CVS: Aetna purchase could create opportunities in Rhode Island

Providence Journal (RI)

Dec. 05--WOONSOCKET, R.I. -- CVS Health's plan to buy insurer Aetna and create a new type of health company focused on reducing the cost of care could bring new economic opportunities for its home state, company and state leaders said Monday.

If approved by federal regulators, the blockbuster $69-billion cash and stock deal would be one of the largest corporate acquisitions in the country this year, merging companies with a combined $240.7 billion in revenue last year.

CVS will remain headquartered in Woonsocket, company officials said after the long-rumored deal was announced Sunday night, while Aetna would operate as a standalone entity.

"Over the years, we've seen career development and job opportunities open up for colleagues following our previous acquisitions of companies including Caremark, Coram and Omnicare, and we would expect similar opportunities to occur following the acquisition of Aetna," CVS spokesman Michael DeAngelis wrote Monday in an email about what the deal could mean for Rhode Island employment.

CVS is Rhode Island's third largest private-sector employer, with 8,000 workers in the state, approximately 5,300 of them based at its Woonsocket headquarters.

Speaking to investment analysts Monday morning, CVS President and CEO Larry Merlo said the companies had identified $750 million in cost-side "near-term synergies," but DeAngelis wrote that Merlo's comment should not be interpreted as a significant consolidation of the two entities.

"The combination of CVS Health and Aetna is focused on expansion, not contraction," DeAngelis wrote. "While we may eventually identify some overlapping corporate functions, the synergies to be gained will be mostly operational."

The companies expect the deal to close in the second half of next year.

Aetna earlier this year announced plans to move its corporate headquarters from Hartford, Conn., to New York City, but it was unclear Monday if the merger would scuttle those plans. Calls to an Aetna spokesman were not returned.

Rhode Island Gov. Gina Raimondo said in a statement Monday that she had spoken with Merlo about the merger over the weekend and is optimistic about it.

"If approved, this appears to be a move that would significantly strengthen the positioning of one of Rhode Island's most important companies and could make health care more affordable and accessible in Rhode Island and across the nation," Raimondo wrote in an email.

Buying a health insurer would be CVS' latest move deeper into health care as its retail business comes under increasing pressure from e-commerce companies such as Amazon. CVS bought pharmacy benefit manager Caremark in 2007 and has been expanding its in-store medical offerings in recent years under initiatives such as MinuteClinic.

In the conference call with analysts, Merlo said CVS would continue to add health services to its offerings and entering the insurance business would allow it to realize savings by reducing health costs.

"The current U.S. health-care system is failing too many people; costs continue to rise and a paradigm shift is needed to bend the cost curve and put spending back on a sustainable path," Merlo said. "Through our integrated platform, we will be able to better coordinate care, eliminate waste and unnecessary spending and drive efficiencies throughout the entire health-care system."

He predicted the CVS store of the future would become a "front door" for consumer health, helping direct people through the confusing market of care options much like Apple's "Genius Bars" do for computers.

Merlo also told analysts the combined company would target the Medicare and Medicaid insurance markets, which are growing, and present opportunities to help enrollees better understand their benefits.

In theory, CVS could offer lower costs to Aetna members, driving some of the insurer's 23 million medical members into stores.

Dr. Peter Hollmann, academic director for the health-care leadership program at Brown University, said that while bringing a consumer retail approach to health care could lower costs, no one has proven it will work.

"Running medical practices is costly and so far [CVS] services have been fairly limited," Hollmann said.

Wall Street appeared somewhat skeptical as well as CVS stock fell 4.5 percent Monday.

CVS began selling health and beauty products as Consumer Value Stores in Lowell, Mass., in 1963. It broke ground on the Woonsocket offices that are now its headquarters in 1981.

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