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CVS Health appears to have chosen a friendlier foe in insurers than the Seattle-based giant that has been lurking in the shadows.
The drugstore operator is in talks to buy health insurer Aetna for a proposed $200 per share or more, sources familiar with the matter say. In owning Aetna, CVS would become the first health-care triple threat: A pharmacy, a pharmacy benefit manager and now an insurer.
The sources declined to be identified because the information is confidential. Aetna and CVS declined to comment. The Wall Street Journal first reported the deal talks.
The potential deal would give CVS even more scale to bargain better prices for the prescription drugs it sells on its counters. It could fortify Aetna's insurance business by creating the ability to offer its insured cheaper copayments, presumably only in CVS stores. Its vast retail footprint could serve as a cost-effective distribution center, or locations for in-store clinics.
It therefore puts insurers, like UnitedHealth Group, which owns a PBM through its Optum health-services business but not a vast store base, directly in its line of fire. (A PBM typically is a third party that negotiates prescription drug benefits for a commercial health plan.)
Insurers might be an easier shot than Amazon. The e-commerce giant, which surged to a market capitalization of $530 billion on Friday, has increasingly signaled its intention to move into the business of selling prescription drugs. It has already received approval for wholesale pharmacy licenses in at least 12 states, the St. Louis Post-Dispatch reported this week. It will make a decision by Thanksgiving on whether to enter the industry, CNBC has reported.
With Amazon selling drugs, customers would have even less reason to go into CVS stores than they do now. Consumers can now find cosmetic and household staples at other retailers and online, sometimes for a lower price. Its pharmacy business is already larger than its so-called front-of-store business, and it is becoming increasingly so.
For its fiscal 2016, same-store sales from CVS' front-of-store business were down 1.5 percent, while pharmacy sales were up 3.2 percent. The percentage of money it makes from its front store compared with its total revenue fell to 23.6 percent in 2016, from 28.8 percent in 2014.
If past serves as precedent, the battle to fight Amazon can be painful for a company and its shareholders. Since Amazon's acquisition of Whole Foods, grocery and food stocks have lost a total of $50 billion in market capitalization, CNBC data show.
By owning an insurer, CVS creates a field more difficult for Amazon to play on. It would be challenging, though conceivable, for Amazon to buy an insurer, due to the particular regulatory constraints they operate under. It would also thus serve as a potential poison pill to fend off any Amazon approaches.
To be sure, CVS also may face regulatory hurdles of its own in an Aetna bid, particularly in a politically charged environment in which the government has been looking at ever-escalating prescription drug costs.
Beyond Amazon, the move would be a logical progression for CVS, which has been transforming itself into a health-care business for years. It acquired its Caremark pharmacy benefit manager platform in 2007 and in 2014, it changed its name from CVS Caremark to CVS Health.
CVS and Aetna have already begun to test a relationship, having signed a contract to work together in 2010.