The potential merger between CVS and Aetna could be worth more than $66 billion.
The online retailer Amazon’s flirtation with the pharmacy business has been raised as a factor in the merger. But many industry experts say CVS and Aetna have another huge competitor on their minds: UnitedHealth Group. Kaiser Health News quotes Ana Gupte, a health care analyst at Leerink Partners:
People have gotten carried away with Amazon. CVS and Aetna is an Optum wannabe. UnitedHealth is the winning business model, and Optum is showing the way.
UnitedHealth Group’s Optum unit fills more than 100 million prescriptions per month as a pharmacy benefit manager, poaching big customers from rivals CVS and Express Scripts. UnitedHealth owns more than 400 surgery centers and urgent-care clinics and runs medical practices for about 22,000 physicians across the country.
UnitedHealth’s expansion into dispensing prescription drugs and treating patients has put the company on track to reach $200 billion in annual revenue this year and profits for the first nine months of 2017 already topped $7 billion, referenced in a Kaiser Health News report.
The companies have agreed that CVS will split its consideration for the deal between cash and CVS stock, a deal structure that would minimize tax liabilities for Aetna shareholders, unnamed sources said.
A deal will probably value Aetna at significantly more than $200 per share, the sources said, adding that the companies will agree to an exact price closer to signing the deal in December. Read more in Reuters
Market concentration has risen in more than three-quarters of industries since the late 1990s. Concentration has led to higher profits and higher returns for shareholders at the expense of consumers. We are seeing this accelerate in the healthcare sector.
Antitrust actions have been taken recently. In February a federal judge blocked a proposed merger of Aetna and Humana, two health insurers. Antitrust authorities pruned an acquisition by Walgreens of Rite Aid, America’s second- and fifth-largest pharmacies respectively. What may be the response to Aetna-CVS ? Read the view from The Economist
The interface of pharmacy benefits managers and health insurers is becoming murkier. But a full-blown merger of the healthcare giants Aetna and CVS would be complicated and unlikely given recent antitrust scrutiny in the sector and given that the drugstore chain is already going into business with an Aetna rival, Anthem. Anthem just last week said it was forming its own pharmacy benefit management company, IngenioRx, with CVS, which operates a PBM. That was seen as a way to compete with the nation’s largest health insurer, UnitedHealth Group, which owns the PBM OptumRx. Read an opinion piece on why CVS won’t buy Aetna in Forbes