Aetna, one of the nation’s leading managed care providers, and CVS, America’s largest pharmacy chain, agreed to a merger announced in December 2017, in which CVS would buy the insurance giant for $69 billion. Earlier this month, shareholders for both companies approved the deal.
From shifts in health care costs to changes in how emergency and primary care is delivered to patients, the consequences of the merger are expected to be significant. The deal still needs approval from the federal Department of Justice.
Mihaylo Finance Professor Xiaoying Xie, who specializes in insurance studies, believes that there are potentially positive benefits from such a deal.
“Theoretically, an M&A deal would create value if it brings operating strategy between the acquirer and target. Aetna is the fifth largest health insurer in the U.S. ranked by direct premiums written. Before this deal, Aetna’s bid to merge with Humana, the third largest health insurer in the U.S., was blocked for its anti-competitive nature,” she says. “The current deal with CVS, however, is a vertical integration. Technically such integration will not negatively affect the competitiveness of health insurance markets. Instead, its potential operating synergy may help lower the overall cost of health care and benefit consumers.”
Xie believes that convenience would result from the integration of insurance, medical providers and pharmacy services. “The extensive networks and the possible community-based health hubs would provide convenience for members,” she says. “It may possibly lower the overall health care costs through offering a one-stop solution for minor medical services and helping members manage their chronic diseases more cost-effectively.”
While horizontal consolidation, involving mergers among competitors, may not become the wave of the future in health care, Xie notes that the Aetna/CVS deal is emblematic of the growth of vertical consolidation in health care, which involves deals with firms up or down the supply chain. Read More