Column: CVS-Aetna deal could have same result as telecom mergers

Oct. 31, 2017 3 AM PT

The news that CVS Health is making a $66-billion play for health insurer Aetna inevitably raises two key questions for consumers:

What would this do to insurance rates? What would this do to drug prices?

At this point, the answer to both questions is nobody knows for sure. We’re heading into uncharted territory. But here’s a thought:

Telecom giants AT&T and Comcast are the two largest pay-TV service providers. They’re also purchasing or have already acquired major movie and TV studios, giving them control over both content and the networks that make that content available.

Has anyone’s pay-TV bill gone down?

Exactly.

As of Monday, CVS and Aetna hadn’t confirmed they’re climbing into bed together. But they hadn’t denied it either as reports of an intended marriage grew in number and credibility.

Some healthcare experts see CVS and Aetna complementing one another and being able to provide greater convenience to consumers.

“It might be similar to an airline buying a rental car company, so it can offer package deals to its customers,” said Gerald Kominski, director of the UCLA Center for Health Policy Research. “This is a bold move that is more likely to benefit customers.”

Others aren’t so sure.

“This is not good for consumers,” said Gerald Friedman, a healthcare economist at the University of Massachusetts Amherst. “They will be lucky to be no worse off.”

The Wall Street Journal, which first reported the deal last week, said the chief executives of the two companies met multiple times to hammer out an agreement over the last six months.

The U.S. healthcare system is in a state of flux as President Trump and Republican lawmakers try to dismantle Obamacare. Many health service providers have looked to mergers as a way to protect market share and negotiating clout.

Hospitals, insurers, pharmacy benefit managers, drugstores, drug makers — no segment of the industry has been shielded from the winds of consolidation. And in most cases, the motivation has been corporate self-interest, not the interests of patients.

For instance, Walgreens is buying nearly 2,000 Rite-Aid stores for $4.4 billion. Meanwhile, Anthem is partnering with CVS to create a new pharmacy benefit manager, or PBM, to bargain more aggressively with drug companies for the lowest prices — although it’s unclear how much of any savings would be passed along to consumers.

Then there’s the Amazon factor. Speculation is growing that the e-commerce behemoth is preparing to enter the prescription-drug biz, probably by opening an online pharmacy and perhaps also by acquiring its own PBM.

It goes without saying that the prospect of competing with Amazon scares the bejeepers out of the big drugstore chains and PBMs that run their own online pharmacies.

“Amazon would be a huge purchaser of drugs and that by itself might place competitive pressure on pharmacies and insurers to merge,” said Anupam Jena, an associate professor of healthcare policy at Harvard Medical School.

Don’t be surprised if Walgreens and Wal-Mart also begin casting about for their own insurance bedmates. The upside to such mergers for major drugstores would be to lock in the insurer’s policyholders as steady customers, thus adding millions of prescriptions and avoiding competition.

In buying Aetna, CVS would gain access to about 45 million policyholders. Even if it doesn’t require that they fill prescriptions only at CVS, which almost certainly would raise regulatory red flags, it could offer an attractive discount to Aetna members — a we-are-family sort of thing that locks in their business.

“The big thing I’d expect to see is Aetna trying to steer patients to CVS to fill prescriptions,” said Andrew Friedson, a healthcare economist at the University of Colorado Denver. “CVS-Aetna could offer discounts to incentivize patients to go there. They’d easily make this up via increased volume.”

He added: “Notice that it’s CVS buying Aetna and not the other way around. My guess is CVS wants the referrals, just like hospitals do when they buy physician practices.”

In a sense this sounds like a return to health maintenance organizations, or HMOs, those one-stop-shops that were designed for efficiency, but frequently provided sub-standard care to save a buck. Kaiser Permanente is one of the few that managed to get it right.

The new wrinkle is that instead of a hospital system offering its own insurance — the foundation of the HMO model — now we’re looking at drugstores in the driver’s seat. It doesn’t take much imagination to imagine CVS-Aetna next going after a hospital chain.

Friedman at the University of Massachusetts expects the trend to continue.

“The hidden story in healthcare is the monopolization of services,” he told me. “It’s about integrating the health process and avoiding competition.”

I suspect we’ll hear a lot from the healthcare industry in days ahead about cost savings and empowering patients.

Just like telecom companies insist every time a new merger is announced that it’s all about meeting customer needs.

In 1995, the average cable bill was just over $22 a month. Now it’s more than $100. From 1995 to 2015, price increases for cable outpaced inflation every single year, according to the Federal Communications Commission.

So who thinks they’ll soon be paying less for health insurance or prescription meds?

Exactly.

David Lazarus’ column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5 and followed on Twitter @Davidlaz. Send your tips or feedback to [email protected].

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