When CVS announced plans to gobble up Aetna for nearly $70 billion early last year, consumer groups, state regulators and Wall Street all raised flags about the deal. The judge tasked with final approval of the acquisition noted its effects, for "better or worse, will be felt by millions of consumers."
Regulators worried about competition and the impact on consumer choice, while financial analysts worried about debt assumption and execution risks.
Though U.S. District Court Judge Richard Leon ultimately signed off on the merger after an unprecedented 10-month review, market uncertainty was reflected in CVS' stock, which trailed the S&P 500 Health Care sector for most of this year.
Yet CEO Larry Merlo insisted through the turbulence that CVS Health, the third largest corporation in American healthcare, was getting a good deal.
CVS already had a retail pharmacy chain and a pharmacy benefits manager. But the integration of Aetna, which should be completed by the end of the year, exponentially increased CVS' health benefits offerings and its consumer health data, representing a "career-defining move" for Merlo, Jefferies senior healthcare analyst Brian Tanquilut told Healthcare Dive.
The 63-year-old executive, who graduated from the University of Pittsburgh pharmacy school in 1978 and now, four decades later, has a net worth of $53 million, demonstrates a "clear vision about what healthcare needs, and he's been clear and unabashed about that," Numerof & Associates partner Michael Abrams told Healthcare Dive.
Over his eight-year tenure, Merlo has guided the giant company through intensifying industry headwinds. CVS' diversified businesses means it's almost impossible to avoid any regulatory scrutiny, legislative changes or adverse consumer trends in the healthcare market.
But J.P. Morgan analyst Lisa Gill said CVS is "one of the best positioned companies across our coverage universe over the longer term" because of its broad suite of services, strong clinical capabilities and continuity of care across settings — all aspects of the company Merlo's been bullish on building out.
This year, Merlo unveiled CVS' new HealthHUB stores, which devote a fifth of floor space to health- and wellness-focused products and services, capitalizing off its 1,100 MinuteClinics. Analysts expect a halo effect to come out of the HealthHUBs that could translate into market share gains for Aetna, especially in the brick-and-mortar friendly Medicare population, and vice versa as Aetna could direct its insured lives into the HealthHUBs.
CVS plans to have 50 HealthHUB locations up and running by the end of the year.
"It's an offensive and a defensive move in the sense that it's in response to weakening business trends in basic consumer retail," Tanquilut said. "But it's not waving the white flag because it's using that store space for something more strategic," and will allow CVS to elbow further into primary care.
The entrance of e-commerce giant Amazon into healthcare over the past few years has spooked some traditional players, but Merlo contends he's not one of them. CVS is focused on making sure it doesn't "leave any white space to be disrupted by new entrants into the market, whether it's Amazon or anyone else," Merlo told Healthcare Dive in an interview, though he admitted CVS' moves over the past year have been spurred somewhat by the Seattle-based retailer.
And the company expects positive long-term outcomes from Merlo's moves: CVS forecasts savings of $800 million in 2020 and $900 million in 2021 from the Aetna integration, leading to earnings per share growth in the low single digits next year, mid-single digits in 2021 and low double digits in 2022.
Merlo's next ideas include expanding CVS' offerings in chronic care and episode management. The company introduced a kidney disease management service in April — three months before President Donald Trump's executive order on the topic — and a knee replacement pilot that Merlo plans to expand to hip replacements later this year.
"What Larry's done really well is create a unifying mission for the combined company around consumer-centric health," CVS CDO Firdaus Bhathena, who came to the company with Aetna, told Healthcare Dive. "He's gotten us on the right path. It's different than what others are doing. But it's right."