A Shakeup in the Pharmacy World as CVS, Amazon Reposition

The Wall Street Journal reported on Thursday that CVS Health is considering a possible $66 billion takeover of Aetna—the nation’s third-largest health insurer. The deal, if realized, could steer millions of Aetna’s members toward CVS retail pharmacies, walk-in Minute Clinics, and services (including home visits for infusion drugs) at a time when pharmacies are facing stiff competition. Neither company confirmed the report.

CVS is known for its 9000 national pharmacies, but an important part of CVS’s business is its pharmacy benefit manager (PBM) subsidiary that negotiates with health insurers to determine which drugs are cost effective and beneficial, and negotiates discounts from drug manufacturers. If the purchase of Aetna goes forward, it could potentially benefit Aetna’s 44.7 million participants because CVS could offer them lower co-pays if patients shop with them. CVS Caremark has access to customers’ pharmaceutical information and medical needs, notes Mohamed Jalloh, a spokesman for the American Pharmacists Association, so it makes sense that the company would want to expand into full healthcare. For example, the insurer could potentially use information from access to CVS Minute Clinics and retail stores to understand whether patients are complying with medication regimens.

Meanwhile, Amazon appears to be positioning itself for possible development as a PBM (or a partner with one). The St. Louis Post Dispatch reported that a review of public records shows that Amazon has acquired wholesale pharmacy licenses in at least 12 states, including Nevada, Arizona, North Dakota, Louisiana, Alabama, New Jersey, Michigan, Connecticut, Idaho, New Hampshire, Oregon, and Tennessee. Another application is pending in Maine. It is unclear whether Amazon is planning to move into prescription drug delivery, but analysts have raised the possibility that the company is exploring the lucrative business.

Amazon’s pursuit of wholesale pharmacy licenses strengthens the belief that it seeks to enter the drug supply chain, but it remains to be seen whether Amazon will buy or partner with an existing PBM or build such capabilities from within. New Jersey attorney and healthcare consultant Nicodemo Fiorentino, who alerted St. Louis Post Dispatch reporters to the wholesale licensing information, noted that Amazon would not be able to ship prescription drugs or devices directly to consumers; it still needs to obtain a pharmacy license.

The potential CVS—Aetna merger may be one of several signs that “the jig is up” for the PBM industry, said Adams Dudley, professor of medicine and health policy at the University of California San Francisco, in USA Today. “The idea of a PBM was that they would negotiate really well and really hard with the drug companies, and that the insurers didn’t have the knowledge or bandwidth to do that.” Dudley elaborated that it’s become apparent PBMs are not actually saving consumers money because the PBMs “keep all the profits themselves.”

Recently, Anthem Health announced that it is separating from Express Scripts, the largest PBM in the country, and teaming up with CVS Health to establish its own PBM, IngenioRX, which is to begin offering services in 2020.