Why the CVS-Aetna Merger Will Disrupt Retail Pharmacy Strategy and Healthcare Delivery

By Karen Tam, MBA, MPP, and Jeff Anderson, PharmD, BCPS, FACHE, GE Healthcare Partners

The news of the conditional approval of the $69 Billion CVS-Aetna mega-merger from the Department of Justice on Oct 10, 2018, re-ignites the debate as  to whether this trend of vertical integration between retail pharmacies and insurers represents a step toward improving wellness for patients and access to care or whether the merged entities’ ability to siphon off profitable revenue streams from traditional hospitals and health systems will leave patients with fewer choices and higher prices.

What's in it for CVS and Aetna?

CVS Caremark, owned by CVS, is one of the three largest pharmacy benefit managers (PBMs) that negotiate drug discounts on behalf of health plans.  Meanwhile, CVS has more than 9,800 drugstores and 1,100 MinuteClinic retail health centers staffed by nurse practitioners. Its partner, Aetna, maintains access to valuable health and usage data from more than 20 million health plan members that can be guided to low-cost services in the future. Executives from both companies cite their desires to help predict and prevent health outcomes before they occur through the integration of their extensive customer experience and patient claims data. However, consumer advocacy groups and some professional medical societies view the consolidation as harmful to consumer choice with the potential for additional price increases as the market shrinks to a few, powerful players.

Will the vertical integration of national pharmacy chains and insurers represent a formidable competitor for hospitals and health systems engaged in retail pharmacy strategies and population health risk structures?

Since reaching its apex in 2016 at 47 percent of U.S. hospitals operating an outpatient pharmacy, the trend has dropped to 39 percent in 2018 (1). However, this still accounts for more than one third of hospital and health systems having made significant investments in their retail pharmacy strategy as a strategic asset for many hospitals and health systems. Some of these systems have institutions which qualify for the 340B Program, which is a federal program that provides substantial drug pricing discounts for hospitals that meet specific qualifications, e.g., providing care for a disproportionately large amount of under or uninsured patients. Developing retail pharmacy strategies with these lower prices has been a very important business venture for these financially challenged hospitals. If these mergers direct health plan prescriptions to the corresponding retail pharmacy partner, it will harm these existing business ventures that these health systems have implemented to “balance the books.” As many hospitals and health systems couple other clinical services with their pharmacy strategy for additional revenue, the combined access of prescription drug utilization patterns, methods of delivery, and pricing data for CVS customers and Aetna health plan members can be used to direct valuable revenue streams away from health systems. By taking lucrative walk-in traffic from hospitals, these entrants can leave local and community providers with the highest-cost, most-complicated patients.

When it comes to the value-based approach of getting patients the right care in the right place at the right time, these types of integrations have the potential to disrupt providers that have assumed risk for the total cost-of-care for their patients. While hospitals and health systems continue to struggle to find financially sustainable business models to deliver clinical pharmacy services, CVS/Aetna can potentially out-compete traditional health systems on both cost and quality-of-care for low-acuity patients. If patients who receive their pharmacy benefits from CVS/Aetna are encouraged to fill their prescriptions at CVS, this might compromise health systems' ability to coordinate medication management for their patients. This is particularly evident in the high-margin specialty pharmacy environment with large commercial plans directing patients to their specialty pharmacy network, which may exclude the specialty pharmacies that are integrated within a health system to improve the continuity of care. For chronically-ill patients, this poses the biggest risk since it can lead to lack of medication adherence and increased complications.

What are the competitive advantages of these industry players versus traditional providers?

The first key advantage is access to large, complementary data sets. With nationwide data sets and better business intelligence capabilities than most health systems (combined with extensive marketing and consumer behavior change expertise) players like Aetna and CVS seek to improve health through data-driven health management by directing patients toward retail locations for lower-acuity, chronic care management. This has the potential of dis-intermediating health systems that are also seeking to enhance patient loyalty and play the central role in coordinating care.

Secondly, national pharmacy chains are already providing primary care, urgent care, and wellness services that are the gateway to additional clinical services. They are quickly becoming the neighborhood health destinations where additional clinical services can easily be cross-sold to consumers directly--either onsite or offsite. With an established set of network providers, CVS/Aetna can divert referrals to “preferred” providers that might be in direct competition with similar services health systems are trying to provide.

