CVS-Aetna deal has ‘potential to reshape the entire health plan market’

The rumored acquisition of health insurance giant Aetna by CVS was officially announced on Dec. 3, with the companies calling the $69 billion deal a “unique opportunity to redefine access to high-quality care in lower cost, local settings whether in the community, at home, or through digital tools.” Unlike Aetna's abandoned merger with Humana, analysts predicted it may actually deliver on promised benefits for patient care.

CVS said in a press release it would pay $207 for each Aetna share ($145 in cash and the rest in CVS stock), which is 29 percent above Aetna’s share price on Oct. 25—the day before the Wall Street Journal first reported the acquisition was being discussed.

The press release argued the combined company would create a “community-based health hub” at CVS locations while bringing together Aetna’s provider networks with 9,700 pharmacies and 1,100 retail clinics. Other promised benefits for healthcare consumers would include leveraging these CVS hubs for services like “medication evaluations, home monitoring and use of durable medical equipment” to cut down on hospital readmissions and better manage chronic conditions like diabetes.

“These types of interventions are things that the traditional health care system could be doing, but the traditional health care system lacks the key elements of convenience and coordination that help to engage consumers in their health. That's what the combination of CVS Health and Aetna will deliver,” CVS Health president and CEO Larry Merlo said in a statement.

Aetna would be run as a standalone unit of CVS and be “led by members of their current management team.” Current Aetna CEO Mark Bertolini, along with two more directors of the company, would join the CVS Health board.

“This is the next step in our journey, positioning the combined company to dramatically further empower consumers. Together with CVS Health, we will better understand our members' health goals, guide them through the health care system and help them achieve their best health,” Bertolini said in a statement.

CVS and Aetna did mention $750 million in near-term “synergies” resulting from the merger, without specifying whether that would mean cutting jobs at either company.

The deal looks promising to financial services company Moody’s thanks to the $245 billion in combined revenue and $19 billion in earnings before interest, taxes, depreciation, and amortization EBITDA). The combined company's diversified revenue stream and wide reach would give it “the potential to reshape the entire health plan market,” according to Moody’s Vice President Mickey Chadha.

“Combining Aetna’s membership data, technology and strong Medicare Advantage growth with CVS’s pharmacy operations including minute clinics and prescription drug programs is a compelling combination and could in time lower the overall healthcare costs for consumers,” Chadha told HealthExec in an email. “This is particularly important as a relatively small percentage of patients with certain chronic illnesses or intense medical needs account for a disproportionately high percentage of healthcare costs.”

The transaction would come with “significant weakening" of CVS’s credit metrics, Chadha added, since the deal will be financed largely by taking on new debt and comes with “high execution and integration risks.”

One of the biggest risks is gaining regulatory approval, which is where Aetna’s last proposed major deal—its $37 billion merger with Humana—stumbled, being blocked in court on antitrust grounds. Unlike those insurance mergers, however, there’s little existing overlap between the two companies, making the regulatory reaction harder to predict.

The deal could spur additional transactions in healthcare from outside companies such as Amazon or Walmart, which credit rating agencies have labeled as potential disruptors to the current healthcare market.