Benefits of CVS/Aetna merger likely to remain elusive for patients and consumers

With the recent $69 billion acquisition of Aetna insurance by CVS — the largest health care merger in our country to date — speculation immediately ignited over how this would impact consumers. The merger, expected to be finalized next year, must still be approved by shareholders and federal regulators, but at issue is how a retail pharmacy giant with 10,000 locations merging with a company insuring over 22 million will affect how Americans receive health care, as well as its cost and quality.

At the press conference heralding the merger, company CEOs Larry Merlo and Mark Bertolini assured the gathering that combining their collective data with CVS’s retail footprint would increase access to health care while lowering costs.

{mosads}CVS already has 1,100 “Minute Clinic” locations that provide basic patient services, and plans to add to this number through expansion and remodeling current stores. Health care costs are “unsustainable,” Merlo said.

The major move for CVS/Aetna is to compete with hospitals. With the convenience of their nearly ubiquitous brick and mortar locations and an expanding offering of preventive and basic health care services (blood-draws, diabetes treatments, etc.), the blueprint is in place to draw patients to their stores for treatment of minor illnesses and injuries, and away from ERs.

Now on the hook for the costs of their insured, CVS/Aetna has both the motivation and means to offer preventative care that over time, they maintain, will keep medical expenses down.

The potential partners are trumpeting what they believe is a key innovation in health care: Easier access to its locations, combined with better patient data, leads to more preventive care, resulting in overall health care savings. This “soup to nuts” approach (minus hospitals) will put the merged company into the thick of managed care. The question remains, will consumers see any of the savings, and what quality of care are they in line to receive? These issues remain murky, but there are plenty of reasons to be skeptical.

A significant reason to have doubts is that CVS makes most of its profits not from its retail chain, where sales are slipping, but as a pharmacy benefit manager (PBM) with its Caremark division, acquired in 2007. PBMs have become the primary intermediary between drug manufacturers and health plan providers, and as CASE has noted on this website, a culprit in the spiraling costs of prescription medication.

Indeed, it’s startling to think that, largely through its colossal PBM profits, CVS was able to pay $69 billion to acquire a major insurer such as Aetna, when it was health insurance providers like Aetna that dominated the market a mere decade ago.

Consumers are now supposed to accept that a company who kept its pharmacy negotiations hidden from view as it padded its bottom line by billions is now going to lasso health care costs on their behalf? Certainly there is nothing wrong with earning profits in health care, even significant ones, but the manner in which these profits were earned does matter, especially in the wake of such a significant merger.

As one health care analyst noted, CVS and Aetna are health care “behemoths,” and had ample time to address mounting costs for consumers but have yet to act. The CEOs sympathizing with consumers who “fall between the cracks” is all well and good, but this marriage is at its very core about survival in the shifting health care environment, and maintaining profitability.

With Wal-Mart already undercutting prescription prices and Amazon set to enter the pharmacy business, CVS/Aetna needs to offer services others can’t to survive. Whether savings for consumers enters the mix is something that has yet to be made apparent.

Another reason for skepticism regarding this new model is that it’s not really all that new. As Carnegie Mellon health economist Martin Gaynor told the New York Times, roadblocks from existing providers haven’t led to consumer savings yet in CVS clinics, even when people found access improved. “What are they going to do different here?” he asked.

And then there is the issue of continued health care consolidation, as it is expected that the CVS/Aetna merger will lead to more such arrangements. As Forbes states, “deals beget other deals,” and the CVS/Aetna deal, a vertical integration between customer and supplier, will be a template going forward. Consolidation would limit market competition, leading to much less downward pressure on costs for consumers. If ExpressScripts, the last non-integrated PBM, should join forces with a supplier, for example Walgreens, more than one analyst has speculated there will be less incentive for PBMs to undercut each other in their prescription drug deals with manufacturers, leading to higher patient costs.

Consolidation didn’t lower costs when the country’s largest private insurer, United Health Group (UHG), merged with a PBM ten years ago to form what is now OptumRx. The years since have seen a significant surge in health care costs, prescription drugs especially.

There’s no reason to believe that further integration of the industry will lead to meaningful consumer savings. Although there is reason to believe that mega-mergers will make it even tougher for new competition to enter the market, another blow to consumer choice.

Consolidation can make it harder for patients to go outside their network, further limiting consumer options and keeping patients locked in what some refer to as “health care kingdoms.”  Neither CVS nor Aetna has much of a record of successfully controlling costs.

Coupling that with the non-existent record of industry consolidations offering any cost benefit to patients, and this massive merger, which some have heralded as transforming health care, may in the end be just more of the same. For consumers facing spiraling and opaque health care costs, as market competition shrinks, there’s more than enough reason to be skeptical that much is transforming positively for them.

Gerard Scimeca is an attorney and Vice President of Consumer Action for a Strong Economy (CASE), a free-market oriented consumer advocacy organization.