Would CVS + Aetna = lower healthcare costs?

Source: CVS Health
Dec 07, 2017
Tom Ryan

In justifying its planned $69 billion merger with Aetna (perhaps to anti-trust regulators), CVS detailed how the entire health care system should benefit from broader use of data and analytics, leading to improved patient health at substantially lower cost.

In its press release announcing the deal, CVS cited helping patients avoid unnecessary hospital readmissions as an example of the potential cost savings to be gained in the merger.

“Twenty percent of Medicare patients are readmitted to the hospital soon after being discharged at significant annual costs, much of which is avoidable,” CVS wrote. “Readmission rates can be cut in half if patients have a complete review of their medications after discharge from the hospital to help them manage their care at home.”

In addition, CVS pointed out that home devices to monitor activity levels, pulse and respiratory rates can be used to prevent readmissions. CVS plans to establish “health hub” locations at many of its stores to answer patients’ detailed questions.

“Rather than feeling lost and confused, selected high risk patients discharged from the hospital, or their caregivers, 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,” CVS wrote. “All of these services will complement and be integrated with the care provided by their physician and medical team.”

Some believe providing more transparency and access to patient information will reduce the need for follow-up or additional care and overall keep consumers healthier. Joel Naroff, of Naroff Economic Advisors, told consumeraffairs.com, “If that happens, they would indeed lower healthcare costs.”

Skeptics see combining companies only providing more leverage to raise prices. The merger is expected to lead to other combinations, driven in part by Amazon’s expected entry into health care.

Not surprisingly, many are also expressing their privacy concerns as medical data is merged with purchase data. Ingrid Lindberg, president of loyalty marketing at Kobie Marketing and former chief experience officer at Cigna, told Fox Business, “Now your insurance company could know that you bought unhealthy snacks at the drugstore even though you have high blood pressure, and perhaps then charge you a premium.”


DISCUSSION QUESTIONS: Do you think a merged CVS/Aetna organization could use data and analytics to improve health service and product recommendations and reduce medical costs? Do you see major privacy concerns being raised if merging a major pharmacy with an insurance company?

"So yes, I do see the potential here and the savings."
"Mostly I expect the transaction to drive Aetna’s huge base of customers into Caremark’s hands. As to cost efficiencies, count me as a skeptic."
"As some would conclude, $77 billion has to be made back before they make money so I’m guessing prices may not go down for a quite some time."

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21 Comments on "Would CVS + Aetna = lower healthcare costs?"

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Phil Chang

Having some experience with OTC products (over the counter drugs) doesn’t make me an expert by any stretch of the imagination here but as a marketer/sales guy I’d be really excited to get my hands on all sorts of client data to figure out how to upsell products based on need states.

How does one leverage the analytical power of CVS while resisting the lure to use all the new consumer data at their fingertips? To be extreme (to illustrate a point), will a CVS/Aetna organization deny me treatment for diabetes because my purchase history at CVS shows an excessive amount of candy bought over the last five years?

Ian Percy

Sadly I’m with the skeptics on this one. Has a merger or acquisition EVER reduced costs?

Now that my usually dormant skeptical DNA has been aroused, let me add that there’s no such thing as a “merger.”

Dr. Stephen Needel

The merger might be a good thing as it combines links in the medical care process. It might reduce costs and it might improve service. Does that mean the patient sees any of that cost reduction? Unlikely. Will the improvements in service be noticeable to the average healthcare patient? Probably not.

Max Goldberg

I hate to be cynical, but CVS/Aetna will use data to sell more products to consumers, not to help control costs. There is the possibility that the data could be misused and consumer privacy compromised. This trend of medical mergers needs to be carefully evaluated by regulatory agencies, Congress and consumers to see who will benefit and at what price.

Ken Lonyai

Smokescreen. That’s the word that comes to mind as I shake my head over these claims. There might be some truth to CVS’ arguments if they had established an open platform “health hub” prior to this acquisition, available to competitors in both the insurance and pharmacy industries. This merger simply closes the loop in driving prescriptions to CVS’ doorstep.

For consumers, a long-term concern is that this will create pressure for more one-sided alignments between pharmacies and healthcare insurers/facilitators, encumbering/removing choice and creating inconvenience or worse.

Cathy Hotka

Across the economy, we’re seeing more and more power consolidated in the hands of fewer and fewer companies. This will result in less consumer choice. I’d like to think that the CVS/Aetna project is an innovative way to approach primary care, but the results may not be so straightforward.

Ben Ball

Net costs will probably be lowered — by shifting service provision from higher cost sources (i.e. hospitals and doctors) to lower-cost sources like clinics and nurse practitioners. That’s not necessarily a bad thing as one of the legitimate criticisms of the U.S. healthcare ecosystem is that we have been trained to go to the E.R. for a hangnail. Whether it will give CVS pricing leverage within their markets and services provided — most likely yes, but does anyone really think they are going to get to occupy this space without both brick-and-mortar and online competition for long? I don’t.

Lee Kent

Being someone with a chronic illness that can be quite costly, I see a personal improvement in this model. If CVS can offer me services that will allow me to have my monthly evaluations done and properly addressed without having to make costly doctor appointments then I say, you go. So yes, I do see the potential here and the savings. For my 2 cents.

