WHEN: Today, Monday, December 4, 2017
WHERE: CNBC's "Squawk Box"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview, CVS Health President and CEO Larry Merlo and Aetna Chairman and CEO Mark Bertolini on CNBC's "Squawk Box" (M-F, 6-9AM ET) today, Monday, December 4th, following CVS Health's announcement to acquire Aetna. Following are links to video from the interview on CNBC.com: https://www.cnbc.com/video/2017/12/04/cvs-ceo-larry-merlo-on-aetna-deal-its-the-perfect-time-to-bring-these-companies-together.html, https://www.cnbc.com/video/2017/12/04/aetna-ceo-we-need-a-bipartisan-solution-to-health-care.html, https://www.cnbc.com/video/2017/12/04/cvs-and-aetna-ceos-break-down-blockbuster-69-billion-merger.html.
All references must be sourced to CNBC.
BECKY QUICK: MIKE, THANK YOU VERY MUCH, IT'S GREAT TO SEE YOU. LET'S GET BACK TO TODAY'S TOP CORPORATE STORY, AND THAT IS CVS HEALTH BUYING AETNA. JOINING US RIGHT NOW IS LARRY MERLO, HE IS THE PRESIDENT AND CEO OF CVS HEALTH. AND MARK BERTOLINI IS THE CHARIMAN CEO OF AETNA. AND GENTLEMEN, WELCOME TO BOTH OF YOU.
MARK BERTOLINI: THANKS.
QUICK: IT'S GREAT TO HAVE YOU HERE TODAY.
LARRY MERLO: IT'S GREAT TO BE HERE.
QUICK: THAT IS NOT EXACTLY SOMETHING THAT WAS A HUGE SURPRISE OR SECRET. WE KNEW THAT IT WAS BEHIND THE SCENES GETTING WORKED UP, BUT WHY DON'T YOU TWO TELL US HOW YOU GOT TOGETHER AND WHY, WHY THIS MERGER MAKES SENSE FROM YOUR PERSPECTIVE?
MERLO: WELL YOU KNOW WHAT, BECKY, WE'VE HAD A BUSINESS RELATIONSHIP GOING BACK TO 2010. AND AS MARK AND I CONTINUE TO HAVE DISCUSSIONS IN TERMS OF HOW CAN WE DO THINGS MORE STRATEGICALLY, YOU KNOW, IT WAS CLEAR AS CVS HEALTH WAS MOVING TO BECOME MORE OF A HEALTH CARE COMPANY AND GETTING CLOSER TO PAYERS, MARK HAD A SIMILAR STRATEGY IN TERMS OF GETTING CLOSER TO THE CUSTOMER. AND IT'S REALLY THE PERFECT TIME TO BRING THESE TWO COMPANIES TOGETHER TO CREATE A NEW HEALTH CARE PLATFORM THAT CAN BE EASIER TO USE, LESS EXPENSIVE FOR CONSUMERS, AND REALLY CREATE A NEW FRONT DOOR TO HEALTH CARE IN OUR COUNTRY.
QUICK: AND MARK, YOU HAVE TALKED ABOUT WANTING TO GET CLOSER TO CONSUMERS. YOU'RE TALKING ABOUT A SITUATION NOW WHERE YOU HAVE MORE THAN 9,700 RETAIL STORES AND MINUTE CLINICS TOO. HOW MANY MINUTE CLINICS ARE OUT THERE?
MARK BERTOLINI: WE HAVE ABOUT 1,100.
QUICK: OK, SO THAT'S A WAY TO REACH YOUR CUSTOMER. WHAT DO YOU PLAN TO DO WITH THOSE?
BERTOLINI: WELL, IF YOU THINK ABOUT WHAT THE CONSUMER THINKS ABOUT HEALTH CARE, IT'S A SINGLE – SINGLE HIGHEST LINE ITEM BUDGET IN THE HOUSEHOLD BUDGET TODAY AND IT'S THE MOST CONFUSING SYSTEM THAT ANYONE COULD USE. SO THINK OF AN IDEA WHERE WE HAVE 10,000 NEW FRONT DOORS TO THE HEALTH CARE SYSTEM WHERE PEOPLE CAN WALK IN, WHERE THEY CAN ASK FOR SOME HELP, GET GUIDANCE THROUGH THE SYSTEM. WE CAN MAKE THE INSURANCE THE BACK ROOM OF THE OPERATION AND WE CAN WAIVE PRIOR AUTHORIZATIONS. WE CAN WAIVE CO-PAYS AS PEOPLE USE THE SYSTEM THAT'S MORE EFFECTIVE. WE CAN REDUCE COSTS. SO, IT'S SIMPLER, IT'S CUSTOMIZED FOR THE INDIVIDUAL BASED ON WHAT THEY NEED AND IT'S CHEAPER.
