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The CVS-Aetna Merger: Who Wins and Who Loses?

December 3, 2017, 10:47 PM UTC

After weeks of speculation and rumor, news broke today that drugstore chain CVS is close to a $35 billion deal to buy insurance provider Aetna. It would be the year’s biggest merger, as well as a novel one, with complex consequences. Here’s a rundown of the most important stakeholders, and what the deal might mean for them.


Pharmacy stocks have been badly spooked lately by swirling expectations that Amazon will eventually get into the business of filling prescriptions. It’s likely a big reason behind this deal, as CVS braces for the kind of shakeup Jeff Bezos has brought to other pure retailers (remember Border’s?)

That makes the Aetna deal at least partly “defensive,” and it really could slow Amazon’s plans. For instance, Aetna customers might be incentivized to buy their pills from CVS. CVS is the largest pharmacy in the country, so that could be more than a rounding error, even for Amazon. They’re a loser here.

Legacy Competitors

This is not good news for Walgreens or other retail pharmacies, primarily because it gives CVS more durability and flexibility through diversification. There could also be, again, some pressure on Aetna customers to get their drugs from CVS. That sort of behavior in other sectors can make regulators see red (see: Microsoft using its Windows operating system to quash web browser competitors), but we’re in uncharted territory, so it’s at least a possibility.

Dark talk is also swirling around Express Scripts, which the CVS-Aetna deal would leave as the last major independent pharmacy-benefit manager, according to Bloomberg. Companies like Express Scripts manage drug benefits and pool drug orders to negotiate better pricing for clients, but spreading vertical integration could mean they make less sense as standalone companies.

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The Health Care System

More than just a pharmacy, CVS wants to be, in the words of CEO Larry Menlo, a company “helping people on their path to better health.” Merging with Aetna would give CVS control over more of that path, and big options for making it more cost-effective. In the most obvious example, CVS already runs walk-in clinics at many of its locations. Those clinics aren’t intended to treat serious ailments, but they can make it more convenient for patients to treat the small ones before they become big, or give them an alternative to going to the (expensive) emergency room with a cold.

Even small incentives for Aetna subscribers to adopt those behaviors could mean huge cost savings, and even improve patient outcomes. Those are vital goals that recent political debates over health care have rarely bothered to seriously address.

If CVS-Aetna works, it could provide a model for other vertical mergers, with systemic cost-saving effects. If it doesn’t, it’ll be a lesson learned. Either way, the U.S. health care system benefits.


Of course, that’s a double-edged sword. Participants in other comprehensive health-care programs, such as HMOs, sometimes complain that limited access to services – or even denial of care – can be a negative consequence of the push to cut costs. So whether patients wind up better off is a bit of a tossup, and even years from now it may be in the eye of the beholder.

That said, CVS has made some meaningful decisions recently that genuinely seem to put their customers’ health first. Most notably, they stopped selling tobacco products in 2014, and it may have actually helped people quit. So maybe – just maybe – we can expect them to prioritize patient care as they take greater responsibility for it.

The Competitive Market

The potential cost savings of vertical integration in health care are good in theory. But there’s a bigger question – is the CVS-Aetna deal anticompetitive? The Justice Department earlier this year blocked a merger between Aetna and Humana, saying it would reduce competition. Regulators also scaled back another merger, between Walgreens and Rite-Aid.

But this merger is a different animal, with former suppliers and customers, rather than former competitors, becoming one company – in the jargon, it’s a vertical merger, rather than a horizontal one. Nothing exactly like it has been tried before, and as the Economist points out, the new company would still have meaningful competition in all of its business lines, so the experiment could actually be good for innovation and efficiency.

The market wins here, at least in the sense that the merger would likely keep competition intact.