Late on Sunday, December 3, CVS Health, which has three stores within about a two-mile radius of my apartment in NY (this information is germane, trust me), officially announced its intent to acquire health insurance provider Aetna for $69B. This deal had been talked about form some time, particularly in the wake of Amazon’s acquisition of Whole Foods five months ago.
“Wait a minute,” you say. “What does Amazon have to do with THIS mega-deal?”
Upon the announcement of the Whole Foods acquisition, a variety of stocks immediately declined. One of those sectors was retail pharmacies/drugstores like CVS Health. Why? If Amazon could so easily and brazenly snap up a last mile distribution point like Whole Foods, thus providing consumers with a wide variety of ways to order and obtain stuff (in this case, mostly food), what would stop them from disrupting a market like retail pharmacy? And make no mistake – while Amazon was/is obviously intently interested in the internet grocery shopping/delivery market, owning a last mile delivery/pick up point (i.e, Whole Foods’ stores) is not only still critical to a lot of grocery shopping (customers often like to see, touch, and feel perishables), it provides a way to offer an omnichannel experience for anything else consumers buy from Amazon. Products available from a pharmacy could easily fit in this as well. Back to that “three stores in a two-mile radius” thought, CVS has significant presence throughout the United States (which you can see here), and its stores, pharmacists, employees, and infrastructure provide it with a significant ability to reach and interact with consumers on a personal level.
And so, notwithstanding the ever changing backdrop of healthcare and insurance in the United States, CVS Health’s acquisition of Aetna makes sense as both a defensive AND offensive willful disruption play. The direct path offered from health plan to in-store pickup/personal care will enable the combined CVS/Aetna organization to (hopefully) streamline certain processes, offer new electronic health maintenance pathways and services, and create an omnichannel experience for the consumer. It provides CVS Health with a defensive “back end” business while it offers that business (Aetna) a defensive distribution and interaction mechanism. Of course, this is all subject to regulatory approval (which, given the government’s stance on AT&T/Time Warner, may not be all that predictable), but assuming that happens, the CVS/Aetna combination will certainly have created some “insurance” for CVS against an Amazon incursion while doing some of the same for Aetna’s healthcare/insurance business relative to its competition.