QUICK: AND ALL OF THESE THINGS WILL TAKE YOU HOW LONG TO IMPLEMENT? HOW LONG BEFORE A CUSTOMER HAS A DIFFERENT EXPERIENCE WATCHING IT – WALKING INTO A CVS?
MERLO: BECKY, UPON CLOSING, THERE ARE THINGS THAT WELL BE ABLE TO DO, YOU KNOW, OUT OF THE GATE, AND AT THE SAME TIME WE'LL BEGIN TO PILOT THESE CONCEPTS. YOU KNOW, WE'LL LEARN FROM THEM, AND I WOULD EXPECT THAT WITHIN THE NEXT COUPLE OF YEARS YOU'LL SEE A DRAMATIC CHANGE IN TERMS OF, YOU KNOW, THE STORE BEING NOT JUST ABOUT PRODUCTS, BUT ALSO SERVICE OFFERINGS THAT CAN HELP PEOPLE ON THEIR PATH TO BETTER HEALTH. IT WILL REALLY WORK AS A COMPLIMENT TO THE MEDICAL COMMUNITY, THE PHYSICIANS IN TERMS OF INSURING, YOU KNOW, THAT THOSE CONSUMERS ARE FOLLOWING THE CARE PLANS THAT THEIR PHYSICIANS HAVE LAID OUT FOR THEM.
QUICK: LARRY, WE'VE TALKED ABOUT A LOT OF REASONS THAT THIS MAKES SENSE FOR CVS. WE'VE TALKED ABOUT THE PRESSURE COMING AT THE FRONT END, THE RETAIL END FROM AMAZON, THE PRESSURE AT THE BACK END, THE PHARMACY BENEFITS MANAGERS, JUST FROM PEOPLE LOOKING FOR WAYS TO KIND OF CUT COSTS AND FOCUS ON THAT. IS THAT WHAT DROVE YOU TO LOOK FOR THIS, TOO?
MERLO: YOU KNOW, BECKY, IT'S REALLY ABOUT MEETING THIS UNMET NEED THAT MARK WAS TALKING ABOUT. YOU LOOK AT, YOU KNOW, THE HEALTH CARE ECONOMY IS NOW, WHAT, $3.5 TRILLION AND CONTINUING TO GROW AT WHAT EVERYONE RECOGNIZES AS AN UNSUSTAINABLE PACE. AND YOU KNOW, WE THINK WE HAVE THE OPPORTUNITY HERE TO BEGIN TO BEND THAT COST CURVE, AND AT THE SAME TIME HELP PEOPLE ACHIEVE THEIR BEST HEALTH. YOU LOOK AT CHRONIC DISEASE IN THIS COUNTRY TODAY, ABOUT HALF OF ALL AMERICANS HAVE AT LEAST ONE OF THOSE CHRONIC DISEASES. IT'S ACCOUNTING FOR 80% OF THE HEALTH CARE COSTS.
QUICK: THAT STUNNED ME WHEN I HEARD THOSE NUMBERS. 80% OF THE COST.
MERLO: AND THERE'S BILLIONS OF DOLLARS EVERY YEAR ON NECESSARY AND AVOIDABLE SPENDING BECAUSE PEOPLE ARE NOT FOLLOWING THOSE CARE PLANS. WE CAN MAKE A DRAMATIC IMPROVEMENT IN TERMS OF, YOU KNOW, GETTING PEOPLE BACK ON A PATH TO BETTER HEALTH.
QUICK: DO YOU WORRY ABOUT --
JOE KERNEN: NO, I WANT TO TALK ALL THESE DIFFERENT THINGS. JUST PHILOSOPHICALLY, THE INDIVIDUAL MANDATE, AND IN A WAY IT'S A POLITICAL FOOTBALL IN THE WAY THAT IT'S CHARACTERIZED. AND ONE THING TO REALIZE IS THAT A LOT OF PEOPLE THAT PAY THAT PENALTY ARE PEOPLE THAT CAN'T AFFORD PREMIUMS WHERE THEY ARE RIGHT NOW, SO THEY PAY IT. THE OTHER SIDE IS GOING TO SAY – WE'VE TALKED ABOUT IT, WE HAVE LARRY SUMMERS COMING ON AND HE SAYS THOUSANDS OF PEOPLE ARE GOING TO DIE NOW FROM WHAT'S IN THIS HEALTH CARE PLAN, BECAUSE THEY CHOOSE NOT TO PARTICIPATE IN OBAMA CARE, I GUESS. WHAT'S THE ANSWER TO THIS? AND IT'S BEING DEMAGOGUED ON BOTH SIDES. ARE YOU GUYS IN FAVOR OF KEEPING THE INDIVIDUAL MANDATE, OR IS THERE ANOTHER WAY TO DO THIS?
