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expensive Lantus on its formulary with a
newly approved biosimilar, Basaglar from
Eli Lilly. Lantus was priced at $340 for
a 30-day prescription, versus $235 for
Basaglar. Three-quarters of the 27,000
affected patients switched to Basaglar and
other low-cost alternatives, producing big
savings for Caremark’s plans.
It’s complicated, but the new rules
that threaten the PBMs, advanced by
the Department of Health and Human
Services, apply to Medicare and Medicaid
drug plans. Under the current system, the
discounts won by Caremark and its peers
go almost entirely back to the insurance
companies, which use the money to reduce
premiums (patients’ co-pays and deduct-
ibles are still based on official “list” prices).
The proposed regulations, backed by big
drugmakers, would shift a large share
of the discounts away from insurers and
instead lower co-pays at the pharmacy
counter. That would change the dynamic of
this whole ecosystem. “A lot of the money
that now goes to lowering premiums would
go to [lowering] co-pays and deductibles,”
says Joseph Antos, an economist at the
American Enterprise Institute.
Today, competing plans attract seniors
by offering the lowest premiums. If the
proposed regulation goes through, the
insurers would have less of those PBM-
generated savings to put toward lowering
insurance premiums, which, as Antos
points out, is what seniors care most about.
That would weaken the ability of the plans
to gain hordes of new customers with low
premiums, hence the value of the PBMs to
the plans would diminish, and their fees
could shift downward. “When Big Pharma
universally backs a proposal, your antenna
goes up,” says Merlo. Indeed, the regulations
could undermine what’s been CVS’s best
profit engine.
So, what could take its place?
T
EN THOUSAND PEOPLE turn 65 every
day,” says Aetna president Karen
Lynch, 56. “It’s hard to imagine a
better place for new customers.”
CVS brought Lynch into the fold as part of
the Aetna acquisition. And her Medicare
Advantage franchise (the privately managed
plans that are an alternative to Medicare) is a leading growth engine
for the combined enterprise.
At Aetna, Lynch expanded the Advantage ranks from 968,000
in 2013 to 2.2 million today, and she now oversees that in addition
to CVS’s giant SilverScript Medicare Part D program (the privately
managed supplemental prescription drug program for seniors).
Aetna was among the pioneers in providing transportation to
hospitals and clinics, and it was one of the first to grant seniors
acute-care service at no extra charge when they travel outside
their service area. Under Lynch, who was just 12 years old when
her mother committed suicide, Aetna also offered one of the most
generous behavioral health programs.
Advantage is now a $20 billion–plus business and represents
one-third of Aetna’s sales, yet CVS has lots of headroom. Its
Advantage franchise is far smaller than those at the two leaders,
UnitedHealth and Humana. But it’s gaining fast: In the first quar-
ter, enrollment surged by 140,000, or 27%, the largest percentage
increase of any big Medicare Advantage plan.
It was a big strategic stretch for CVS to go from a let’s-get-
healthy drugstore chain to a never-before-seen combination that
could change the future of health care. The CVS-Aetna deal is
breaking ground in territory so uncharted that the results are
as hard to predict. You could liken it to a trailblazing medical
procedure that could save millions of lives but has yet to be tested.
And to make it work, CVS will need leaders with a mastery of both
sides of the business—and new ideas that bridge these two diverse
disciplines.
Lynch is a case in point. She was the board’s choice to follow
now-retired Aetna CEO Mark Bertolini, and she is a favorite to
succeed Merlo, who’s 63. To exploit the union of a retailer and an
insurer, she’s employing a concept CVS calls “Recovery in a Box.”
“The prime time for things to go wrong is when people are first dis-
charged from the hospital,” she says. Take a patient who’s just had
knee surgery. Under Recovery in a Box, an Aetna care manager
would message a care concierge at HealthHUB or a pharmacist to
arrange transportation home from the hospital and deliver a big
package containing new prescriptions, a knee scooter, a shower
chair, and healthy meals for the first few days. “The current system
of episodic care, where people seek care when something goes
wrong, is being replaced by service where you live and shop. We’re
the new front door for health care,” she says. It’s a vision born in
the yoga studios and screening suites at a Houston strip mall.
But it’s coming soon to a corner near you.FORTUNE 5 00
KAREN LYNCH : CEO of Aetna