The CVS & Aetna Merger - Four Key Observations
There’s been a lot of boardroom discussion and debate about the impact of the $69B merger between CVS Health, the largest pharmacy chain in the US, and Aetna, the country’s third largest health insurance provider. While there are many questions about how this merger will impact healthcare in the short-term, the more interesting discussion is about how it will ultimately influence the delivery of healthcare five to ten years from now.
This merger will provide an environment for new business models to emerge and new ways healthcare will be practiced and delivered in the US.
I have four observations on the impact of this merger.
Key Observation 1: “Health insurance with a human face.”
One structural challenge of the health insurance industry is that its interactions with its customers are transactional, not relational. It doesn’t have a human face.
Most health insurance companies are experienced as big corporate behemoths. We don’t see or work with a representative from our health insurance provider unless we are talking to an anonymous call center representative, usually after a 30-minute wait on hold. There may be an insurance broker in the mix, but they’re usually talking to our employer.
There isn’t a retail store where individual employees or health insurance customers can sit down with a health insurance counselor. We might consult with our HR benefits manager at work, but that isn’t the insurance company.
With this merger, there is now a possibility of CVS offering a just-around-the-corner, community-based, human face to Aetna. This could have a significant impact on Aetna’s brand.
What Aetna inherits in this merger is CVS Health’s ranking as one of the world’s most admired companies in 2017 and number one ranked company in the category of healthcare.
Right now, CVS has 1,100 Minute Clinics across its footprint of 10,000 stores. Their stated goal is to expand their clinics to include every one of their facilities in the country.
CVS Health hopes to leverage its goodwill and its scale into becoming a leading healthcare provider.
Will this model of convenient, community-based healthcare expand to include health insurance counseling? If done right with a customer-centric design approach, Aetna could provide consumers with a simplified understanding of health insurance. This retail approach to selling a brand name insurance could truly be disruptive.
Key Observation 2: “Striking Data Oil”
One of the biggest benefits of the CVS Health/Aetna merger is the consolidation of health data.
There are many sources of data. Pharmacy prescription data, health insurance claims data, and electronic medical records (EMR) from the provider’s office. One of the biggest frustrations for those trying to understand population health trends, patient adherence or overall therapy effectiveness is how few of these databases really talk to each other.
Epic, CVS’s legacy database provider, will now have the opportunity to combine provider data (from the CVS Minute Clinics), pharmacy data (which products are actually prescribed and filled) and claims data (from Aetna), all in one place.
This scale of data consolidation will be a game changer.
Of course, there are inherent risks in a data repository of this scope and scale. Given the number of security breaches that data companies have experienced over the last several years, it is likely that this database will be a prime target of hackers trying to crack in and get access to all that data that is now conveniently stored in one place.
However, in terms of taking health analytics to the next level, this really is a gold mine. For the first time, machine learning will have the ability to look across multiple sources of patient data – not only health records but also behavior and compliance data – and create predictive algorithms.
This level of insight will be valuable for managing chronic diseases. It will provide the ability to identify which patients are potentially at risk. A pharmacist, nurse or a nurse practitioner at a Minute Clinic could be given a daily call list of four or five at-risk patients in their community to call and ask to come in.
This merger will provide the ability to create new, innovative and hopefully far-reaching new business models.
But will it reduce healthcare costs? There’s not a simple answer.
There will be back-office synergies between the two organizations that will allow some operational cost reductions, but it’s likely any cost savings will accrue to the joint company and the shareholders and will not directly benefit consumers and patients.
However, will this merger have a larger positive impact on healthcare delivery and population health over time? I think the answer to that is yes.
As we begin to understand both population health and precision medicine better we will be able to more accurately predict disease progression and therapy efficacy. This will have a profound effect on health in the future.
Key Observation 3: “Welcome to the Doctor’s Office.”
Over the next five to seven years, we will see a growing bifurcation of basic primary care delivery models into concierge and urgent care.
