CVS and Aetna to Merge in Deal That Could Shake-Up Health Care Industry

A CVS in Bloomfield, CT. Photo by Mike Mozart. Licensed under Creative Commons 2.0 Attribution License.

CVS, owner of pharmacies, convenience stores, and a pharmacy benefits management company, has announced that it will acquire health insurer Aetna for $69 billion. If the deal is approved by antitrust authorities, it is likely to foment integration between CVS’ customer-facing business and the health insurance business of Aetna – allowing for CVS stores to become clinics and community medical centers.

The deal has been expected since talks between the companies started weeks before. The impetus was Amazon, who is poised to become a bigger player in CVS’ core business and potentially a player in delivering prescription drugs to Americans. That threat left CVS in a position that is familiar to most retailers: asking how to best compete with Amazon.com. The direction the company decided to pursue was to reinvent the company through the acquisition of a health insurer, which could leave it in a position to be a corporate leader in attacking the high health care costs present in the United States, where health insurance has stretched corporate budgets and left plans out of reach from many Americans.

It has been eleven years since CVS purchased Caremark, the pharmacy benefits manager, the last time CVS executives reimagined the future of the company in an acquisition most experts have deemed extremely successful. Pharmacy benefits managers are the middle-men between drug makers and the end consumers of prescription drugs, who have their prescriptions filled at pharmacies like CVS. They often administer the prescription drug coverage employers give employees as a benefit and use that purchasing power to negotiate with drug companies. Prior to the acquisition, CVS had been building its own pharmacy benefit manager, called PharmaCare, which when merged with the Caremark became the largest in the industry.

Hartford, Connecticut based Aetna is among the countries largest health insurers, insuring 23 million Americans in health as well as 14 million with dental plans. It currently earns more than $60 billion in revenue each year and more than $2 billion in profits.

 

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