What About R&D? Examining the Impact of the CVS/Aetna Merger on the Pharma Market

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CVS-Aetna-Merger

Some commentators have suggested that CVS Health’s proposed $69-billion purchase of health insurer Aetna is in response to Amazon’s predicted push into the pharmaceutical market. The outcome could be their ability to offer lower-cost, more personalized and more efficient care. Will this mean they could, therefore, reduce Amazon’s disruptive clout?

Regulators will decide if the merger is in the market’s best interests. CVS claims that the deal will integrate the work of doctors, pharmacists and other healthcare professionals “to create a platform that is easier to use and less expensive for consumers.”

CVS’s move is a timely one, with the company reporting declining profits as consumers turn to online suppliers for drugs. And given Amazon’s dominance of online retail, it makes sense to strike a deal for the third-largest health insurer in the United States, giving CVS access to Aetna’s 40m customers, and allowing it to control everything that happens once a wholesaler has handed off a drug.

Possible outcomes of the merger

The deal looks to be a smart one for the companies involved – but is it good for the healthcare market in the long term? Much like the Amazon move into pharma, that’s a difficult question to answer at this stage. But, the CVS/Aetna merger is unlikely to yield improved outcomes for all.

The deal could be damaging for pharmacy benefit managers (PBMs) – CVS’s own benefits management subsidiary would no longer need to function as an intermediary – and eliminate these middlemen from the picture, therefore lowering consumer prices.

On the flipside, some have suggested that a market with fewer PBMs, due to consolidation, may actually force costs up. With fewer PBMs in operation, competition would be diminished, so there is less incentive to compete with each other by demanding discounts from drug companies. This may not be an issue for the remaining PBMs, as they could potentially profit from higher pharmaceutical prices.

There has been some speculation that the merger may mean less choice for patients – but this is unlikely to be a smart way of retaining customers in the long term.

One thing looks fairly certain from the merger – the companies would gain more negotiating power. Combining the power of a leading pharmacy and a top insurer would likely allow CVS/Aetna to negotiate more successfully for price discounts from drug and device manufacturers.

From the government and the consumer’s point of view, lowering the price of drugs is only ever a good thing. But what impact would a profit hit have on drug manufacturers? Would it ultimately mean less investment for R&D and innovation in the long run?

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Ryan Clark

Author: Ryan Clark

Ryan Clark is a strategic client director working on partnerships between CCC and commercial clients. Ryan has been with CCC over five years and has worked in rightsholder relations and business development prior to joining the strategic client group. Ryan enjoys spending time with his family, and following Bruins hockey and Ireland rugby in his time away from work. 

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