BERTOLINI: I THINK THE INDIVIDUALMANDATE IS CURRENTLY CONSTRUCTIVE, AND THE FINANCIAL STRUCTURE OF THE EXCHANGES DON'T WORK RIGHT NOW. SO I WOULD ARGUE THE INDIVIDUAL MANDATE IS ALMOST AN IMMATERIAL ARGUMENT. WE NEED A BIPARTISAN SOLUTION. EVERY MAJOR PIECE OF SOCIAL LEGISLATION THAT WE'VE EVER PASSED IN THIS COUNTRY HAS BEEN BIPARTISAN BECAUSE EVERY YEAR THEY NEED TO BE TWEAKED. HERE WE HAVE A BILL, THE ACA, THAT HASN'T BEEN TOUCHED FOR EIGHT YEARS. IF WE DIDN'T DO THAT WITH – IF WE DID THAT WITH MEDICARE AND DIDN'T TOUCH IT FOR EIGHT YEARS, IT WOULD FALL APART.
KERNEN: WHAT ARE THE CHANCE IT'S GOING TO BE TWEAKED INSTEAD OF JUST --
BERTOLINI: THEY'RE GOING TO HAVE TO. THEY'RE TRYING THIS PIECE IN TAX REFORM. YOU GOT CONTINUING RESOLUTIONS ON MEDICARE. YOU'VE GOT THE BUDGET. THEY'RE ALL GOING TO DRIVE TWEAKING THIS.
QUICK: WHAT DOES THE SOLUTION LOOK LIKE?
BERTOLINI: THE SOLUTION LOOKS LIKE -- WHAT WE HAVE IN THE POOL TODAY IS WE HAVE A LOT OF YOUNG PEOPLE WHO DON'T JOIN. THEY'RE THE PEOPLE PAYING THAT PENALITY. BECAUSE THEY CAN DO MATH. WE KNOW OUR ARITHMETIC EDUCATION IN SCHOOLS IS WORKING WHEN SOMEBODY SAYS, "I HAVE TO PAY A PREMIUM EVERY MONTH, AND I HAVE TO HAVE A $6,000 DEDUCTIBLE, AND WHEN I GO TO THE DOCTOR ONCE A YEAR I PAY CASH. SHOULD I DO THIS? NO." BUT IF YOU PUT IN FRONT OF THEM A SUBSIDY, THE REPUBLICANS CALL IT THE ADVANCE REFUNDABLE TAX CREDIT, WHERE YOU SAY YOU DON'T GET THIS UNLESS YOU JOIN AND WHEN YOU GET IT, YOU CAN PUT IT IN A HEALTH REIMBURSEMENT ACCOUNT OR AN HSA THAT WILL -- CAN GROW TO $16,000 AS YOU AGE, YOU HAVE THIS POT OF MONEY THERE, AND THEN YOU GET YOUNGER PEOPLE IN. THAT WILL EQUALIZE THE POOL, AND THEN YOU HAVE A MORE FINANCIALLY STABLE ORGANIZATION.
QUICK: IS THAT THE TYPE OF THING WE'RE GOING TO HEAR THOUGH? I HAVEN'T HEARD THAT SOLUTION LAID OUT.
BERTOLINI: YOU HEARD IT FROM DIFFERENT PIECES FROM DIFFERENT PEOPLE. BUT IF YOU LOOK AT THE MURRAY- ALEXANDRER BILL – IT STARTS TO APPROACH THAT. AND THAT'S A GOOD BIPARTISAN SOLUTION. SO I WOULD ARGUE, GET SOMETHING DONE BIPARTISAN.
QUICK: LET ME ASK BOTH OF YOU ABOUT WHETHER YOU EXPECT YOU'LL BE HEARING ANY COMPLAINTS FROM REGULATORS ON THIS FRON. I KNOW YOU HAVE GONE THROUGH IT WITH SIMILAR SITUATIONS, MARK, WITH TRYING TO DO AN INSURANCE DEAL, BUT NOW YOU HAVE THE DEPARTMENT OF JUSTICE FOCUSSING ON AT&T AND TIME WARNER OVE R VERTICAL DEALS, HOW – DOES IT CONCERN YOU, AND HOW WOULD THAT POTENTIALLY IMPACT YOU?
