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CVS buys Aetna in deal that could transform healthcare

In Action Summary

CVS Health Corp, a major drugstore across the US is merging with Aetna for a total US$69bn in a bid to marry low-cost medical services in pharmacies with an established health insurer. This merger will mean Aetna and CVS will hold 22% and 78% of the new entity respectively.

The deal combines one of the US’s largest pharmacies with one of its oldest health insurers, whose national business ranges from employer healthcare to government plans. The combined entity will provide consumers with a better experience, reduced costs and improved access to healthcare in homes across the US.

CVS Health and Aetna will together help address the challenges in US healthcare system

Mark T. Bertolini, Aetna’s chairman and CEO, has said of the deal: “This is the next step in our journey, positioning the combined company to dramatically further empower consumers. Together with CVS Health, we will better understand our members’ health goals, and guide them through the healthcare system. Aetna has a proud tradition of continually innovating to address unmet consumer needs and providing leading products and services to the marketplace.”

Significance of the deal –

  1. Consumers – An integrated, community-based health care experience helping them better navigate the system to achieve their best health

  2. Clients – Helps to address growing cost of treating chronic conditions through broader use of data and analytics, leading to improved patient health at lower costs

  3. Health Care System – Reduces wasteful spending by promoting lower-cost treatments and helping to avoid costly hospital admissions.

  4. Investors – Accretion after the close of the transaction in 2018. Significant near and long-term synergies.

CVS and Aetna’s integrated healthcare platform offers better care and convenience at a lower cost

CVS plans to use its low-cost clinics to provide medical services to Aetna’s approx. 23m members. It further plans to provide assistance in vision, hearing and nutrition services.

The combined entity will also have a better place to negotiate lower drug prices through the economies of scale and CVS also plans to invest in additional clinics which will be an alternative for Aetna policyholders to the expensive emergency hospital visits.

According to Larry J. Merlo, CVS Health President and CEO, “This combination brings together the expertise of two great companies to remake the consumer healthcare experience. With the analytics of Aetna and CVS Health’s human touch, we will create a healthcare platform built around individuals. We look forward to working with the talented people at Aetna to position the combined company as America’s front door to quality health care, integrating more closely the work of doctors, pharmacists, other healthcare professionals and health benefits companies to create a platform that is easier to use and less expensive for consumers.”

Ultimately, this deal represents a continuation of the consolodation that has been seen in the US healthcare market recently in addition to delivering significant economies of scale for Aetna and CVS.

References

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