CVS Aims to Remake Health Care With Aetna Deal

The deal could expand the role of CVS in insurance distribution

(Photo: Thinkstock) (Photo: Thinkstock)

CVS Health Corp. today capped off five weeks of rumors about a deal for Aetna Inc. by officially announcing plans to acquire Aetna for $69 billion in cash and stock.

The Woonsocket, Rhode Island-based drug store would also assume Aetna's debt. That would bring the total value of the deal to $77 billion.

The companies hope to complete the deal by the end of 2018.

(Related: 3 Possible CVS-Aetna Deal Effects, for Agents

Earlier this year, Aetna gave up on efforts to acquire Humana Inc. after running into resistance from antitrust regulators.

The CVS-Aetna could be reviewed for antitrust concerns by either the Justice Department or the Federal Trade Commissioner. In the past, the Justice Department has been tougher on big deals involving two companies in related industries, rather than two companies in the same industry.

If CVS and Aetna complete the deal they've announced, the combined company would have 9,700 CVS Pharmacy stores, 1,100 MinuteClinic walk-in clinics, and about 4,000 CVS Health clinic and home care nurses. 


Deal Nuts and Bolts

Aetna may have hinted that big changes were coming earlier this year, when it announced that it was moving its official headquarters to New York City, from Hartford, Connecticut. Aetna has been based in Hartford since 1853.

CVS, which was founded in 1963, says it intends to operate Aetna as a stand-alone business.

Aetna "will be led by members of their current management team," according to CVS.

Three Aetna directors, including Mark Bertolini, Aetna's chairman and chief executive officer, would join the CVS board.

One factor that could ease the integration process is that CVS already serves as Aetna's pharmacy benefits manager (PBM).


Aetna: A Navigator?

Larry Merlo, the president of CVS, said in a statement that CVS hopes to make the combined company "America's front door to quality health care, integrating more closely the work of doctors, pharmacists, other health care professionals and health benefits companies to create a platform that is easier to use and less expensive for consumers.

CVS says it has become an integrated health care company.

"Aetna has moved beyond being a traditional insurer to focus more on consumer well-being," CVS says.

CVS hopes to offer "health hubs." The health hub program would, apparently, be a broader, for-profit version of the Affordable Care Act public exchange navigators program.

A community-based health hub will be "dedicated to connecting the pathways needed to improve health and answering patients' questions about their health conditions, as well as prescriptions drugs and health coverage," Aetna says.

CVS says the health hubs could provide extra support and monitoring for patients with chronic conditions, such as diabetes, and for patients newly charged from hospitals.


What's Missing? 

In the initial deal announcement, CVS and Aetna did not mention insurance agents or brokers.

They mentioned employer plan sponsors, Medicare and Medicaid only in a description of Aetna's operations at the end of the deal announcement.


Analysts

Peter Costa and other securities analysts at Wells Fargo Securities say they believe CVS made the deal partly because CVS has concerns about competition from Amazon.com.

The Wells Fargo analysts suggest the deal could also have an effect on insurance distribution.

"CVS retail locations would allow it to market Aetna health insurance plans to individuals, small businesses, Part D, Medicare and Advantage [users], and Medicaid [users]," the analysts write.


The Conference Call

The companies will be streaming audio of a conference call with securities analysts starting at 8:30 a.m. Eastern Time, and posting a replay of the call a little later.

More information about listening to the live call, and to the replay, is available here

—Read CVS-Aetna Deal Could Mean End of Era in How Drugs Are Paid For on ThinkAdvisor.

 

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