BERTOLINI: WELL, BECKY, WE THINK THIS TRANSACTION IS HIGHLY COMPLIMENTARY. YOU THINK ABOUT THIS MORNING, AND WE'VE GOT A TREMENDOUS OPPORTUNITY TO CREATE VALUE, YOU KNOW, FOR CONSUMERS AND PAYERS, AND, YOU KNOW, WHEN WE TALK ABOUT PAYERS, THAT DOES INCLUDE THE FEDERAL GOVERNMENT. SO WE'LL LOOK FORWARD TO SITTINGcDOWN WITH THE REGULATORS, TALKING ABOUT, YOU KNOW, HOW THIS COMES TO LIFE IN A MEANINGFUL WAY TO SEE THE BENEFITS, THE CONSUMERS, AND THE PAYERS CAN SEE FROM THIS TRANSACTION.
QUICK: WERE YOU SURPRISED WITH WHAT THE DEPARTMENT OF JUSTICE HAS LAID OUT THOUGH WITH AT&T AND TIME WARNER? I REALIZE IT'S A DIFFERENT INDUSTRY, BUT IN I SIMILAR WAY LOOKING AT VERTICAL MERGERS, PLACES THAT YOU WOULDN'T HAVE SEEN REGULATORS STEP IN IN THE PAST?
BERTOLINI: YEP, BECKY, I THINK IT'S HARD FOR US TO TALK ABOUT, YOU KNOW, THE TRANSACTIONS THAT MAY EXIST IN OTHER COMPANIES. BUT, YOU KNOW, AGAIN, YOU KNOW THIS VERTICAL INTEGRATION OF TWO TERRIFIC COMPANIES, YOU KNOW, THE FACT THAT WE CAN DEMONSTRATE VALUE IN A MEANINGFUL WAY, YOU KNOW, WE THINK IS THE KEY TO YOU KNOW, GETTING ACROSS THE FINISH LINE.
QUICK: MARK, ARE YOU STAYING ON TO RUN AETNA? I WAS CONFUSED WHEN I WAS READING THROUGH THE PRESS RELEASE. IT SAID PEOPLE AT WHO ARE IN MANAGEMENT AT AETNA WOULD BE RUNNING THAT AS A SEPARATE UNIT. ARE YOU THAT PERSON?
BERTOLINI: SO I DEVELOPED A GREAT TEAM. THAT TEAM WILL TAKE OVER. WE NEED TO -- WE HAVE TWO COMPANIES. I DON'T KNOW ANYTHING ABOUT RETAIL. LARRY DOESN'T KNOW ANYTHING – WELL A LITTLE BIT ABOUT HEALTH INSURANCE, I DON'T WANT TO SAY HE DOESN'T KNOW ANYTHING – JUST SPENT A LOT OF MONEY ON ONE. BUT WE NEED THE EXPERTISE OF BOTH ORGANIZATIONS TO COME TOGETHER, AND I WILL TAKE A SPOT ON THE BOARD OF DIRECTORS AT CVS.
QUICK: BUT YOU WON'T BE RUNNING DAY TO DAY OPERATIONS?
BERTOLINI: I WILL NOT BE AN OPERATION'S LEADER.
MERLO: BUT YOU KNOW WHAT, BECKY, I AM GOING TO BE PICKING HIS BRAIN, AND I APPRECIATE THAT MARK IS GOING TO BE JOINING OUR BOARD, AND I CAN CERTAINLY BENEFIT FROM HIS EXPERTISE AND HIS VISION. AND, YOU KNOW, AS MARK MENTIONED, WE'RE GOING TO CONTINUE TO OPERATE AETNA AS A SEPARATE BUSINESS UNIT, AND IT WILL BE LED BY MEMBERS OF MARK'S TEAM.
QUICK: SO WHAT NEXT? WHAT'S THE NEXT STEP FOR YOU ALL IN TERMS OF THIS DEAL?
MERLO: YOU KNOW, THE NEXT STEP IS, YOU KNOW, EXECUTING AND BEGINNING THE INTEGRATION PROCESS, AND, YOU KNOW, SAYS BRINGING THE THINGS THAT WE'RE TALKING ABOUT TO LIFE SO THAT WE CAN CREATE THIS NEW HEALTH CARE PLATFORM AND MAKE IT EASIER FOR CUSTOMERS TO USE AND NAVIGATE, AT THE SAME TIME REDUCE COST SAND HELP THEM ACHIEVE THE BEST HEALTH POSSIBLE.
BERTOLINI: WE WANT TO PILOT THIS, BUT MY GOAL IS TO DELIVER A BETTER COMPANY THAN THE COMPANY LARRY THOUGHT HE BOUGHT.
