CVS Health’s proposed $69 billion acquisition of Aetna seeks to accelerate healthcare consumerization by turning corner drugstores into community “health hubs.” This innovative merger would combine the country’s third-largest health insurer, with 22 million customers, and the largest U.S. drugstore chain with 9,700 retail pharmacies, 1,100 MinuteClinics, 4,000 nurses, and one of the largest employer pharmacy benefits managers.
The community health hubs would create an unprecedented, vertically integrated healthcare platform built around patients rather than physicians. Aetna CEO Mark Bertolini said that since all healthcare is local, this merger “brings us closer to the community, and creates a new front-door to healthcare in America.” The hubs would create a new entry point for accessing care at the corner drugstore, providing basic primary care under a payer that is also incentivized to improve access, quality, and convenience while reducing runaway costs.
Community Health Hubs
CVS looks for its nearly 10,000 retail pharmacies to deliver greater entry-level care options to Aetna consumers and in their communities. There are 51 CVS locations in Dallas alone, and more than 100 in North Texas. The plan is to re-purpose portions of CVS as in-store health centers, where customers could get answers about their health, medication, and coverage. CVS would staff pharmacists, nurse practitioners, and specific experts, depending on the community, such as nutritionists. There is no plan announced to staff physicians.
CVS hopes to transform preventative care by expanding health and wellness services to include basic primary care, medical evaluations, vision, nutrition, audiology, post-operative follow-up, home monitoring, and prescription adherence. This approach is similar to what has been happening with increasing nursing responsibilities throughout most of the industry. It is easy to see how this will add convenience to certain communities and even greater benefits to economically disadvantaged ones.
Every Aetna patient who stays healthy and out of the hospital or clinic for minor issues treatable at a CVS, is a financial win. Reducing avoidable hospital readmissions is expected to be a key performance metric.
Chronic Care Management
“As we look at half of the population driving 80 percent of healthcare costs, we need to find a more convenient and more effective way to meet customer needs,” CVS CEO Larry Merlo shared recently at our YPO/Harvard Business School healthcare conference. CVS’s retail experience and the health hubs should enable better treatment of these costly chronic diseases.
CVS is seeking to reinvent its stores as “centers for management” of long-term diseases. The profit pool it’s betting its future on is in managing years and decades of chronic illness, rather than low-acuity care.
Diabetic members are expensive for Aetna and all insurers. These patients could receive face-to-face nutritional and weight-loss counseling, where they pick-up medication, supplies and coordinate their glucose monitoring. If the monitoring picks up a warning, the patient could receive a text instructing next steps or a personal consultation.
Recently released hospital patients could receive pharmacists and nurse follow-up consults and monitoring. One study shows that pharmacist patient counseling after a hospital visit reduces the probability of readmission by 50 percent.
“These types of interventions are things that the traditional healthcare system could be doing,” Merlo says, “but the traditional healthcare system lacks the key elements of convenience and coordination that help to engage consumers in their health.”
Market-driven Vertical Integration
As Elisabeth Rosenthal deconstructs in “American Sickness: How Healthcare became Big Business,” our healthcare system’s most significant issue may be that it has built a value chain where each link competes against the others, rather than working together. The fragmented and siloed system does not have enough broad alignment, she argues, resulting in accelerating costs and inconsistent care hand-offs.
In this system, adjacent value chain links, from insurers to primary care to hospitals to medical suppliers to drug manufacturers, seek to optimize their profit and improve leverage. Most of these links are tasked each quarter with increasing their share of the pie, with no incentive to worry about the unsustainable growth of the overall pie.
The combined CVS/Aetna company could leverage massive amounts of data from Aetna’s medical claims and CVS’ retail and CVS Caremark’s pharmacy benefits management businesses. The combined company will have incredible negotiating power, particularly with drugmakers and wholesalers, to lower prices. This data should drive down hospital readmissions and guide chronic care treatment plans.
The Affordable Care Act sought to create alternative payment models including accountable care organizations—like the Baylor Scott & White Quality Alliance or Dr. Christopher Crow’s Catalyst Health Network—for population health management, in order to solve these issues. These organizations tie payments to quality metrics and are accountable to the beneficiaries for quality, cost, and overall care. The ACO model places financial responsibility on providers in hopes of improving care management and limiting unnecessary expenditures.
This Aetna-CVS merger is fascinating and potentially a tipping point, because it would achieve similar alignments, but from market-driven vertical integration rather than government incentives or regulation.
Insurers could not admit this, but they are occasionally incentivized to create obstacles to ration payment and access to care. This merger aligns many parties to provide the right amount of care at a low cost. It aligns the insurer, pharmacy benefits manager, and retail pharmacist, all supported by front-line nurses in health hubs across North Texas and the country.
Amazon Fears Driving Innovation?
Every industry is looking over its shoulder at how Amazon might disrupt its business. While the internet retailer has made no announcements, it notably has acquired several pharmacy licenses. The question is not if, but when and how, Amazon will enter healthcare. Rumors are rife around Amazon’s “secret” 1492 healthcare team that is believed to be looking at disrupting the $560 billion prescription drug market by reducing costs and improving price transparency while speeding up delivery. Oxana Pickeral, Amazon’s head of healthcare and lifesciences, recently explained in Boston how Alexa will connect the home and consumers with monitoring, ordering, and telemedicine access.
Is radical change coming to healthcare from fear of Amazon? CVS/Aetna’s vertical integration strategy, driving consumers into retail locations where they can own the relationship and sell other goods and services, sounds like something Amazon might employ. Let’s watch closely for further patents, licenses, and announcements out of Amazon, 1492, and Whole Foods.
Here are some other important things to watch for:
- Will the Department of Justice or FTC attempt to block the deal over anti-trust concerns?
- Will Aetna members be forced to buy in-network medications from CVS Healthcare pharmacies?
- What other mergers and acquisitions will this spur among retail pharmacies, insurers, and healthcare delivery? (United Healthcare just announced plans to acquire Davita’s 300 clinics for $4.9 billion.)
- What will Amazon do?
- How will primary care adapt in your community if CVS health hubs replace some of their services?
The accretive benefits of this deal are relatively modest, with CVS/Aetna expecting $750 million in near-term synergies. The longer-term bet is on reshaping localized care in nearly 10,000 neighborhoods. For centuries, healthcare has centered around the physicians’ location and schedule. We are now seeing healthcare consumers demanding improved service, price transparency, telemedicine access anywhere/anytime, and personalized medicine—all at the convenience of the patient. This merger will help CVS and Aetna take an interesting step toward meeting these market demands.
Hunter Howard is a graduate of Southern Methodist University and has founded four Dallas-based healthtech startups: Hormone Therapeutics, Therawell, Ocracoke Health, and MediGain. His companies have won three Dallas 100 awards and three INC 500 awards.