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CVS said yesterday that it has reached a deal to acquire insurance company Aetna for about $69 billion. combining the drugstore chain with one of the nation’s largest insurance companies, a move that, as the New York Times says, could “reshape the American health care industry” and reflects “the increasingly blurred lines between traditionally separate spheres of the health care industry.”

The Times writes that “one of the biggest drivers of the deal is Amazon, which has quietly laid the groundwork for an entry into the United States’ pharmacy business. Jeff Bezos, the Amazon chief executive, and his e-commerce juggernaut have already overturned many industries: book buying, retail shopping, groceries and Hollywood, using fierce customer loyalty and enormous reach as cudgels against incumbent players.”

CNBC writes that “the acquisition of Aetna gives CVS more scale to bargain for better prices for the prescription drugs it sells. It fortifies Aetna's insurance business by creating the ability to offer its customers cheaper copayments, presumably only in CVS stores. Its vast retail footprint could serve as a cost-effective distribution center or locations for in-store clinics … For Aetna, the deal marks a change in strategy after its attempted tie-up with Humana was blocked by a federal court on antitrust grounds. A CVS deal would be a so-called vertical integration — an acquisition down a company's supply chain — rather than "horizontal," an acquisition of a direct competitor. Such deals are thought to be less threatening to antitrust authorities.”
KC's View:
I’m not that sophisticated in my understanding of how the health care industry works; like most people, I have my own experiences, and in many cases have found it to be amazingly responsive and in some have seen it be amazingly bureaucratic and tone-deaf.

That said, the reading I’ve done so far about this deal suggests that unlike many mergers, this one actually could lead to lower prices for consumers, which is no small thing at a time when health care costs are cited regularly as being a major problem in the US. In part, this is because a completed merger would get rid of a lot of middle men. The other reason is that the merger is seen as a direct response to what appear to be Amazon’s intentions … and Amazon’s approach almost certainly would be to disrupt the status quo and that would mean lowering costs.

One thing I would worry about here is how small independent drugstores will be able to survive if the acquisition goes through and all the other dominos fall. Sure, they may be able to offer better service levels and stronger community connections, but I have to wonder if that will be enough if there are fundamental changes being made in the health care industry elsewhere that are more easily and more affordably accessible by dealing with an entity like CVS/Aetna.