KEN LANGONE: YOU KNOW THERE'S SOMETHING ELSE. AND I COMMEND YOU FOR THIS. HEALTH CARE OVER TIME IS BECOMING MORE SEAMLESS FOR EXAMPLE, WHEN I GO GET AN EXAMPLE AND I NEED A CERTAIN DRUG, RIGHT THROUGH OUR SYSTEM INTO YOUR STORE -- BY THE WAY, I BUY ALL MY DRUGS, MY WIFE DOES TOO, AT CVS.
BERTOLINI: YOU'RE GOING TO GET SOME EXTRA --
LANGONE: DON'T I LOOK HEALTHIER? YOU GOT A STORE ON 53rd AND LEX, AND YOU GOT ONE IN PALM BEACH – NORTH PALM BEACH. BUT I WATCH, AND I SAID THIS IS PRETTY GOOD BECAUSE I GET A CALL WHEN MY PRESCRIPTION IS DUE FOR REFILL. NOW, ONE OF THE PROBLEMS YOU HAVE WITH OLDER PEOPLE, GUYS LIKE ME, IS WE FORGET. WE DON'T WANT TO FORGET TO PICK UP A PRESCRIPTION. WE SOMETIMES FORGET TO TAKE THE PILL THAT DAY. SO ALL THE THINGS YOU ARE TALKING ABOUT, I THINK ONE OF THE BIG PAY-OFFS IS GOING TO BE BETTER HEALTH CARE AND BETTER OVERSIGHT OF PEOPLE THAT NEED OVERSIGHT FOR THESE DRUGS THEY TAKE. SO LOOK, ITS GOING TO HAPPEN AND IT HAS TO HAPPEN.
KERNEN: IF YOU HAD TO CHARACTERIZE IT AS A DEFENSIVE MOVE OR AN OFFENSIVE MOVE, IS IT PUTTING TOGETHER -- I KNOW IT'S COMPLIMENTARY, BUT CAN YOU LEVERAGE WHAT BOTH COMPANIES HAVE OFFENSIVELY TO BE THE PLACE THAT TAKES ON AMAZON OR TAKES ON WAL-MART OR TAKES ON WHATEVER HEALTH CARE LOOKS LIKE IN FIVE YEARS? IS CVS-AETNA GOING TO BE AT THE FOREFRONT?
MERLO: YOU KNOW WHAT JOE, WE DO SEE THIS AS A GROWTH AND EXPANSION STORY FOR THE REASONS THAT WE'VE BEEN --
KERNEN: NOT DEFENSIVE NOT BECAUSE YOU SEE THREATS ON ALL SIDES?
MERLO: NOT DEFENSIVE. YOU KNOW, WE'RE -- WEVE TALKED ABOUT THE UNMET NEEDS THAT WE'RE LOOKING TO MAKE .YOU KNOW, YOU LOOK AT HEALTH CARE TODAY, AND, YOU KNOW, WHEN YOU TALK ABOUT THE TRADITIONAL HEALTH CARE SYSTEM AND THE OPPORTUNITIES WHERE I'LL DESCRIBE IT AS INTERVENTION, THEY'RE MISSING THE CONVENIENCE, AND THAT'S THE UNMET NEED THAT WE THINK WE CAN CREATE WITH THIS NEW FRONT DOOR TO HEALTH CARE.
KERNEN: ALL WITH COST PRESSURES IN THE BACKGROUND TOO. I LOOK AT THE MEDIA LANDSCAPE AND WHAT THE INTERNET AND, YOU KNOW, TRYING TO FIGURE OUT WHO IS GOING TO BE AHEAD IN TEN YEARS IS DAUNTING. AND I DONT THINK IT'S THAT DIFFERENT WITH HEALTH CARE ALSO, BECAUSE NOT ONLY BECAUSE OF THE INTERNET, BECAUSE, YOU KNOW, HEALTH CARE INFLATION AND TECHNOLOGY EVERYTHING –
QUICK: AND THE POTENTIAL LEGISLATION TOO.
KERNEN: NOW WE HAVE SENSORS ALL OVER THE PLACE SENDING OUR DATA TO WHEN YOU DIDN'T TAKE YOUR DRUG OR IT'S NOT WORKING, YOUR GLUCOSE LEVELS SUDDENLY SPIKE. IT'S GOING TO BE UNBELIEVABLE. AND I DON'T KNOW WHO I WANT – MAYBE CVS-AETNA – WHERE.
