which could deliver cost savings to both customers and the company. The added scale should grant an advantage in drug-price negotiations.

The CVS Health-Aetna major is expected to bring physical changes to many retail locations for the former. With only 11 percent of stores offering clinical services and many of those requiring updates and modifications, new concepts are set to emerge. However, CVS Health's debts could very well hamper the speed with which it can make these changes.

“There’s a relatively staid version of this merger, in which it proves to be a defensive consolidation that will focus on cost cutting and leveraging its increased pricing power.  But Merlo is making the case that it can be much more than that — and 2019 will begin to show if he’s right,” writes Nisen.

In late November, CVS Health announced the completion of the Aetna takeover.

“By delivering the combined capabilities of our two leading organizations, we will transform the consumer health experience and build healthier communities through a new innovative health care model that is local, easier to use, less expensive and puts consumers at the center of their care,” Merlo said at the time.

Now the real work is set to begin in earnest.

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