Today’s primary care physicians in private practice are overwhelmed. They have more patients wanting to spend more time than is available. Internists spend hours every night writing notes and downloading lab results. They are up early the next day making patient calls or responding to emails. The workload doesn’t slow down.
Finally, shrinking insurance reimbursements for primary care limit a practice’s ability to hire adequate support staff.
Primary care physicians often have long-term relationships with their patients, but given the increasing work load, it’s not a sustainable model for those in private practice.
At the same time, for patients, there is an increasing challenge in actually getting in to see a doctor when you are sick.
The answer for many physicians has been to close or sell their private practice and join a hospital system as an employee.
For those who remain in private practice, many will move to a concierge model where they care for 500 to 600 patients, not 3,000. Those patients who don’t want or can’t afford a concierge model will move to an alternate care model such as an urgent care center or Minute Clinic-type delivery platform.
In order for this alternate care model to work, Minute Clinics will have to create the ability to provide patient continuity of care.
Minute Clinics will require a significant investment in technology to transition from providing convenient, one-time services for acute illnesses to engaging with patients over time. It will require a commitment to patient relationship software that integrates EMR and pharmacy data. The caliber of nurse practitioner will need to increase.
This ability to manage patient health will become an advantage for Aetna. When it comes to managing chronic illnesses, if someone has a sore throat and they’re not quite sure whether it’s strep or whether it’s part of a deterioration in their chronic condition, they can get in and have their condition assessed quicker. Providing a more convenient way to support chronically-ill patients may help to keep them out of the hospital and may lower overall medical costs.
Once the clinical support technology and processes are in place to support continuity of care, then Aetna/CVS Health will need to invest in a patient engagement strategy to offer a best-in-class user experience and customer experience.
Starbucks does a great job of training and supporting their staff so you actually feel relaxed and comfortable. Frankly, if my local Starbucks barista can know me by name when I walk in, why shouldn’t the nurse practitioner at my local CVS recognize me when I come in, even when it’s just to pick up a gallon of milk?
Key Observation 4: “The Amazon Threat”
Although there are many positive opportunities in this merger, it also to check the box as a defensive move. It hasn’t been lost on any of the CEOs of large healthcare companies that Amazon is starting to make noise is about moving into the pharmacy space.
Amazon has pretty much crushed every retail sector it’s attacked. Once it decides to enter the pharmacy business, perhaps by launching a mail order pharmacy business or buying a small PBM, it will likely be the dominant competitor.
By acquiring Aetna, CVS Health may be attempting to use data and scale to build a moat around its pharmacy business.
But over the long term, Amazon may not ultimately be CVS’s biggest threat. It will likely be technology.
The Minute Clinics that CVS is building may only be relevant for another five or ten years. At that point telehealth will begin its ascendency. As digital-native Millennials gradually replace Baby Boomers as the largest demographic segment in the US, data-enhanced mobile video conferencing will become the norm.
I can envision a future in which a healthcare ecosystem (based on Amazon?) would offer telehealth services with nurse practitioners based in call centers, all while leveraging both EMR patient data stored in the cloud and real-time sensor information captured during the call. Prescriptions would be delivered through Amazon’s pharmacy delivery system.
That’s the ultimate game changer. And my guess is that CVS and Aetna see that coming. They’re trying to get out ahead of it by building a large-scale company that has the capital to begin to experiment in some of these new areas of healthcare delivery.
The business of healthcare, like consumer electronics, is becoming a contest of scale. Consolidation will aggregate customers and data in an attempt to bring efficiencies to healthcare delivery, own the customer and the channel, and maximize market share. The CVS/Aetna merger is a pure play of this growth strategy.
As consumerism takes hold in healthcare and patients assume more responsibility for their care, healthcare companies – both legacy and new economy startups – will need to create patient-centric business models. CVS Health and Aetna no doubt see the enormity of this trend and are looking to disrupt the industry on their terms. With the right kind of visionary leadership, this should be good for patients and for the larger healthcare delivery system.
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