Zel Bianco
As some would conclude, $77 billion has to be made back before they make money so I’m guessing prices may not go down for a quite some time. Having said that, having a heathcare organization integrated in almost every way with another “healthcare” organization like CVS could and should result in benefits to consumers/patients because it will eliminate the third party “disconnect” one feels when you leave the doctor’s office and hope that the staff was able to get the prescription called in to the pharmacy. When I lived in the suburbs there was a large and very established neighborhood pharmacy located near both the group medical practice and the local hospital. When you went to the pharmacy, the staff actually knew most of the doctors in the practice and would be able to facilitate any problems that had to be resolved. Now that I live in the city and CVS is indeed my pharmacy, it is my hope that this merger will actually start to work more in sync as it is not working… Read more »
Joy Chen

The cost savings would be for Aetna/CVS as one of the largest costs to them is prescription drugs. The largest cost to the patient is their medical insurance. Therefore, it is difficult to tell if the savings Aetna/CVS will see will likely get passed on to the patient/consumer.

The challenge of the merger is whether it will reduce the choices patients have in the future for insurance and pharmacy providers. The merger will definitely not bring better service or care to the patient.

Neil Saunders
Let’s be frank, neither CVS nor Aetna would undertake a merger of this scale simply to benefit consumers. This merger is necessary to consolidate the potions of both players in an increasingly competitive market. There’s nothing wrong with that, but let’s not pretend for one moment that lower costs are the primary objective. The question, therefore, is whether lower costs and better care will be a byproduct of the merger. On the costs front, sure there will be economies of scale. But will they be passed down to consumers? Perhaps, in part; but not in full. That means a marginal gain at best. I am more optimistic about better standards of care and increased options for consumers. The whole healthcare system is overly complex and CVS now has an opportunity to simplify aspects of it and bring them closer to the community. They have spoken about being to health what the Apple Genius Bar is to technology. I like this idea; it makes sense that there’s a local hub to sort out simple medical issues.… Read more »
Sky Rota
7 days 2 hours ago

I guess Walgreens is now going to purchase Blue Cross. Isn’t that how it works? All the big players are trying to buy so Amazon doesn’t get their hands on everything. Can I go to CVS and complain when Aetna turns down my MRI for my broken foot?

Neil Saunders

Customers annoyed at their treatment by Aetna would have the option to stop shopping at CVS for retail goods. It will be interesting to see how that turns out.

Roy White

It may or may not be cheaper care, as the press release proposes, but it does look like it will be more seamless care and very likely better care. There will be more patient data now from another source other than the prescription drugs, and that may well allow more informed medical decisions and better outcomes. Presumably with Aetna comes hospital stay data, now aligned with prescription drug data. Prompting patients to do what they are supposed to do to stay well post-hospital may be easier, and that’s a huge plus because it doesn’t necessarily happen. I think the big benefit here for consumers is better care, with the opportunity for lower costs.

Dick Seesel

I’m curious to see whether the CVS acquisition allows Aetna to re-enter some of the individual insurance markets that it has exited entirely for 2018. But mostly I expect the transaction to drive Aetna’s huge base of customers into Caremark’s hands. As to cost efficiencies, count me as a skeptic.

Doug Garnett

From watching mergers over the years, every merger starts with a bookish theory of “saving costs” yet few end up doing that in reality. History suggests we shouldn’t count savings until CVS clearly delivers them.

In this case, their ability to succeed at making this happen is severely restricted by being in the heavily regulated, incredibly convoluted healthcare business.

So let’s hope they can and wish them the best.

Mohamed Amer

The argument behind the proposed acquisition is sound. Data and technology are changing the operational algorithms of industries as well as shifting existing boundaries in novel ways.

The challenge is once you have the data and created new as well as shortened vertical processes with greater efficiencies and more relevance, you create a different reality with conditions that invite unexpected behavior on both the part of the consumer and the industry players. What happens when margins come under unexpected pressures or growth slows below projections? Might there be a new monetization idea utilizing the newly captured data? Does such a new combination provide a more convenient “one stop shop” for hackers to tap highly sensitive personal data and connect that with publicly available data to extract money and favors?

I think the CVS and Aetna combination is a solid business proposal that is necessary in today’s competitive conditions. The privacy concerns are equally real and important and will require much work to avoid violations be they purposeful or inadvertent.

Richard Layman

The short answer is, it depends.

Likely the combination will have some effect on slackening price increases in some elements in healthcare. But it won’t have all that much effect because the issue is how the system for providing healthcare and wellness services is focused on “insurance,” and providing care “reactively” that is, in response to problems, as opposed to working with people to manage optimal health, including working at behavior changes so that people will adopt as routine behaviors that support health rather than illness, especially concerning chronic health problems and health problems that derive from unsound choices.

Paul Donovan

I see this merger as one way to increase the access without having the more expensive doctor/hospital interactions. However as other people have commented the real decrease has to come from less expensive pharmaceuticals for the U.S. consumer. A recent study I read showed we are being billed 10 times what other developed economies are for pharmaceutical products that treat illnesses such as multiple sclerosis. I don’t think even CVS/Aetna can deliver better than that when the whole U.S. government can’t. Apologies for the political bent, but this is a real issue for the U.S. consumer.

Craig Sundstrom

It will be interesting to see how this plays out. The insurance side will want people to spend as little as possible, while the retail side will want them to spend as much as possible. Who will win? I don’t know… but I’m pretty sure it won’t be the consumer.

Javier Cazares

Should we call this the CVS-Aetna Affordable Care Act now? I think this will definitely bring benefits to patients in terms of having better/faster access to healthcare or primary care. Also, CVS has the opportunity to use all the insured patient data to come up with a personalized profile and help people to proactively avoid critical illness by sharing key information and taking care of their health in advance.

"So yes, I do see the potential here and the savings."
"Mostly I expect the transaction to drive Aetna’s huge base of customers into Caremark’s hands. As to cost efficiencies, count me as a skeptic."
"As some would conclude, $77 billion has to be made back before they make money so I’m guessing prices may not go down for a quite some time."

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