CVS is buying Aetna for $69 billion

Pharmacy chain CVS Health (CVS) is acquiring health insurance giant Aetna (AET) in a $69 billion deal that could reshape American health care.

“This combination brings together the expertise of two great companies to remake the consumer health care experience,”CVS CEO Larry Merlo said. “With the analytics of Aetna and CVS Health’s human touch, we will create a health care platform built around individuals.”

“Together with CVS Health, we will better understand our members’ health goals, guide them through the health care system and help them achieve their best health,” Aetna CEO Mark Bertolini said.

Aetna shareholders will receive approximately $207 per share, $145 per share in cash and 0.8378 CVS shares for each share of Aetna.

A CVS Pharmacy store is seen in the Manhattan borough of New York City, November 30, 2017. REUTERS/Shannon Stapleton

“Today, increasing numbers of consumers are taking on more and more responsibility for paying for their health care as the burden of costs is being shifted to them,” the companies said in a statement. “Together, CVS Health and Aetna will be a trusted community partner who will help consumers better manage the cost of the health care they need.”

The CEOs stress lower costs

In recent months, Merlo and Bertolini have both separately spoken publicly about problems in US health care and they both advanced solutions they’ve had in mind. Their own words stress that a merger between CVS, the drugstore retailer that also operates walk-in clinics and a pharmacy benefit manager, and Aetna, the nation’s third-largest insurer, could be the beginning of falling healthcare costs.

“We are talking with CVS who has 9,000 stores within 3 miles of 80% of the American public,” Bertolini said at a Fortune magazine event this spring. “Should [CVS] be in the business of seasonal items or DME? Why can’t they be first stop outside the home in the community for healthcare when they are right around the corner?”

He added that people see their pharmacist a lot more than they see their doctor.

“We gotta get this sort of sense in the community that we are there for them,” Bertolini told Fortune. “And there are all sorts of resources available to ready to deploy. It’s really a logistical capability.”

Speaking at Yahoo Finance’s All Markets Summit in late October, Aetna’s CEO made a case for why the US health care delivery system is broken. He pointed out that the US spends the most on healthcare among the OECD nations, but still falls behind.

“When you add together our healthcare spend and our social spend, we are now 11th among the OECD nations. We are the only nation that spends more than 40% on healthcare,” Bertolini said. “The rest of the nations spend less than 40% on healthcare. The United States spends 62%. Our lack of investment in social determinants of health has led to a ranking of we are No. 34 out of 34 in the OECD nations from the standpoint of value. So this is a value problem.”

“We have a society that is not happy,” he said.

At the moment, the US health care system is focused on waiting until people are broken to fix them. That’s not working. As a result, Bertolini thinks the definition of health needs to be redefined.

“I think we should define health is a healthy person is productive, a productive person is socially, economically, and physically viable and viable people are happy,” he said.

To achieve this, thinking about health needs to be moved from the exam table to the kitchen table, according to Bertolini. In other words, they have to get into the home.

Pharmacists can play a much more active, supporting role

At a breakfast hosted by the Economic Club of New York in early October, CVS CEO Larry Merlo also made a case for how the pharmacist could play a more active role.

“There is tremendous opportunity to make health care much more effective by engaging with patients more frequently where they are in coordinating care to make a complex system much easier to navigate,” Merlo said.

He went on to cite some jarring statistics about health care costs. About half of the US population has a chronic illness with more than 80% of all health care spending going toward treating those illnesses. Ineffective management of chronic illness and medications associated with those diseases has resulted in more than $300 billion in avoidable costs, according to Merlo.

Merlo added that half of the patients don’t take medicine as prescribed and up to one-third of prescriptions written don’t get filled. One in five patients discharged from the hospital will be readmitted within 30 days. Many of those readmissions are preventable and often relate to a medication issue.

He called this “simply unsustainable” and why the pharmacist is essential.

“Pharmacists can play a much more active, supporting role in each person’s unique health experience from advising them on the best use of their medications and improving medication adherence or helping to coordinate care more effectively among a patient’s healthcare providers,” Merlo said.

Credibility

CVS has not been shy about making bold moves while putting profits at risk. Just a few years ago, CVS decided to remove cigarettes and tobacco sales from inside its stores. CVS was pretty much alone in that move.

When it’s come to addressing the opioid crisis, CVS decided to place a limit of 7 days of medication for certain acute prescription needs.

“It’s simply the right thing to do. I think on the tobacco decision we knew that was the right decision for our company as we were becoming more of a health care company,” Merlo said at the Economic Club.

“I see my good friend Mark Bertolini here from Aetna. I remember Mark and I talking about that decision. You know, how do you have credibility to do all the things that we talked about this morning and at the same time you’re delivering healthcare in the back of the store you’re selling tobacco products in the front of the store? We saw that as a credibility and an integrity issue.”

To date, CVS has seen a decline in the number of opioid prescriptions they dispense by as much as one-third in the last four years, Merlo said.


Julia La Roche is a finance reporter at Yahoo FinanceFollow her on Twitter.

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