CVS Health’s purchase of health insurance giant Aetna could have major implications for the health insurance industry. Here is how the merger might impact healthcare consumers:
Ways the CVS-Aetna merger might benefit employers and employees
- CVS could give discounts to Aetna members on their in-store purchases … from over-the-counter medications to shampoo.
- CVS could use their in-store Minute-Clinics to deliver care to members … essentially mimicking fully-integrated delivery systems like Kaiser Permanente and Intermountain Health. Fully-integrated delivery systems collect premiums from employers AND provide the care to members. It was tried extensively in the 1990s – and largely didn’t work.
- It could result in better customer service for members at the pharmacy. There is a lack of coordination between insurance carriers and pharmacy benefit managers (PBMs) and how benefits are executed in the pharmacy (i.e. what the charge or copay is, what formulary is followed, if the precertification/authorization came through, etc.). Theoretically, a combined CVS-Aetna could better coordinate coverage and filling prescriptions.
- Vertical integration could allow CVS and Aetna to streamline their businesses and pass on their lower cost structure to employers and employees in the form of lower prices. A sign that CVS and Aetna are realizing efficiencies from their merger would be layoffs. One of the largest expenses for both companies is payroll, so unless that slims down, it is likely that the merger did NOT result in a lower cost structure for the business.
Ways the CVS-Aetna merger might harm employers and employees
- Aetna could potentially be less flexible in allowing their self-funded plans to carve-out the PBM from Caremark and switch to another PBM.
- Aetna might only allow members of fully-insured groups that use the CVS/Caremark PBM and self-funded groups that use the CVS/Caremark PBM to fill prescriptions at CVS – or charge more if they filled them at another pharmacy (e.g. Walgreens, Kroger, etc.).
- Self-funded groups that do not use Aetna as their carrier, but use CVS/Caremark as their PBM, could experience decreased coordination between their medical carrier and their PBM. For example, Compass has many self-funded clients that use Blue Cross Blue Shield (BCBS) as their medical carrier and CVS/Caremark as their PBM. These two organizations might not want to cooperate since Aetna and BCBS are direct competitors.
- Aetna and CVS/Caremark could fully internalize and keep ALL of the rebates that pharmaceutical manufacturers distribute. Rebating is a common practice, where pharmaceutical companies pay the PBM for each prescription that they fill and pay the medical carrier when specialty medications are administered in the hospital. Will CVS-Aetna pass on those rebates back to employers and employees? To be determined…
The list of pros and cons go on, but I’ll stop there.
Cautionary tale and a positive example
There is a cautionary tale in the vertically integrated oil business of Standard Oil from the 1800s and early 1900s. Standard Oil drilled for the oil, pumped it out of the ground, transported it, refined it and sold it to consumers and businesses. Standard Oil, of course, was broken up into what are now ExxonMobile, Chevron, etc. History has shown that vertical integration leads to monopolies that hurt consumers.
However, there are other examples of vertical integration that are beneficial for consumers. Amazon owns its own software, warehouses, massive server capacity and even creates its own original video content for its Amazon Prime video service. Amazon is laser-focused on delighting its customers and does this vertical integration to accomplish that delight.
Regardless, companies vertically integrate their businesses so they can make more money. There is nothing wrong with that. However, is the vertically integrated company going to use its power to take advantage of customers or delight them (through better service and lower prices)? That might be our ultimate barometer of whether or not the CVS-Aetna merger is good for employers and employees.