BERTOLINI: WHAT YOU WANT A TRUSTED RELATIONSHIP. SO, IF YOU HAVE A PLACE TO GO, MOST PEOPLE TO FIND THEIR HEALTH IS A BARRIER TO LIFE THEY WANT TO LIVE, AND THE UNMET NEED IS IT'S SO CONFUSING, HOW DO I FIGURE THIS OUT. BUT IF YOU HAVE A PLACE TO GO TO FIGURE THAT OUT AND WE BUILD THAT RELATIONSHIP WITH YOU AND WE MAP IT OUT AND WE MAKE YOUR APPOINTMENTS, WE CLEAR YOUR PRIOR AUTHORIZATIONS, MAYBE WE DON'T EVEN HAVE CLAIMS TO PAY, BECAUSE WE ARRANGED IT WITH THE NETWORK IN FRONT OF YOU AND IT'S AN EASIER JOURNEY THAT'S A DIFFERENT MODEL. THAT MEETS A NEED THAT NOBODY ELSE CAN MEET UNLESS THEY HAVE THIS ACCOMODATION. SO LOOKING OVER OUR SHOULDERS AT COMPETITORS SAYING WHAT ARE THE DOING NEXT IS NOT A WORTHWHILE EFFORT. IT HAS TO BE WHERE DO WE THINK WE NEED TO GO?
QUICK: WHAT DO YOU DO WITH EMPLOYERS LIKE OURS, COMCAST. WE USED TO BE AETNA, NOW WE'RE CVS, BUT NOW WE'RE UNITED HEALTH. IF YOU ARE USING ONE-HALF OF YOUR OPERATION BUT NOT THE OTHER HALF, WHAT HAPPENS?
BERTOLINI: IT'S OKAY THAT YOU MADE A MISTAKE EARLIER.
MERLO: I THINK THERE'S A GREAT OPPORTUNITY THAT WHEN YOU COMBINE THE TWO TOGETHER, THERE'S A SYNERGY THAT CAN BE CREATED. YOU KNOW, WHEN YOU THINK, ABOUT THE INFORMATION, THE ANALYTICS CAPABILITIES OF AETNA AND YOU COMBINE THE WITH CONVENIENCE AND FACE-TO-FACE INTERAKS OF CVS, THAT'S, AGAIN, ANOTHER WAY TO BRING TO LIFE EVERYTHING THAT WE'VE BEEN TALKING ABOUT THIS MORNING.
KERNEN: SO WHEN YOU WAKE UP – DO YOU EVER WAKE UP AND, OH GOD, UNITED HEALTH CARE OR – DO YOU EVER WAKE UP AND THINK THESE GUYS ARE GOING TO EAT OUR LUNCH? WHO'S YOUR BIGGEST – AMAZON – WHO DO YOU WORRY ABOUT? WHO IS A REAL FORMIDABLE COMPETITOR FOR YOU?
MERLO: YOU KNOW WHAT JOE, WE HAVE TREMENDOUS RESPECT FOR ALL OF OUR COMPETITORS. MARK SAID IT BEST, WHEN YOU TALK ABOUT HOW DO WE FOCUS ON WHAT WE CAN DO? HOW DO WE FIND WHAT WHITE SPACE, THAT UNMET NEED, AND HOW DOES THAT BECOME OUR IT WORK FOR FILL THAT VOID, AND, KNOW, THE CUSTOMER DOESN'T -- IF WE LISTEN TO OUR CUSTOMERS CAREFULLY, WHICH WE SPEND A TREMENDOUS AMOUNT OF TIME DOING, YOU KNOW, WE CAN HEAR THEIR FRUSTRATIONS, AND THEN IT'S OUR JOB TO COME BACK AND HOW DO WE SOLVE FOR THOSE FRUSTRATIONS, AND THAT'S WHAT A LOT OF THIS WAS ALL ABOUT.
QUICK: WHAT WAS THE FIRST CONVERSATION YOU TWO HAD IN TERMS OF COMBINING YOUR COMPANIES?
MERLO: I'LL LET YOU TAKE THAT ONE.
BERTOLINI: SO TWO YEARS AGO WE WERE JUST ABOUT TO DO THE HUMANA DEAL, AND LARRY AND I WERE HAVING DINNER AT PEPPERCORN'S IN HARTFORD AND HE SAID, YOU KNOW, EVERY TIME I DO SOMETHING TO SAVE – TO YOU KNOW, IMPROVE HEALTH, I LOSE REVENUE, AND YOU MAKE MONEY. AND I SAID YOU'VE GOT THE WRONG REVENUE MODEL. WOULDN'T IT BE BETTER IF WE COULD SHARE RISK IN A WAY THAT WOULD ALLOW US TO BENEFIT YOU AS A RESULT AS WHAT YOU DO TO IMPROVE PEOPLE'S HEALTH. AND THE NEXT TWO OR THREE DAYS WE SIGN THIS DEAL, AND IT WAS SORT OF LIKE, WE'LL SEE YOU WHEN WE GET DONE WITH THIS. I ALWAYS IMAGINE THIS RELATIONSHIP COMING TOGETHER, WHETHER OR NOT WE DID HUMANA. EVEN WITH HUMANA IT WOULD HAVE BEEN EVEN MORE POWERFUL. SO NOW WE'RE HERE. I THINK, YOU KNOW, LARRY AND I START TALKING ABOUT IT SERIOUSLY PROBABLY A YEAR AFTER THAT WE SAID HOW DOES THIS HAPPEN? WHAT WOULD IT TAKE? WHY WOULD WE DO IT? WE SHARED DATA BACK AND FORTH. YOU KNOW, EVERY 50 BASIS POINTS WE CHANGED TREND, IT'S $480 MILLION IN UNDERWRITING MARGIN FOR US AND OUR CUSTOMERS.
