I\u2019d like to take a small detour with our blog series on Silicon Valley and Healthcare and talk more about Amazon indirectly, and a lot more about the recent announcement of CVS\u2019s acquisition of Aetna.<\/p>\n
In brief, and as best as I can gather, Aetna has (approximately):<\/p>\n
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CVS has (approximately):<\/p>\n
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Some of the headlines we have read have talked about how this merger would reduce cost and expand healthcare access. \u00a0One such headline was from the New York Times<\/strong>, \u201cCVS and Aetna Say Merger Will Improve Your Health Care. Can They Deliver?\u201d<\/em><\/p>\n We have thought about this a great deal and are very doubtful. \u00a0First, I doubt that the PBM (Pharmacy Benefit Managers)\u00a0and pharmacy mergers reduce cost. \u00a0We have two we can point out; one was the merger between CVS and Caremark in 2007, and the second was UnitedHealth\u2019s acquisition of OptumRX in 2015. \u00a0Did anyone see prices drop?<\/em><\/p>\n The challenge (in part) with PBMs is that they are perceived to be in a world that is not transparent to the consumer or even to the payors. \u00a0Recently, Anthem got into a major fight with the last remaining big PBM, Express Scripts. \u00a0Just two months ago, it was announced that Anthem would partner with CVS to create a new PBM.<\/p>\n My first question is: \u00a0Will Anthem, the largest insurer, continue with a relationship with the largest pharmacy, second or third largest PBM, and now towing the third largest HMO insurer in the country?<\/em><\/p>\n The agreement is set to be operational July 1, 2020. \u00a0If the merger between CVS and Aetna is closed, I am willing to bet that Anthem will pull out of the deal.<\/p>\n Since the passing of the Affordable Care Act of 2010 (ACA), my perspective of Washington D.C. from afar senses that the idea for the last seven years has been perceived that the largest systems have more purchasing power and therefore, could provide lower cost and\/or better care.<\/p>\n You can point to the prior approval of the merger between Express Scripts and MEDCO; two large PBMs that became the largest. \u00a0You can also apply that same argument to the tens of thousands of providers acquired by hospital systems. \u00a0Have we seen any reduction in healthcare cost?<\/em> \u00a0I am convinced that generally in most cases those hospital\/physician mergers have created more expensive healthcare delivery systems.<\/p>\n Previously, we wrote about the proposed merger of Aetna and Humana and the Anthem and Cigna merger. \u00a0Eventually, both were blocked. \u00a0I love the managed care companies as an industry \u2013 the best care is always local.<\/p>\n PBMs, as large as they are, have nearly no direct consumer presence. \u00a0The consumers are not theirs, they are intermediaries for the payors, HMOs and\/or insurance companies. \u00a0On the other hand, Amazon in my eyes, is still the monster than can disrupt the industry.<\/p>\n Let me make my point\u2026 using the public financial numbers from Express Scripts, they generate about $100 billion (USD) in revenues with a net profit margin of 3.41% or about $3 billion.\u00a0 Amazon has annual revenues of about $200 billion (USD), and they have a net profit margin of 0.60%. \u00a0Are you starting to see my point?<\/p>\n Don\u2019t try to figure out IF Amazon can improve based on the key strengths I discussed previously \u2013 the best in logistics, supply chain management, payments, transparency, data analytics and lastly consumer centric<\/em><\/strong> \u2013 than anyone else in healthcare today. \u00a0I would also bet they can run a more efficient operation by using more technology. \u00a0Would any one challenge that last part?<\/em><\/p>\n The obvious part, is that Amazon can also likely negotiate better with pharma, have lower cost in all those things they are naturally good at, and they can also operate with 75% or less profit and still be the third, fourth or fifth most valuable company in the U.S.<\/p>\n Healthcare is getting disrupted by technology today and that disruption is just getting started.<\/p>\n Finally!!<\/p>\n https:\/\/www.nytimes.com\/2017\/12\/04\/health\/cvs-aetna-merger.html<\/a><\/p>\n