Expect more mergers between health plans and pharmacy entities
CVS’s announcement to acquire Aetna for $69 billion is only one of many recent healthcare service deals that totaled $75.9 billion in value at the end of Q3 2017, compared to $71.3 billion for all of 2016, according to PricewaterhouseCoopers. Across the industry, companies are increasingly leveraging these strategic partnerships to enhance data sharing, develop economies of scale, stay abreast with competition and improve patient outcomes.
But, while many mergers are between various types of providers or health plans, the CVS/Aetna deal combines one of the nation’s biggest health insurance companies with drugstores, clinics, and prescription-distribution operations. The perceived benefits of this merger are likely to encourage organizations seeking M&A to consider consolidating with their contracted pharmacy entities.
Pharmacy and medical benefits have historically been managed separately — the former by contracted organizations like pharmacy benefit managers and the latter by health plans. Each party uses different data sets, which are difficult to merge because of a lack of system interoperability and limited resources available to learn both languages. PBMs track detailed pharmacy data with which they can analyze dispensing trends, medication adherence and utilization for high-risk members. However, linking this data to long-term medical outcomes — such as future reduction in hospital spend and visits for a chronic condition — is complex. PBMs are largely measured on their ability to minimize costs, and are not incentivized to tie their services to value. When transferring data back to the health plan, PBMs will provide detailed trend reports on pharmacy spend and utilization, but rarely share more than ad hoc access to granular pharmacy data. Thus, health plans will lack detailed pharmacy data, a critical component to understanding a patient’s history and overall experience with the healthcare system.
CVS/Aetna will now manage both medical and pharmacy data. We recently discussed how data sharing will help CVS/Aetna provide more personalized patient care. If the two systems are interoperable, CVS/Aetna will have a complete set of data, including patients’ medical histories, pharmacy utilization and adherence, and certain social determinants of health. This move will eliminate discordance between the PBM’s and health plan’s medical management teams, and it will help the organization develop widespread evidence-based best practices to improve population health and reduce downstream spend.
CVS has acknowledged these data enhancements as a factor for the merger and a foundation for creating a more individualized care experience, reducing potentially preventable hospital readmissions, improving care coordination and chronic disease management, and ultimately reducing unnecessary spend.
Combining pharmacy and medical benefits also has operational benefits. With greater control over two critical and generally disparate areas of the healthcare supply chain, CVS/Aetna can better manage supply and demand and develop efficiencies to expedite and optimize operations. For example, they will have greater insight into provider prescribing and member utilization behaviors, in addition to the outcomes of these activities. Using predictive analytics, CVS/Aetna can determine the highest value, lowest cost prescriptions for certain disease states and better manage the inventory and fulfillment of these supplies. Real-time inventory tracking will facilitate the supply chain, providing quicker access to certain prescription and other items for care. These efficiencies can benefit both the organization and consumers, reducing waste and costs due to more streamlined processes and improving customer loyalty and patient satisfaction due to more timely care.
Finally, the vertical merger strategically prepares CVS/Aetna for looming competition from e-commerce giants and large technology companies. Many providers and payers are concerned that they will not be able to independently compete with companies discussing entry into the healthcare industry — such as Amazon and Google, both of which have massive reach and streamlined operational capabilities.
Although CVS manages nearly a quarter of pharmacy claims in the US and CVS Caremark is one of the country’s biggest PBMs, the potential market share of Amazon and the convenience of its services could threaten the organization. Now that CVS Health will acquire Aetna’s health and engagement model, targeted wellness solutions, and provider collaboration capabilities, they stand to be a strong competitor if and when companies like Amazon enter the market. Consolidating the two organizations also has potential to result in more competitive contract rates, better prices for patients and better outcomes that may result from any value-based contracts within the organization.
With all of the aforementioned benefits, and market and regulatory pressures likely to continue, we anticipate this merger to be the first of many partnerships to include pharmacy in consolidation efforts.
Ana Gupte, a senior analyst at Leerink Partners, predicts that a similar merger between Walmart and Humana is on the horizon. Gupte notes that Humana and Walmart have established a close relationship over the past six years and that Humana members already receive deals on prescription copays at Walmart pharmacies.
We expect that new competition from CVS/Aetna will likely create a reaction among health plans and PBMs like Express Scripts and MedImpact, which have not yet merged with large insurers. The CVS/Aetna merger should provide valuable insights for any similar mergers and should encourage other health plans and providers to consider incorporating PBMs into their consolidation strategies.