QUICK: LARRY, YOU WERE TALKING ABOUT MOVES LIKE WHEN CVS GOT RID OF CIGARETTES. WERE THOSE THE TYPE OF MOVES THAT YOU WERE TALKING ABOUT?
MERLO: THEY WERE YOU KNOW, IF YOU GO BACK, I THINK OUR JOURNEY PROBABLY GOES BACK A DECADE WITH CVS AND CAREMARK COMING TOGETHER. AND THROUGH THAT TIME, WE'VE CONTINUED TO ADD A CUSTOMER FACING HEALTH ASSETS, AND WE RECOGNIZE THE COMPLEXITIES ASSOCIATED THAT WENT TO THE DECISION BACK IN 2014 TO ELIMINATE THE SALE OF TOBACCO PRODUCTS.
LANGONE: YOU KNOW, IF I COULD MAKE ONE CRITISISM OF HEALTH CARE COMPANIES. YOU KNOW, DRUG COMPANIES, INSURANCE COMPANIES, RETAILERS, THE INDUSTRY HAS DONE A TERRIBLE JOB OF BRAGGING ABOUT JUST HOW MUCH BETTER HUMAN BEINGS ARE BECAUSE OF THE HEALTH CARE INDUSTRY. FROM DISCOVERY ALL THE WAY THROUGH TO WHAT I SAID WAS REMINDING PEOPLE TO KEEP TAKING THEIR DRUGS, INCLUDING IN YOUR FORMULA AND MORE AND MORE DRUGS THAT HAVE LIFE THAT ARE MORE EXPENSIVE. BUT YOU TAKE A STEP BACK, AND IT'S $15,000 OR $20,000 THAT THIS GUY IS GOING TO LIVE TO BE 90. HOW MUCH IS LIFE WORTH? IT'S PRECIOUS. I TELL THIS TO ALL THE GUYS IN THE PHARMACEUTICAL INDUSTRY, YOU HAVE DONE A HORRIBLE JOB POINTING OUT TO THE WORLD, JUST HOW MUCH BETTER. LOOK AT LIFE EXPECTANCY IN AMERICA. 80 YEARS AGO WE WERE AT 48? I'M 82. I'M NOT GOING TO STOP. NOW, THERE ARE PEOPLE WHO WOULD WISH I STOP, AND THERE ARE PEOPLE THAT GOD MAKES ME STOP BUT THAT'S BESIDE -- THE POINT IS I THINK THE INDUSTRY COLLECTIVELY, ALL OF YOU IN IT, HAVE GOT TO DO A MUCH BETTER JOB OF GETTING YOUR MESSAGE OUT THERE HOW MUCH YOU DO FOR MANKIND.
BERTOLINI: WE'RE 34th OUT OF 34 IN VALUE AMONG THE OECD NATIONS. WE'RE 11th WHEN YOU ADD TOGETHER HEALTH CARE AND SOCIAL SPENDING. WE'RE THE ONLY NATION OF THE OECD NATIONS THAT SPENDS 142% ON HEALTH CARE. WE SPEND 62%. EVERYBODY ELSE IS SPENDING MORE ON DETERMINATES – SOCIAL DETERMINATES, AND WE WONDER WHY WE HAVE AN OPIOID EPIDEMIC, WHERE 80% OF ALL THE O PIODS PRODUCED IN THE WORLD ARE CONSUMED BY AMERICANS. AND WE HAVE THIS PROBLEM. IT'S A LOSS OF HOPE, AND THERE'S A MALAISE AROUND THE LACK OF HEALTH BECAUSE OUR SYSTEM ISN'T GENERATING THE KIND OF RESULTS WE NEED TO GET.
KERNEN: WHAT HAPPENS WITH ANTHEM, HOW'S THAT GONNA WORK? 2020 IS THE DATE ON THE HORIZON, RIGHT?
