CVS-Aetna Deal Could Streamline Health Care Supply Chain

Health care professional using a tablet, with graphics overlaid representing health care supply chain concepts

With CVS’s acquisition of Aetna now complete, the federal government is in the process of reviewing the megamerger. The move will have a significant impact on the health care supply chain, which some say could lead to lower costs and reduced fees for consumers.

The $69 Billion Acquisition

Pharmacy giant CVS announced its planned acquisition of Aetna more than a year ago. In October 2018, the Justice Department approved the $69 billion merger. In December 2018, a U.S. district court judge accepted CVS Health’s proposed conditions to allow the acquisition of Aetna, moving the drugstore company even closer to transforming the health care supply chain. However, the courts continued to review antitrust concerns while considering whether the deal is in the public interest.

On February 13, the U.S. Department of Justice published its responses to public comments on the merger. While many believed the vertical transaction would be approved without issue, some experts say that this is the new norm, with closer attention being paid to these types of transactions in recent years.

The Department of Justice’s recently published comments affirm its position that the judge overseeing the case, U.S. District Judge Richard J. Leon, should issue final judgment in favor of the department’s approved terms.

Andrea Murino, a partner at Goodwin in Washington, D.C., and co-chair of the firm's antitrust and competition practice, told Health Leaders Media, “There’s a lot of chatter in the antitrust bar about the willingness of the antitrust enforcers to look more closely and potentially to challenge vertical transactions.”

CVS Health CEO Larry Merlo has touted the merger as “an opportunity to create a new health care model that is easier and simpler to use.” The combined company, he said, would reduce “the $2.4 trillion the U.S. spends annually on medical care,” with integrations helping to better identify preventable spending.

Impact of the Merger

The CVS-Aetna deal is designed to cut spending in the health care supply chain, which could lead to lower costs for consumers. Industry analysts are also predicting the merger will prompt further supply chain consolidation. There is great pressure on the industry to make health options more accessible and affordable to the growing number of aging Americans.

With so many players involved in providing Americans with health care services and prescription drugs, supply chain streamlining is a primary target for achieving cost reductions. Consolidations can:

  • Reduce supply chain redundancies, which can cut down on price markups
  • Increase negotiations among industry players to improve efficiency and lower costs
  • Allow for more efficient purchase and distribution processes

The merger gives CVS the “ability to control the benefit management, wholesale and retail distribution, and [now] be the payer,” said John Kupice, CEO of medical supplies online marketplace H-Source, adding that this will “likely, in time, change the face of the overall health care supply chain.”

Changes to the world of health care and diminishing operating margins require a rethinking of the strategic supply chain, Kupice says. He predicts that “several years from now, the health care supply chain will look very different, with fewer layers, helping to reduce costs and waste.”

A Comprehensive Health Care Provider

The purchase of Aetna also moves CVS one step closer to becoming a comprehensive provider. In Caremark, the retailer already has its own pharmacy benefits manager (PBM), which negotiates drug prices. The Aetna merger adds the insurance component. “The only thing missing will be its own hospital,” Supply Chain Dive noted.

Many medical professionals have voiced concerns. For instance, Michael Munger, president of the American Academy of Family Physicians, told the Chicago Tribune that his organization isn’t opposed to the merger but is concerned that the role of physicians will be usurped.

Gupreet Singh, leader of health services at PwC, further predicted PBMs and pharmaceutical distributors would be “the most squeezed,” with CVS-Aetna becoming a Goliath player in the health care supply chain.

Looking Ahead

As the Department of Justice awaits U.S. District Judge Richard J. Leon’s decision, health care executives will be keeping a close eye on the proceedings, which highlight the increased scrutiny surrounding antitrust issues.

Image Credit: Billion Photos / Shutterstock.com

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