US drug retailer CVS may buy health insurer Aetna for $66 bn

US pharmacy operator CVS Health Corp has made an offer to acquire the country's third-largest health insurer Aetna Inc for more than $200 per share, or over $66 billion, reports on Thursday said.

The deal would help the drugstore giant as it scrambles to fortify itself against looming competition from Amazon.com Inc amid a continuing reordering of the health-care industry, according to The Wall Street Journal, which first reported the matter.

The talks may not lead to a deal, but in a sign of their seriousness, the companies' chief executives, Larry Merlo of CVS and Mark Bertolini of Aetna, have met multiple times, according to the WSJ report.

A deal would merge one of the nation's largest pharmacy benefits managers and pharmacy operators with one of its oldest health insurers, whose far-reaching business ranges from employer healthcare to government plans nationwide, according to Reuters.

Aetna shares rose more than 11 per cent, or $18.48, to $178.60, while CVS shares fell 3 per cent, or $2.22, to $73.31, after the WSJ report.

A takeover of Aetna by CVS Health could lower costs to both companies, leading to the hope that at least some savings might be passed through to patients.

"Aetna participants are likely to see the most benefit ... because CVS would be maybe able to offer them lower co-pays if they shop with them," a senior analyst at CFRA told USA Today.

Healthcare consolidation has been a popular route for insurers and pharmacies, under pressure from the government and large corporations to lower soaring medical costs.

Pharmacy benefit managers (PBMs) such as CVS negotiate drug benefits for health insurance plans and employers, and have in recent years taken an increasingly aggressive stance in price negotiations with drugmakers, according to Reuters.

They often extract discounts and after-market rebates from drugmakers in exchange for including their medicines in PBM formularies with low co-payments.

A tie-up with Aetna could give CVS - with its 9,000 pharmacies - more leverage in its price negotiations with drug makers. But it would also subject it to more antitrust scrutiny.

The deal could also help counter pressure on CVS's stock following speculation that Amazon.com Inc is preparing to enter the drug prescription market, using its vast ecommerce platform to take market share from traditional pharmacies.

CVS made the offer earlier this month, although the two companies have been in discussions about a potential deal for several months, Reuters' sources said.

CVS and Aetna started discussing terms only recently, and a deal is not expected for a few weeks, though the pace of the talks could accelerate given the publication of the negotiations.

The reports did not specify how much of CVS' bid is cash versus stock, but given CVS's and Aetna's market capitalizations of $77 billion and $54 billion respectively, a substantial stock component is likely in any deal.

Aetna earlier this year closed the door on a deal with rival insurer Humana Inc after antitrust regulators (See: US court blocks health insurer Aetna $37-bn acquisition of Humana). said that combination and a rival deal between Anthem Inc and Cigna Corp (See: US court blocks Anthem's $54-bn acquisition of Cigna) were anti-competitive.   

Market uncertainties
The deal comes after years of major changes to the US health insurance industry under former President Barack Obama, whose 2010 Affordable Care Act created new rules for how insurers operate and expanded insurance to 20 million more Americans.

Republican President Donald Trump has promised to turn back many of Obamacare's Affordable Care Act's aspects, but Congress has not been able to agree on a repeal or a replacement. The lack of progress - as well as Trump's executive order to bring down healthcare costs - has created uncertainty for insurers as they head into 2018.

After the deal with Humana fell apart, Aetna's Bertolini has said that he did not believe large deals were possible in the insurance industry. But analysts have speculated about a tighter partnership between Aetna and CVS since early in the year. CVS and Aetna have a long-term contract in which CVS has provided pharmacy benefits for Aetna customers.

Last week No 2 US insurer Anthem Inc announced plans to manage its own pharmacy benefits with the help of CVS, a move that would give it a set-up similar to UnitedHealth Group Inc and its Optum unit.

Insurers want more control over the pharmaceutical component of care as they implement pricing schemes with doctors and hospitals that are based on health outcomes, not just procedures.

They also want to work on driving down costs, and as a pharmacy benefit manager, would negotiate directly with drugmakers.