Congress botched attempts to rein-in out-of-control health care costs in 2017. Where government failed, the private sector made initial baby steps that may help alleviate the problem — and make a buck in the process.
CVS Health — notice the name change? — made an offer to buy Aetna for $69 billion earlier this month. Rather than a convenience store with a pharmacy in the back, the ubiquitous chain now styles itself as “America’s front door to health care.” Willie Sutton supposedly answered why he robbed banks with “because that’s where the money is.” In 2017, clinics and pharmacies look like places where the money is.
Americans spend nearly $3.5 trillion annually on health care. The number rises beyond inflation, with the figure fast approaching a fifth of gross domestic product as we grow older, fatter, and more demanding. CVS and others seek to capitalize, which generally betters attempts to monopolize or subsidize or any other “ize” one can imagine.
CVS and perhaps Amazon, whose acquisition of Whole Foods earlier this year set off speculation, believes that the free market can deliver care more efficiently than the government, which, long before Obamacare, became heavily invested in health (declining lifespans two years running suggest taxpayers do not get much back on their investment).
Surely the market demands this. It awaits only the supply.
The pending CVS-Aetna merger will combine CVS drug stores and pharmacy management with Aetna’s health-insurance capability. CVS-Aetna is anticipating Amazon’s entry into distributing drugs as a pharmacy benefit manager. CVS pursued Aetna, educated speculation runs, because the retailer seeks to expand its profits by moving even more heavily into medical matters — and because it fears Amazon may beat it to the punch.
CVS, and presumably Amazon, look to compete to capture the largest market share. And both, presumably, look to receive bids from hospitals, pharmaceutical companies, and physicians to provide services. All of this lowers price.
Currently, employers insure about 150 million Americans. The government, through Medicare, Medicaid, and the Obamacare exchanges, funds coverage for roughly the same number.
Both employers and the government stand to win big if profit-seeking companies more heavily enter into the healthcare business. To capture a large portion of the market share, they need to operate more efficiently than the status quo. This means lowering prices, something that Amazon succeeded in doing with books (but at the cost of losing Borders and hundreds of used bookstores).
The company wants to handle your health requirements the way they do your reading, watching, listening, and shopping requirements. Amazon figures to utilize its online mail-order business to deliver drugs. But it seeks to go beyond this, serving as an intermediary between employers and the government, on the one hand, and drug companies and other medical industries, on the other. Amazon, in the efficiency business, looks to bring their model to the healthcare business, the model of inefficiency.
CVS, which features lines longer than your average store, needs to streamline to compete. The quick, click-to-door experience of Amazon suggests that they enjoy an advantage here. But CVS outnumbering Whole Foods locations 20 to 1 indicates that they enjoy an advantage, too. And Whole Foods, though synonymous with healthy edibles, does not necessarily evoke prescription medications, clinics, or any other healthcare-related venture that it may wish to pursue. So, Amazon may need a wholesale rebranding of Whole Foods or the acquisition of a company more like CVS.
Whether all this works remains open for debate. Whether CVS and Amazon going full-speed ahead into healthcare changes, nay, revolutionizes, the industry seems clearer.
This, of course, depends on CVS and Amazon doing what everybody expects them to do.
Hunt Lawrence is a New York-based investor. Daniel Flynn is the author of five books.
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