Hello, readers! This is Sy.
On Sunday, CVS and Aetna announced what would be one of the largest health care deals of all time. The retail pharmacy giant agreed to buy the health insurer—one of the biggest in America with more than $63 billion in 2016 revenues—in a deal valued at $69 billion. And, if approved by the companies’ boards and federal regulators, the corporate marriage has the potential transform the way the health industry does business and how millions of Americans receive their medical care.
Consolidation is certainly nothing new in the U.S. health care sector. Traditional pharmaceutical giants regularly scoop up leaner, meaner biotechs to insource drug innovation; hospital chains join forces to grapple with shifting reimbursement models. But, within the insurance industry, recent attempts to integrate horizontally—such as Anthem’s bid for fellow insurer Cigna and Aetna’s proposed deal for rival Humana—have faced roadblocks over antitrust concerns. Both those proposed M&As died following regulatory pushback.
Those failures may be, in part, what helped prompt a different kind of consolidation strategy for CVS and Aetna. Unlike going horizontal within their own industries, a deal with each other would present a more diversified consolidated company that moves vertically through the health care supply chain and could provide consumers with a new kind of health care experience, the firm’s top executives argue. CVS’ pharmacies and in-store MinuteClinics would gain access to Aetna’s millions of plan holders, including its giant footprint in the employer health coverage market; Aetna customers would be able to walk into a local CVS pharmacy to discuss primary care treatment options and get their prescription drugs without having to trudge through the various middlemen that pepper America’s fragmented medical system. Consider: CVS is also one of the largest pharmacy benefit managers in the country through its Caremark arm, so insurance coverage, filling prescriptions, and treating chronic health conditions like diabetes could all be housed under one company.
“[I]t’s really the perfect time to bring these two companies together, to create a new health care platform that can be easier to use and less expensive for consumers, and really create a new front door to health care in our country,” CVS Health CEO Larry Merlo told CNBC on Monday. Aetna chief Mark Bertolini added that there would be about 10,000 of these new “front doors” created by the merger thanks to CVS’ ubiquitous pharmacies and clinics. (My Fortune colleague Phil Wahba has a great piece on what CVS stores could look like if the Aetna deal goes through.)
One broader result of the deal may be an even larger push for cross-sector mergers—especially with the specter of Amazon reportedly vying for a foothold in the pharmacy business. Leerink Partners analyst Dr. Ana Gupte has argued that a successful CVS-Aetna M&A could spur Wal-Mart to pursue a deal with insurer Humana, with which the retail titan has a long-standing relationship.
But the critical question will be whether such deals will ultimately prove fruitful for patients. Merlo and Bertolini say the cost-savings and efficiencies will clearly cut costs for consumers. Critics, though, point out that driving customers to fewer and fewer options across the gamut of health services could prove risky for them in the long run.
Read on for the day’s other news.
A prescription video game for treating ADHD. A clinical trial of children with ADHD suggests that prescribing them with special, tailor-made video games could help control the behavioral condition. In fact, the company, Akili, is planning to file its “digital treatment” for Food and Drug Administration approval in what would be a first-of-its-kind clearance. (Reuters)
Sanofi’s dengue vaccine is in the hot seat. Sanofi’s landmark dengue vaccine is under fire following reports from the company that the product could actually worsen the condition in people who have never had it in the first place (although effective in in preventing those who have already been infected from contracting another strain later on). The Phillipines has suspended a mass immunization campaign of Dengvaxia and launched an investigation into it, while Sanofi has said it will cooperate with probes into the vaccine. (Wall Street Journal)
THE BIG PICTURE
States and families are getting anxious about the Children’s Health Insurance Program. The Senate passed a sweeping tax reform bill—with many implications for U.S. health care, since it would gut Obamacare’s insurance mandate—last week. But Congress appears no closer to reauthorizing the Children’s Health Insurance Program (CHIP), which covers the medical needs of nine million children in low- to middle-income families, prompting rebukes from state health officials and families covered by the program as funding threatens to dry out in many regions by year’s end.
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|Produced by Sy Mukherjee|