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The CVS-Aetna Merger Is A Mortal Threat To U.S. Hospitals

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CVS Health’s proposed acquisition of Aetna is designed to keep patients out of the hospital for as much care as possible while escalating the move away from fee-for-service medicine to value-based care.

CVS plans to expand services in its pharmacies and retail clinics, and even deliver care to customers' homes as a way to capture patients in lower cost settings and save premium dollars paid by Aetna clients, employers and those covered by Medicare and Medicaid insurance.

This is bad news for the nation’s hospitals, which still see millions of patients in their emergency rooms and provide care for ailments that CVS and Aetna executives say could be avoided or directed to an outpatient location.

“What they lack is the element of convenience and coordination,” CVS CEO Larry Merlo said of healthcare consumers . “When we talk about this unmet need, that’s really the unmet need that we’re filling."

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CVS and Aetna want to see patients getting the right care, in the right place and at the right time rather than the fee-for-service system that encourages treatment by volume and adds to healthcare costs. The shift to value-based care and population health means more use of CVS Minute Clinic nurse practitioners, a nutritionist in the home or a pharmacist at the drugstore counter administering a vaccine or providing advice on the most effective medicine.

All of the services CVS provides now and in the future will be to the detriment of the nation’s large hospital operators like Tenet Healthcare, HCA Holdings and Community Health Systems and the nation’s nonprofit hospital industry as well. These hospital operators are also expanding into community-based urgent care centers and even forming partnerships with retailers like CVS and Walgreens Boots Alliance.

But hospitals admit they may not be moving fast enough to make their lower cost services more attractive to insurers and consumers. CVS’ $69 billion purchase of Aetna will give the pharmacy chain and its more than 1,100 retail clinics 22 million paying health plan members.

Hospitals have known a wave of change is coming. And executives have indicated the industry isn’t prepared for the loss of business in their facilities.

“Half of the business that’s in there is going to go away,” longtime healthcare investor Charlie Martin, who has run two giant for-profit hospital chains, told Politico’s Dan Diamond in a November story. “This is going to be a beatdown like we’ve never seen before.”

Aside from the coming CVS-Aetna combination, hospitals are feeling mounting competition from the nation’s largest health insurance company, UnitedHealth Group, which has been buying up doctor practices, urgent care facilities and surgery centers through the OptumCare unit of its Optum subsidiary. UnitedHealth’s Optum already has more than 200 MedExpress urgent care and walk-in centers and about 30,000 clinicians with plans to buy even more medical care providers across the country.

“A combined CVS and Aetna, which is the country's third-largest health insurer by covered lives, would make the company more similar to Aetna's largest competitor in the health insurance industry, UnitedHealth,” Fitch Ratings said in a report issued Monday.

But CVS has an even bigger geographic reach that hospitals need to worry about with more than 9,600 retail pharmacy locations that include more than 1,600 Target pharmacies that were converted to CVS as part of a deal signed last year.

"To the extent that this merger increases access to timely and affordable health care for minor injuries and illnesses and for tracking patients between annual health care visits, it has the potential to reduce health care costs, reduce burdens on emergency department services, and reduce delays in care that sometimes lead to more severe illness and higher cost,” said Shannon Monnat, chair of Syracuse University's Lerner Center for Public Health Promotion. “However, we also have to be careful that the clinics being proposed do not just become low-quality health care dumping groups for poor and vulnerable patients. Quality of care should be a top concern."

CVS and executives said existing and future services will not only be for Americans covered by commercial or employer plans, seeing the greatest impact for those covered by Medicare health insurance for the elderly and poor patients covered by Medicaid. New ways of delivering healthcare services will also be developed.

“We want to get going on the projects and the pilots as soon as we can,” Aetna CEO Mark Bertolini said Monday.

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