CVS and Aetna Merger

Healthcare Integration or Healthcare Monopoly?

Brooke Thomson

Mar 29, 2021

In November 2018 CVS Health (who owns both CVS and Aetna) acquired Aetna Health which according to NBC at the time was “blurring traditionally distinct lines in hopes of lowering costs.”

Earlier this year, the CVS Health CEO Larry Merlo stepped down and handed the position to Karen Lynch who had been the former CEO of Aetna Health. Merlo’s career started as a pharmacist over 40 years ago and aside from the merger he is most noted for CVS removing tobacco products from their stores. According to WSJ Karen Lynch stepping into the role will make CVS Health the largest company by revenue run by a woman.

Previously Aetna Healthcare did not participate in the Affordable Care Act. Before merging with CVS Aetna couldn’t support the low rates provided to patients by Obamacare. Karen Lynch’s decision for Aetna to participate in Obamacare comes right as Biden takes office with an emphasis on making health care accessible and affordable.

However, there could be a dark side to the said blurred line between a pharmacy owning a major insurance provider. A monopoly is when one provider has cornered the entire market for a certain product. What CVS Health has created is better classified as Vertical Integration.

Vertical Integration refers to a company controlling the assembly line chain from top to bottom. For example, Whole Foods will carry a variety of flour options from the basic to Bob's Red Mills, and then there's the Whole Foods brand "365 Flour". By hedging into the food production industry instead of just selling the product, Whole Foods is using Vertical Integration. It can undercut other flour producers by taking out the middle man (Bob's Red Mills) and double profit by selling it's own brand instead of being a distributor for other brands.

While Vertical Integration is not illegal, the biggest Supreme Court Ruling on Vertical Integration was Unites States vs Paramount Pictures in 1949. Through the 1940's major Hollywood studios owned every aspect of production to distribution. Writers, actors, directors, etc. were under strict studio contracts that lasted years and studios owned their own theaters. The Supreme Court ruled for studios to sell off their theater chains effectively removing Vertical Integration and changing the way the entertainment business was structured to present day.

Aetna could not participate in Obamacare to provide affordable coverage and still make a certain profit. So merging with CVS to create Vertical Integration is a solution to provide more affordable options without hurting business.

It may not seem like a big deal when we're just comparing which flour to buy; it actually makes buying flour a little more convenient and cheaper while increasing profit. But apply the same business model to a massive pharmaceutical retail distribution company who also supplies the health insurance needed to afford medication and now we have a conflict of interest that could hurt patients in need of prescriptions and health insurance. As of now this new business structure is in it's infancy, so it will likely be a little time before the consequences start to show for the average American to take notice.

That being said, there is one demographic already feeling the impact of this conflicting interest merger. According to Becker’s Hospital Review, America is seeing a stark increase in what we are referring to as “pharmacy deserts” where low-income communities don’t have access to convenient or affordable health care. According to Becker:

“After Aetna dropped Walgreens from Illinois Medicaid plan Dec. 1, the state's 400,000 Medicaid patients could no longer pick up their prescriptions at Walgreens pharmacies, a common chain with headquarters in a Chicago suburb. Illinois Medicaid patients can get their prescriptions filled at CVS, which owns Aetna."

Many low-income residents may find it difficult to access CVS pharmacies; a Dec. 30 Chicago Tribune report pointed out CVS "has no pharmacies in five key West Side neighborhoods" in Chicago.”

As America observes the police shootings that spawned Black Lives Matter protests a year ago, systemic racism isn’t straight forward but a direct consequence of conflicted interests merging such as CVS/Aetna. Mergers like CVS and Aetna predictably will impact low income communities while expanding CVS Health. In a time of COVID-19 vaccines being administered, communities with better access to pharmacies like CVS will once again be a step ahead in obtaining the vaccine (and creating more sales for CVS) while low income communities in a “pharmacy desert” will be left to fend for themselves.