Dear Clients and Friends,
Some companies engage in M&A to achieve synergies or diversification, while others aim for growth or to eliminate the competition. History is full of examples of horizontal tie-ups amongst providers, insurers or pharmaceuticals. In the new era of healthcare, however, M&A is all about survival.
Our industry is struggling to find new ways to capture and keep customers before some other new world interlopers – like Amazon or Walmart – find a way to take them away from you. The pending acquisition of Aetna by CVS is a good example.
CVS, with $177B in revenue from 9,700 retail pharmacies and stores, commands 1/4 of the U.S. market for prescription drugs. It is also the largest pharmacy benefit manager (PBM) in America; a type of middleman that negotiates bulk discounts on drugs from large pharma. Aetna has revenues of $63B, provides health insurance predominately for corporate clients and uses CVS as its PBM. But this tie-up is clearly more than the sum of its parts. It is about a new vertically integrated approach to healthcare.
The transaction, if consummated, will allow the newly combined entity to insure your health, diagnose your issue – perhaps at their MiniClinics – prescribe and fulfill your medications, and pay itself for the effort. And imagine no more prior authorization for drugs!! But will this combination help curb healthcare cost inflation? History tells us yes – but only if there is real competition. With Amazon’s entry into the retail pharmacy market, consumers will surely have more choices and, to us, that is a good start.
The announcement of the possible CVS/Aetna combination has already energized our industry and shaken up the boardrooms of many large corporations inside and outside healthcare. We expect more action with other insurers including Anthem, Centene, Humana and WellCare as well as with Express Scripts – the only remaining independent PBM. And don’t forget that Jeff Bezos is asking, “Alexa, which healthcare company should I buy today?”
See you next year! May we all turn to greater inspiration to serve humanity in 2018.
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