What benefits insiders are saying about the CVS-Aetna deal

ByCaroline Hroncich, Kathryn Mayer, Nick Otto

November 29, 2018 5:08 PM

A pedestrian passes in front of a CVS Health Corp. store in downtown Los Angeles, California, U.S., on Friday, Oct. 27, 2017. The prospect of Amazon.com Inc. entering the healthcare business is beginning to cause far-reaching reverberations for a range of companies, roiling the shares of drugstore chains, drug distributors and pharmacy-benefit managers, and potentially precipitating one of the biggest corporate merger deals this year. Photographer: Christopher Lee/Bloomberg

Christopher Lee/Bloomberg

Healthcare giant CVS Health closed its $70 billion deal to buy Aetna on Wednesday, ending months of review from state and federal regulators. The deal, which brings together one of the nation’s largest pharmacy chains and one of the largest health insurers, has lofty goals. Among them: better managed care, new points of access to the medical system and healthier communities. But will those be accomplished or it will it leave employers and employees on the hook for higher healthcare costs?

For answers, we talked to seven benefits insiders about what a CVS-Aetna might mean for the industry. Here’s what they said.

Only good for shareholders

“Every merger in the healthcare space — both on the carrier side and provider side — always comes with promises of increased efficiency, increased buying power and lower costs. However, in nearly every single case, the more assets a company amasses, the higher their costs tend to be. The reality is that it only gives the buying company more leverage to maximize their own profits, and lower rates or lower healthcare costs do the opposite for them. I hope that no one is fooled into thinking this is good for employers or patients. This is good for the shareholders of Aetna and CVS only.” — David Contorno, founder of E Powered Benefits, a benefits consulting firm in Mooresville, North Carolina

No evidence of improved patient care

“The history of consolidation in the healthcare industry doesn’t typically bode well for those who use and pay for healthcare services. Usually, consolidation means higher prices and there’s little to no evidence that it improves the quality of patient care. The CVS-Aetna merger might be a different beast. It could provide a more seamless and convenient experience for patients, but it would have to buck the trend to result in more affordable care.” — Suzanne Delbanco, executive director of the Catalyst for Payment Reform, a nonprofit coalition of about 30 employers seeking improvements to the healthcare market

Higher premiums for employees?

David Reid - Founder and CEO EaseCentral COPY.jpg

“With today’s technology and comprehensive understanding of so many common diseases that contribute every day to healthcare costs, combining a health plan with an easily accessible physical location makes a lot of sense. What has previously been treated and diagnosed in a hospital or clinic setting can be effectively treated in this type of setting at a far lower cost. By combining this with the individual’s health plan and ‘ultra-convenient’ access, this is a winner for most consumers.

Controlling costs shouldn’t be confused with lowering costs. For example, in the small group employer markets, premiums are regulated based on a minimum mandatory loss ratio. If there’s an economic incentive for the pharmacy provider to sell a more expensive drug, the health plan becomes a vehicle to do so. The health plan essentially dictates the choice drugs, down to the brand, with what is known as a formulary list. Consumers pick up an expensive prescription with a low copay and the plan pays the balance. But the cost of the more expensive drug is then passed back to the consumer with higher insurance premiums. The MMLR rules would allow the health plan to increase premium costs as long as the plan expenses have increased.” — David Reid, CEO and co-founder of EaseCentral, a San Francisco-based benefits technology company

A “defensive” play that won't reduce employee health costs

Suzy K. Johnson

“This is a defensive play to remain competitive to UnitedHealthcare who owns Optum, a pharmacy benefit manager where much of UHC profits are created.

Often the public doesn’t realize it, but about 20-30% of every prescription dollar spent by employees and their employers goes to pad the pockets of the pharmacy benefit manager who keeps this large margin provided by the prescription manufacturers to steer employees to certain drugs through the carrier formularies. This is a huge source of profit and one of the reasons CVS is No. 7 on the Fortune 500 listing because their revenues and profits are so high.

Now, CVS Caremark and Aetna will be able to work more closely together to maximize these profits for their own company. There could be great synergies and cost reductions achieved through this merger but I wouldn’t hold my breath for this to happen. I think it is more about maximizing profits and positioning themselves defensively to retain maximum profitability. Sadly, this will not reduce healthcare costs for consumers.” — Suzy Johnson, president of Employee Benefit Advisors of the Carolinas and one of EBA’s 2018 Top Women in Advising

Potential for innovation

“This merger will create a behemoth. The key to its success is whether it will deliver better value to employers who are paying the great majority of the healthcare bill. There is potential to innovate in ways previously not imagined, but how the new entity executes and collaborates will be key.” — Michael Thompson, president and CEO of National Alliance of Healthcare Purchaser Coalitions

It can go two different ways

“When two large companies merge in different segments of the healthcare industry, one of two outcomes is often the case: better integrate their operations to drive broader value to employers — in this case, better medication adherence, better care, lower costs and greater productivity. Or operate the two entities as stand-alone with a segmented profit-maximizing focus. We’ll watch closely to see which model prevails.” —Thomas Parry, president of the Integrated Benefits Institute, an independent nonprofit that serves more than 1,250 employers

Too early to say

“It’s too early to tell, but a lot depends on the ability to implement the merger and better integrate and coordinate the medical and pharmacy data and management. There’s certainly a lot of opportunity to improve upon the current drug pricing and supply chain models, but creating a larger entity also poses challenges and may take some time to show results.”— Steve Wojcik, vice president of public policy at the National Business Group on Health