Friday, October 27, 2017

Why CVS Health would want to buy Aetna

By Carolyn Y. Johnson October 26 at 6:47 PM 
CVS Health is reportedly in talks to buy the nation's third-largest health insurer, Aetna — a deal that would allow the pharmacy giant to expand into an entirely new arena of health care.
A successful deal could push millions of Aetna's members toward CVS's retail pharmacies, walk-in MinuteClinics and home services for infusion drugs at a time when retail pharmacy companies are facing stiff competition.
It would also give Aetna the ability to move deeper into the lives of the 44.7 million people it serves and manage their health care more efficiently. For example, the insurer might be able to create better coordination of care using insights from CVS's retail clinics and pharmacies.
The Wall Street Journal reported that CVS Health had made a proposal to buy the health insurer for as much as $66 billion, which could make the deal the biggest merger of 2017.
Citing sources familiar with the matter, the Journal said that the offer was more than $200 per share. The newspaper also reported that the proposed deal was a way to guard against the looming threat that Amazon might soon enter the pharmacy business. Amazon has not announced such plans, but analysts expect it will enter the space and pose a major threat to retail pharmacies.
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Analysts had been anticipating a deal. CVS Health has lost contracts in its retail pharmacy business recently, creating pressure on the company to find a way to grow, said Brian Tanquilut, a stock analyst at the investment banking firm Jefferies.
Meanwhile, health insurers have increasingly been moving toward bringing the negotiation of drug prices in-house, instead of outsourcing that work to companies called pharmacy benefit managers.
CVS Health may be best known for its retail pharmacy business, but it has been evolving. It works as a pharmacy benefit manager that negotiates drug prices on behalf of insurance companies. It also runs MinuteClinics, home infusion services and long-term care pharmacies that all mean it has a close relationship with patients — all of which could be valuable to Aetna.
Insurers have been seeking closer relationships with consumers as they try to manage health-care costs, making sure that people seek care in the appropriate low-cost venues, and manage health conditions and adhere to taking medications rather than having expensive health emergencies.
“The strategic value that [the deal] brings is in the sense that health care has changed so much — that all these insurance companies need or want to be as close to the patient and beneficiary or plan members as possible,” Tanquilut said.
Neither company confirmed the report.
“As a matter of policy we don’t comment on market rumors such as this,” David Palombi, a spokesman for CVS Health said in an email.
Aetna spokesman T.J. Crawford said the company does not comment on rumors or speculation.
Adam Fein, president of Pembroke Consulting, said that the deal makes sense, given the evolution of CVS Health, a company that already has many ways to connect with the consumer, and insurance companies' desire to contain health-care costs.
“Depending on how it's structured, this could potentially be of great benefit to consumers, because there will be an opportunity to offer more efficient and more effective health insurance plans,” Fein said.
Other health insurers have already brought the business of negotiating drug prices in-house. UnitedHealth Group owns its own pharmacy benefit manager, Optum. Anthem recently announced it would establish its own pharmacy benefits manager called IngenioRx, which includes a partnership with CVS Health.
“This is part of the strange world of the health insurance and PBM industry,” Fein said. “Many companies are frenemies.”

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