MERLO: AND JOE, THIS ANNOUNCEMENT REALLY HAS NO BEARING IN TERMS OF THE CAPABILITIES THAT WE HAVE TO BRING TO THE ANTHEM BUSINESS. WE'VE ALREADY BEGUN THAT --
KERNEN: ARE YOU GOING TO STICK WITH THAT, EVEN IF YOU HAVE AETNA?
MERLO: JOE, ONE OF THE THINGS THAT'S INTERESTING ABOUT THIS COMBINATION IS THAT WHILE WE'RE STARTING HERE TO BUILD UP THESE CAPABILITIES, WE WANT TO MAKE THIS BROADLY AVAILABLE ACROSS THE INDUSTRY. I THINK THAT'S ONE OF THE KEY ELEMENTS ASSOCIATED WITH THIS. IT REALLY BEGINS TO BEND THIS HEALTH CARE COST CURVE THAT WE'VE BEEN TALKING ABOUT. MARK SAID IT YESTERDAY, HE SAID IT VERY WELL. YOU KNOW, THE ABILITY TO CREATE SOMETHING THAT CUSTOMERS WANT TO COME AND USE, YOU KNOW, WE THINK THAT IS THE IMPORTANT ENABLER IN TERMS OF BEING ABLE TO MAKE THIS BROADLY AVAILABLE FOR ALL MUCH OUR CLIENTS AND PARTNERS.
KERNEN: WHAT WAS CVS'S TAX RATE LAST YEAR?
MERLO: ABOUT 39%.
QUICK: 39%?
BERTOLINI: 42.
QUICK: 42?
BERTOLINI: YEP.
KERNEN: U.S. COMPANIES DON'T PAY THE NOMINAL TAX RATE, THEY TELL ME. IN YOUR CASE YOU'RE PAYING MORE. THESE GUYS NEED NEW ACCOUNTANTS.
BERTOLINI: JOE, WE'VE BEEN CONSISTENT IN TERMS IT OF, YOU KNOW, THE IMPACT OF MEANINGFUL, YOU KNOW, COMPREHENSIVE TAX REFORM WILL HAVE A TREMENDOUS YOU KNOW, IMPACT IN TERMS OF OUR OPPORTUNITY TO INVEST.
KERNEN: GET MORE MONEY FOR THE INSURANCE COMPANIES.
MERLO: INVEST BACK --
KERNEN: USE IT WISELY. YES.
MERLO: CAPITAL. JOBS. INFRASTRUCTURE. AND BY THE WAY, IT WOULD CERTAINLY ALLOW US TO ACCELERATE SOME OF THE INVESTMENT THAT IS WERE TALKING ABOUT HERE THIS MORNING.
KERNEN: SO HAS THE 33% RISE IN THE DOW, I MEAN, IT'S NICE TO PARK STOCK TO MAKE THE ACQUISITION. A LOT OF TIMES YOU SEE MERGERS INCREASE WHEN THERE'S ANIMAL SPIRITS AND STOCK MARKET ACTIVITY. DOES THAT HELP? DOES THAT HELP GET YOU WHERE YOU ARE TODAY THAT THE BUSINESS ENVIRONMENT –
MERLO: I THINK IT IS AGAIN, YOU KNOW, I THINK THIS COMBINATION ENABLES US TO DO A TREMENDOUS AMOUNT.
KERNEN: I'M JUST TRYING TO FIGURE OUT. HOW MUCH MONEY ARE WE TALKING ABOUT ON THE BOTTOM LINE IF YOU ARE PAYING, WHAT DID YOU SAY, 42? --
MERLO: WE PAY -- CVS PAYS 1% OF ALL CORPORATE TAXES IN AMERICA.
KERNEN: HOW MUCH COMES RIGHT TO THE BOTTOM LINE IF THIS GOES THROUGH AT 20?
MERLO: THAT'S THE INTERESTING THING. THE FIRST YEAR THERE'S A LOT OF CAPITAL GENERATED. THEN YOU HAVE MINIMUM LOSS RATIOS, YOU HAVE ALL THE OTHER THINGS THAT YOU NEED TO WORRY ABOUT THE REGULATORED ENTITIES VERSUS UNREGULATED ENTITIES --. SO THAT'S SOMETHING WE NEED TO WORK THROUGH.
MERLO: THE IMPORTANT THING BEING THAT WE WANT TO USE THOSE CAPABILITIES TO INVEST BACK INTO THE BUSINESS FOR GROWTH.
QUICK: RIGHT. GENTLEMEN, I WANT TO THANK YOU BOTH FOR JOINING US HERE TODAY. WE REALLY APPRECIATE YOUR TIME AND HOW IN DEPTH YOU'VE BEEN WITH US. THANK YOU FOR BEING HERE.
MERLO: THANKS FOR HAVING US.
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