Thirdly, the extensive footprint and comparatively lower physical plant costs allow players like CVS to operate longer after-hours, improve access to care and potentially decrease traffic to emergency departments and health system-owned urgent care centers. Offering greater convenience to consumers at potentially lower costs will likely be attractive to consumers with lower acuity problems. The question remains, as to whether this ultimately reduces the total cost of care (2). The key will be whether the retail locations will choose to play a strong role in chronic disease management.

Do we expect more integrations, and how quickly should we expect the impact?

Yes, we expect more vertical integrations! With tailwinds from regulatory bodies adding another likely approval of the strategic combination between Cigna/Express Scripts and Walmart/Humana, we expect to see more formal strategic integrations between the PBM and health insurance industries. A solid trend is already emerging with pharmacy being an important component to other combinations. For example, Walgreens announced partnership with LabCorp on Oct 10, 2018, after its failed partnership with Theranos in 2017. Amazon’s acquisition of Pillpack in June 2018, signals another heated race in the e-health market as Amazon views online pharmacy as a key frontier in its bid to be the go-to source for anything a consumer might need in healthcare. 

There are still significant barriers that CVS/Aetna will have to overcome despite the competitive advantages they have over hospitals and health systems.

First, it will take time for these large players to integrate their data platforms, turning them into useable business intelligence. They will likely have to overcome additional legal hurdles for data-sharing.

Second, Aetna's decision to divest its Medicare B program with 2.2 million beneficiaries to WellCare, signals the health plan is aware of the legal scrutiny and negative public perception of a monopoly in the pharmacy benefits market. Other mega-mergers such as Cigna/Express Scripts and Walmart/Humana are also experiencing similar public and regulatory scrutiny. It will likely be a few more years before the impact of such mergers are truly felt. 

If all goes well on the data integration and public perception fronts, these mergers still must convince patients and their families to seek out these new product offerings outside of the hospital setting. 

What defensive strategies should hospitals and health systems deploy?

It’s not all doom and gloom for healthcare providers. Several strategies can still help health systems mitigate the impact of the 800-pound gorilla.

First, re-visit your 340B eligibility and status to lower your drug costs for qualified outpatients of participating institutions as this program provides considerable savings for covered outpatient drugs. Self-insured health systems with institutions participating in the 340B program can also develop strategies to qualify much of their retail prescription volume at a dramatically reduce cost.

Second, focus on closing any gaps in your medical therapy management care continuum. Consider any weak spots in clinical coverage, independent physicians in the market, and quality disparities. Employing advanced practitioners, pharmacists, infusionists, and radiologists can be an effective defense strategy for markets that have largely fragmented ancillary services providers.

Third, assure that your primary care access points are accessible, affordable, and consumer-friendly. This means flexible hours of operation, availability of virtual visits, and transparent pricing. Also, assure that the benefits of receiving care in your network are truly seamless, with integrated electronic health records and simple referral processes.

Finally, allowing for easier and faster visibility into the cost and utilization and referral data will further the investments you make to the three strategies listed above. Rather than focusing on more platforms that fit niche specialty needs, develop an organized data governance model, and deploy a concerted IT strategy that allows your organization to turn the data from multiple sources into actionable information to drive improved quality and cost management.

1. State of Pharmacy Automation 2018. Pharmacy Purchasing and & Products magazine - August 2018. Volume: 15 Number: 8. 

2. In a 2016 study published in Health Affairs, the authors found that improved retail clinic access drove increased utilization patterns, contributing to a $14/person/year net increase in total cost of care for low-acuity conditions. J. Scott Ashwood, et al. March 2016. Retail Clinic Visits For Low-Acuity Conditions Increase Utilization And Spending. Health Affairs. Accessed 2018. 

Jeff Anderson is a Senior Consultant-Pharmacy with GE Healthcare Partners. Jeff’s expertise is rooted in health system pharmacy leadership and operations, clinical pharmacy program development, medication safety, and education. He is a board-certified pharmacotherapy specialist (BCPS) and board-certified in healthcare management as Fellow of the American College of Healthcare Executives (FACHE). He may be reached at

Karen Tam is a Manager with GE Healthcare Partners specializing in the areas of hospital strategy development. She brings over ten years of experience in healthcare research and consulting, serving hospital executives and medical device company leaders in the U.S. and abroad. Karen has worked with multi-specialty health systems and community hospitals to develop strategic growth plans and redesign enterprise planning and activation processes. She has advised on projects ranging from hospital-physician strategies, network strategies to position for population health, service line growth, and governance structures. She has also led clinical transformation efforts for surgical and scheduling services. She may be reached at