Will CVS-Aetna Merger Mean Cheaper Health Care?

CVS agrees to buy insurance giant Aetna

AFP Getty Images A CVS Pharmacy drug store in Washington D.C

The drugstore chain CVS has reached a blockbuster agreement to acquire Aetna, one of the nation's largest health insurers. The company, which stopped selling tobacco products in 2014 to further burnish its image as a care provider, already runs about 1,100 clinics and has been steadily expanding the health care it offers.

Aetna Chairman and CEO Mark Bertolini has talked frequently about how most of a person's life expectancy is determined by genetics and location and not by clinical care, which is where health care spending is focused.

A CVS Pharmacy Store in the city of Fort Worth.

USA consumers stand to benefit from CVS Health's planned purchase of insurance giant Aetna, executives from the two corporations say.

And by teaming up, CVS and Aetna are following broader industry trends, said George Hill, a health care technology & distribution analyst with RBC Capital Markets. CVS Health Corp. will pay about $207 in cash and stock for each share of Aetna Inc.

The deal comes as healthcare payers and pharmacies are responding to a shifting landscape, including changes in the Affordable Care Act, rising drug prices and the threat of competition from online retailers such as Amazon.com (amzn). He and others on Wall Street expect the Aetna deal to fuel a health care services expansion for CVS.

A combined insurer and PBM will also likely be better placed to negotiate lower drug prices, and the arrangement could boost sales for CVS's front-of-store retail business. The company might open more clinics or add services such as eye care or hearing aid centers.

That could eventually cut costs substantially, with the clinics serving as an alternative to more expensive hospital emergency room visits.

While high prescription drug costs have been a concern of policymakers and patient advocates for some time now, it's not clear that even a beefed-up CVS would be able to tame the worst of the cost inflation.

Independent PBMs have always been criticized for potential conflicts of interest with insurance company clients, because they could potentially keep cost savings from drug negotiations rather than passing them on to patients. Others worry that consumers insured by Aetna might be restricted in where they can get health care or fill prescriptions.

CVS on Sunday said it planned to buy Aetna for $69 billion.

Customers should also expect lower prices, Merlo said.

Last year, large employers' concerns over two proposed mergers between health insurers Aetna and Humana Inc HUM.N and between Anthem Inc ANTM.N and Cigna Corp CI.N were a major factor in USA antitrust regulators blocking the deals.

A condition to an approval could be measures preventing Aetna from steering patients to CVS pharmacies over competitors such as Walgreens, said Rie, who noted that CVS may be better off if the FTC takes the review.

"CVS wants to be more than just a retail outlet", says Craig Garthwaite, a professor at Northwestern's Kellogg School of Management.

Pharmacies already provide vaccinations and blood pressure checks.

How much scrutiny the deal gets from the government may depend on which federal agency reviews the takeover - the Justice Department, or the Federal Trade Commission.

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