US pharmacy chain CVS Health Corp has agreed to buy health insurance provider Aetna for a whopping $69bn, on a path to becoming a vertical provider of health services that can rival hospitals – using IoT-based connected health technologies to provide healthcare from its chain of stores. The first proposed deal of its kind, there is a fear that CVS rivals like Walgreens and Walmart will try to imitate the move – but CVS is planning on using its footprint to push preventative care services to consumers.
Eliciting strong reactions from many outlets, the merger is generally viewed as having questionable consumer benefits, as well as being a threat to hospitals and smaller drugstores. The largest US pharmacy chain would be taking control of the third-largest health insurance provider (covering some 23m citizens), which may trigger competition and market concerns from US regulators – in a country where some 18% of GDP is attributable to healthcare.
But CVS is wary of the threat of Amazon, which has made noises about entering the prescription drugs market, and increasing footfall in its stores through the healthcare services might be one way to stave off such an incursion. CVS’ existing Minute Clinics, which can carry out small tasks using nurses, provide a large barrier to the likes of Amazon, as building out or acquiring a comparable retail footprint would be hard and expensive – and a completely mobile workforce alternative sounds pretty unfeasible.
A combined pharmacy and insurer could be able to secure lower drug costs from suppliers, but CVS and Aetna believe that savings of $750m are possible in the second full year after the anticipated successful merger. The pair also say that they plan to invest billions of dollars in future operations.
With some 9,700 retail stores and 1,100 walk-in clinics, this footprint would allow CVS to provide many types of care and treatments to consumers, helping to keep them out of hospitals – reducing the payouts that Aetna would have to make for those unexpected trips. While this could be beneficial for general population health, those consumers will be bypassing the more traditional route of hospitals – depriving those incumbents of what are essentially billable customers.
Such a shift could be monumental in its impact, potentially moving non-emergency care of chronic conditions almost completely out of the hands of the hospitals – leaving them to provide in-patient and emergency services only. Conditions like diabetes, asthma, and heart disease, could all be managed by a company like CVS – using its footprint to provide easier ways for customers to handle their health.
Appointments outside of office hours could be booked using smartphone apps, and the phones themselves or in-store booths could be used to carry out remote face-to-face discussions with staff in the clinics – helping direct the prospective patient to the correct service. Devices such as wearables could also be used to collect ambient activity information that could be used in diagnoses or consultations, but CVS could go a step further.
Connected healthcare appliances such as blood pressure monitors, ventilators, or insulin kits could be given to patients as part of the out-patient care programs, allowing doctors to keep tabs on their progress. Things like blood tests could be done at the pharmacy, rather than in a hospital, which could also help free up hospital resources or lower costs.
Medication compliance (or rather, lack thereof) is one of the biggest costs to the healthcare industry, and when courses of medication can cost hundreds or thousands of dollars, there’s a clear incentive to develop things like connected pill boxes or dispensers to ensure that a patient sticks with a prescription – so that they don’t have to be readmitted to the system at a much greater expense.
These sorts of monitoring and adherence applications should help hospitals lower their costs, but for the likes of CVS, they are an opportunity to sell that cost reduction as a service to the hospitals – although the complexity of this ecosystem at macro-level means there won’t likely be a standard approach to this. Retailers, pharmacies, insurers, and hospitals could all find themselves pitching the same deals here – but CVS-Aetna will be incentivized to promote preventative care, to keep its own costs down, as it would be on the hook for those emergency care bills.
The other major benefit for CVS will be the combination of its retail data with Aetna’s customer records – and potentially new data sources agreed with hospitals too. When viewed at a macro-level, CVS could better understand outbreaks and regional trends, and use the analysis to be better prepared for seasonal diseases. If shared with hospitals, this is the sort of scenario that could save lives – helping smooth supply chains to ensure that the right medications are in the places where they are needed. CVS partnered with IBM’s Watson, to study outbreak data, back in 2015.
Hospitals lack the retail footprint that generates that kind of insight, but their own in-house analytics can provide similar views for epidemiology. But lacking the view out into the wider communities surrounding their hospitals and health centers means that these providers could be incentivized to enter data sharing agreements with the likes of CVS – although patient records are an incredibly sensitive area for regulation, and will have to be handled very carefully.
In combination, the data analytics and the out-patient care provision could enable CVS-Aetna to provider cheaper health insurance plans to customers – as preemptive and preventative care usually works out significantly cheaper than an emergency response.
For CVS, having patients inside its stores for longer could also boost plain-old retail sales too – although it makes most of its money through its Pharmacy Benefit Manager (PBM) relationship as a go-between for the health plan providers and prescription drug manufacturers. The Hill notes that it’s startling to think that CVS was able to use those profits to buy Aetna, at a time when the rising cost of prescriptions is a great concern.
There will be all manner of partnerships and integrations to negotiate between CVS and local hospitals – such as emergency admissions based on in-store consultations, or for patient record sharing. Hospitals may want to outsource aftercare to chains like CVS, and broker relationships with third-party device manufacturers that could offer medical-grade in-home monitoring using a series of sensors – perhaps also piggybacking on a Smart Home as a Service (SHaaS) platform.
But concerns remain about the quality of care that a consumer will receive from such a business, as well as the cost – as these businesses might prefer to pocket their savings, rather than return them to the consumer via lower costs. Given their large profits, neither company seems to have attempted the philanthropy of cutting costs yet, and so there are legitimate grounds to believe that they would begin doing so once merged – unless fear of a regulator could keep them in line.