CVS bid for Aetna: A $66 billion bet on cutting drug costs
NEW YORK (Reuters) – The proposed merger between US pharmacy operator CVS Health Corp. and No. 3 health insurer Aetna Inc. represents a $66 billion bet that insurers can drive down high US drug prices by cutting out the middleman.
The move is the most expensive effort to date that would enable a national health insurer to take back full control of prescription medicines for their customers by negotiating prices with pharmaceutical manufacturers and setting customer out-of-pocket costs for each drug.
CVS, one of the largest US pharmacy benefits managers, has offered to buy No. 3 health insurer Aetna for more than $200 per share, sources said on Thursday. It could take at least several weeks for any deal to materialize.
If the deal happens, it would likely pressure rival insurers, drugmakers, pharmaceutical benefits managers and retail pharmacies to also consider mergers or switching partners to try to keep up with the potential health-care cost savings or increase in profit margins.
“It’s an alternate model at this point. It’s not clear that it’s definitely a better one,” BMO Capital Markets analyst Matt Borsch said. “More consolidation could lead to pressure on some of the brand-name drug prices and a better counterweight to the big pharma companies.”
For years, insurers paid drug benefits managers such as CVS and Express Scripts Holdings Co. to negotiate down drug prices, with both parties taking a share of any discount by the time a medicine was paid for by consumers.
But outrage over the high costs of drugs has grown as consumers have picked up a larger portion of the tab for drug costs, and it is threatening profit margins all along the drug supply chain, including manufacturers, distributors, insurers and pharmacies.
UnitedHealth Group Inc. and Humana Inc. currently have in-house pharmacy benefits businesses and say it has helped them keep medical costs down.
Anthem Inc. recently decided to go down that same path. It cut ties with Express Scripts during a $3 billion legal fight and said it would use CVS to build its own pharmacy benefits business in the next few years. That tie-up could now be at risk if CVS reaches a deal to buy Aetna, Leerink analyst Ana Gupta said.
CVS also provides management services for Aetna rival Cigna Corp. If CVS buys Aetna, that could revive Cigna’s interest in buying Humana, analyst Christine Arnold of investment bank Cowen & Co. said in a research note.
Aetna earlier this year closed the door on a deal with rival insurer Humana Inc. after antitrust regulators said that combination and a rival deal between Anthem Inc. and Cigna Corp. were anticompetitive.
The pharmacy chain Walgreens Boots Alliance could need to match its business model closer to CVS to attempt to stay competitive, Arnold said in a note, and may look at buying Express Scripts.
Jefferies analyst Brian Tanquilut said Express Scripts could also be a target for Amazon Inc., which is reported to be looking to get into the pharmacy business.
SWINGING PENDULUM
Over the past decade, health insurers have diverged on the value of the pharmacy benefits business.
Anthem sold its pharmacy benefit manager to Express Scripts and outsourced almost all of the business in 2010.
UnitedHealth took the opposite approach when it decided in 2011 to bring its pharmacy benefits management in house, then bought an even bigger stand-alone benefits manager, Catamaran, in 2015.
Humana operates its own pharmacy benefit manager, and Cigna and Aetna have hybrid approaches where they manage some parts in-house and outsource others.