The CEOs of drug retailer CVS and Aetna were marvelously in sync Sunday when they jointly announced their companies' $69 billion deal under which CVS would buy the health insurer.
The deal would "dramatically further empower consumers," Aetna's Mark Bertolini said. It would "create a platform that is easier to use and less expensive for consumers," according to Larry Merlo, president and CEO of CVS Health. They repeated these predictions in a series of joint interviews.
All that was missing was a clue to how, exactly, this nirvana of better, cheaper health care was to be reached. Clues to how little attention the companies have paid to that detail could be found throughout their joint announcement. "With the analytics of Aetna and CVS Health's human touch, we will create a health care platform built around individuals," Merlo said, in a masterpiece of vacuous corp-speak.
After all, Aetna doesn't need to sell to CVS to exploit its "analytics"; ostensibly, it already has data in hand to help its customers manage their health needs, and if it needs a CVS to help out, the companies could sign a contract. The announcement claims the merger would end up "helping patients avoid unnecessary hospital readmissions." But the combined company wouldn't own any hospitals and isn't planning, at least at first, to put more physicians on its payroll.
The companies say that "rather than feeling lost and confused, selected high risk patients discharged from the hospital ... will be able to stop at a health hub location to access services such as medication evaluations, home monitoring and use of durable medical equipment, as needed." That would be a good thing; what isn't clear is why CVS and Aetna have to complete a $69 billion sale to make it happen. What's preventing CVS from turning its drugstores into "health hubs" on its own, today?
As for the "human touch" of CVS, kudos to the PR aide who came up with that phrase. Do you feel "touched" by humans when you're in your neighborhood CVS? Me neither.
The wonders of better data and better analysis have been cited to justify previous mega-mergers, especially those between insurance companies. Way back in 2004, the acquisition of WellPoint by Anthem was to produce immense savings from combining their computer systems and allowing customers' medical data to be exploited for their benefit across the new company's vast reach.
Never mind that WellPoint Chairman and CEO Leonard Schaeffer was in line to pocket $37 million out of the deal plus a lump-sum payout of $45 million in accrued pension rights. We're still waiting for the technological benefits of the WellPoint-Anthem deal to appear after 13 years, and the betting here is that we'll still be waiting for the virtues of merging Aetna's analytics with CVS's human touch to appear 13 years from now.
Other positive aspects of the merger cited by Merlo and Bertolini are equally nebulous. "An entirely new health services offering available in many locations will function as a community-based health hub dedicated to connecting the pathways needed to improve health and answering patients' questions about their health conditions, as well as prescription drugs and health coverage," the announcement says.
What does that mean, precisely? Apparently it means the existing 10,000 CVS drug stores would "include space for wellness, clinical and pharmacy services, vision, hearing, nutrition, beauty, and medical equipment." Some already meet this exacting standard. You can buy makeup at your neighborhood CVS. Contact lenses (vision) and wheelchairs (devices) can be purchased online. You can get a flu shot at your neighborhood CVS, and if you have the proper insurance, CVS will vaccinate you free and bill your insurer. Obviously, the standard CVS already offers pharmacy services. If CVS is going to bring some of these online purchasing options to the retail floor, that's progress of a sort, but it mostly means that the CVS retail location would look more like the nearest Costco.
It's proper to note that Aetna hasn't been a paragon of customer service in the recent past. Last year, the company announced it was pulling out of all but four of the 15 states where it was providing individual insurance under the Affordable Care Act because of a business decision _ it was simply losing too much money on the insurance exchanges. This was a surprise, given that only a few months earlier, Bertolini had committed the company to long-term participation in the exchanges, calling it "a good investment." A federal judge ruled in January that Aetna's rationale for withdrawing was a lie _ the decision wasn't based on profit and loss, but was designed as retaliation for a federal antitrust lawsuit blocking Aetna's proposed $34 billion purchase of Humana, another health insurer. (The judge blocked the deal.)
The truth is that the CVS-Anthem deal isn't being driven by a desire to help ordinary Americans manage their health care costs better. It's driven by the desire to fend off scary new competitors in the health care industry, such as Amazon and Wal-Mart. Would it save money? Hardly: About $8.5 billion would be transferred to Aetna shareholders from CVS (based on the $26 premium to be paid for their shares in cash and CVS stock over Aetna's price Friday). The companies say they'll earn some of this back by streamlining operations, which typically means cutting staff. If it's truly redundant personnel who would be let go, the average consumer might not notice the difference; if it's a wholesale hatcheting, that would mean less-efficient services for more customers.
The evidence that the deal would lead to a "remaking" or "reshaping" of the U.S. health care market is scanty, not to say nonexistent. That's because what may be the most important business affected by the CVS-Aetna deal isn't pharmacy services or health insurance; it's the pharmacy benefit management business.
PBMs, as we've reported before, emerged in the 1980s as intermediaries helping health insurers combine their customer bases for greater leverage in negotiations with drug manufacturers and to steer doctors and hospitals to cheaper drug alternatives.
