Transformational deal weighed by CVS

Print Friendly, PDF & Email

WOONSOCKET, R.I. — At presstime The Wall Street Journal along with other news agencies reported that CVS Health will offer more than $200 per share, or about $66 billion, to purchase the health insurance giant Aetna Inc.

Anonymous sources cited by WSJ originated the story about a potential CVS-Aetna deal. The possible transaction comes as CVS looks to fortify itself against looming competition from Amazon amid a continuing reordering of the health care industry.

The talks may not lead to a deal but, in a sign of their seriousness, the companies’ respective chief executive officers — Larry Merlo at CVS and Mark Bertolini at Aetna — have met multiple times over a period of roughly six months, WSJ ­reported.

If consummated, the deal could be worth more than $60 billion, based on Aetna’s current market value, which would make it one of the largest corporate acquisitions this year and one of the largest in the history of the health care industry.

The proposed combination reflects the blurring of traditional boundaries in health care, as established companies seek to find their footing in a rapidly changing environment. Congress is deadlocked over the future of the Affordable Care Act, and employers and consumers are struggling to contain rising medical costs, particularly skyrocketing drug prices.

“I think this deal has been a long time coming,” said Adam Fein, president of Pembroke Consulting. “CVS has been positioning itself as a health care company and not a pharmacy for a long time,” he told The New York Times.

Bloomberg reported that a combination of CVS and Aetna would create a health care benefits and services behemoth that could challenge UnitedHealth Group, the nation’s biggest health insurer, whose units include OptumRx, a pharmacy benefit manager, and health clinics.

CVS’ integrated pharmacy care businesses include the drug store chain CVS Pharmacy, the CVS Caremark PBM, in-store medical clinic operator MinuteClinic and specialty pharmacy CVS Specialty.

Mizuho also believes the deal makes sense in that CVS could expand its MinuteClinics in its stores or create mini urgent care centers, driving demand via lower co-pay differentials that could reduce the number of non-acute cases treated in emergency room settings. A combination of retail pharmacies with managed care could be the next generation of formulary ­management.

WSJ also reported that CVS felt further compelled to make a dramatic move after federal antitrust regulators recently rejected rival Walgreens Boots Alliance Inc.’s proposed acquisition of Rite Aid Corp., a person familiar with the matter said. That solidified the view that the solution to intensifying competition must come from beyond traditional channels.

Aetna earlier this year was rebuffed in an effort to build up scale. In February, after being blocked by a federal court, Aetna and fellow health care insurer Humana opted to terminate their $37 billion merger deal.

These negotiations are taking place as the online retail giant Amazon is moving in on the turf of well-established players — and the pharmacy business appears to be next. Amazon has quietly received approvals for pharmacy wholesale licenses from at least a dozen state pharmacy boards, the St. Louis Post-Dispatch reported.

Those states are Alabama, Arizona, Connecticut, Idaho, Louisiana, Michigan, New Hampshire, New Jersey, Nevada, North Dakota, Oregon and Tennessee. Another pharmacy distribution license application is pending in Maine, the report said.

The Post-Dispatch was alerted to the licenses by a drug supply chain researcher, Nicodemo Fiorentino, a New Jersey attorney who works for a health care consulting firm that provides regulatory and compliance advice to the pharmaceutical industry. Fiorentino said this does not mean Amazon can begin shipping prescription drugs or devices directly to consumers — it would still need to obtain a pharmacy license.

In many cases, the licenses are tied to three Amazon facilities in the suburbs of Indianapolis. The addresses on the wholesale applications match the addresses of existing Indiana-based Amazon fulfillment centers.

“Just seeing the license itself, obviously it tells you some information but it doesn’t tell you the whole story,” Fiorentino told the Post-Dispatch.

Amazon declined to comment to the Post-Dispatch, which noted that, despite the licenses, it’s still not clear if Amazon has any plans to delve into the prescription drug business.



Comments are closed.