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CVS


The health care space, despite the inability of Congress to enact legislation, is rolling along in dog-eat-dog fashion with mega-mergers the biggest weapon combatants are using to fight off the competition.

News that CVS Health Corp. (NYSE:CVSC) plans to buy Aetna Inc. (NYSE:AETC) for $69 billion, combining two major health care players, is the latest example of that phenomenon.

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Cutting Costs

Pairing Aetna’s medical expertise with CVS’s physical-store presence positions the new company to curtail costs, according to the chief executives of both CVS and Aetna. Improving access and reducing cost are the goals. How those goals are achieved could be good news or unwelcome news for consumers, depending on point of view.

With 50% of the population driving 80% of cost, the merger aims to a find a more convenient and more effective way to meet customer needs according to Aetna’s Mark T. Bertolini. This translates to a plan to use CVS’s almost 10,000 locations to provide more local care options, especially in the chain’s retail clinics.

Potential Downside

Because Aetna and CVS offer different services, the deal isn’t likely to deliver as many cost-cutting benefits as mergers of like companies, according to analysts. That said the deal still must pass muster with regulators, which is not a sure thing given the fact the Justice Department sued to block AT&T Inc.’s (NYSE:TC) purchase of Time Warner Inc. (NYSE:TWXC), another vertical combination plan.

On the consumer side, some critics fear Aetna pushing patients to go to a retail clinic in a CVS when more advanced medical care might be needed. The companies see such a move as good because it discourages people going to the emergency room, a costly option for insurance companies.

Limiting Options

Other limitations could result from Aetna requiring patients to fill prescriptions through CVS pharmacies or its pharmacy benefits manager. If costs are lower, it’s a win for consumers. If competition is limited, it could drive up the cost of needed medicines.

Being allowed to fill prescriptions with only one provider creates a climate in which it could become all too easy to raise prices with no easy alternate options for patients. This could be one area regulators point to in weighing whether to approve the merger.

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Community Wellness Centers

The opposite view, of course, is that by combining two companies with different, but complimentary offerings in health care, the merger could result in 10,000 new community health centers where insured patients could go to get counseling, minor health care, fill prescriptions, have lab tests done and more.

The idea of community-based clinics is appealing since it would concentrate on preventative care as opposed to being treated once disease has already struck. Investors will continue to watch the potential as experts on both sides weigh in ahead of possible regulatory approval.



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