CVS’s reported bid for Aetna would give the drugstore chain a strong position in the pharmacy benefits management market. It would also add to a series of moves CVS has been making in pharma, healthcare and health analytics.

In many respects, the deal with Aetna makes sense. CVS has expanded dramatically beyond its retail pharmacy roots since it got into the PBM business with its $21 billion purchase of Caremark in 2007. Aetna is already a client. Then, in 2015, CVS acquired the nursing home pharmacy operator Omnicare for $12.9 billion and Target’s pharmacies and clinics for $1.9 billion.

Buying Aetna would enable CVS to direct enrollees and clients to a variety of CVS-controlled services, bolster its PBM's leverage with drug makers and give the combined business a cost and data advantage. Of the more than 300 PBMs operating in the U.S., the top three — Express Scripts, CVS Caremark and Optum — already dispense more than three-quarters of prescriptions in the country, according to PBM consultant Gary Becker, CEO of ScriptSourcing, LLC.

A CVS store in Houston, Texas.
A CVS store in Houston, Texas. Bloomberg/file photo

A PBM is a third-party prescription drug administrator that contracts with health insurers, self-insured employers and others to manage a formulary, negotiate rebates and discounts with drug manufacturers, and process and pay prescription drug claims.

A CVS-Aetna combo would have an excellent role model in UnitedHealthcare, which has outgrown other large health insurers largely due to investment in Optum. That unit encompasses pharmacy benefit management, healthcare analytics and even ambulatory surgery centers. It has both directly driven growth and helped UnitedHealthcare's insurance unit lower medical costs.

CVS-Aetna would be strong competition for UnitedHealth Group. And it could also protect CVS if Amazon decides to enter the PBM business by adding diversification and a captive client base.

“They’re trying to do something similar as UnitedHealthcare; having a marriage with a PBM and keeping the money in-house, rather than sharing all that profit with another entity,” Becker says.

CVS is said to be offering more than $200 a share to purchase Aetna. CVS has a market value of about $75 billion; Aetna was valued at about $53 billion before surging on a report about the deal in The Wall Street Journal, which broke the news.

Spokesmen for Aetna and CVS declined to comment.

Healthcare activity
In addition to bulking up its pharmacy business, CVS has been making moves in the healthcare space.

CVS has long been operating MinuteClinic, a walk-in clinic found inside many retail locations that offers diagnosis and treatment of minor illnesses, injuries and skin conditions; administration of vaccinations, injections and health screenings.

CVS and electronic health record company Epic earlier this month said they are working on a strategic initiative intended to present clinicians with options for prescribing drugs that are less expensive and offer better opportunities for improved outcomes. Epic has a widely installed electronic health records system. Under the collaborative effort, CVS will use Epic’s Healthy Planet population health and analytics platform to generate insights around dispensing patterns and behaviors involving medication adherence.

CVS also teamed up two years ago with IBM to use predictive analytics and IBM’s Watson supercomputer to enable healthcare providers and insurers to better manage care for patients with chronic diseases. That partnership was designed to bring together IBM’s Watson Health Cloud and cognitive computing capabilities with both companies expertise in predictive analytics and patient engagement and help individuals stay on track with their care and health goals. It was unclear at press time where that effort stood.

But, there are a number of obstacles to a CVS-Aetna deal. The insurers would be the largest purchase CVS has ever attempted, by a significant margin. CVS only has about $2.2 billion in cash, and already has $26.8 billion in total debt. This deal would add a whole lot of leverage.

And running a health insurer would be a very different business for CVS. While the company does work with clients to bring down healthcare costs, it currently mostly deals with drugs and doesn't directly take on health risks as an insurer does. Insurers have a huge regulatory burden from both the federal government and states, as well as a great deal of political uncertainty from Republican efforts to reform insurance markets.

Bloomberg News contributed to this report

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