If Aetna Inc. is eventually swallowed by CVS Health Corp., an importantpart of the health-care business will be changed -- perhaps forgood.

For years, pharmacy benefits were largely carved out fromthe rest of a medical coverage plan. But increasingly the twoservices are being combined, a move that in theory will make iteasier to verify whether expensive drugs are worth the cost. Amerger of the third-biggest health insurer with the largest U.S.drugstore chain, which also operates a pharmacy-benefit managementcompany, could speed the process.

“You are hearing the warning for the end of the road for theclassic standalone” pharmacy-benefit business, said Pratap Khedkar,managing principal at consulting firm ZS Associates.

Drugmakers are producing more pricey treatments for cancer and rarediseases. Combining drug and medical benefits in the same place is“the only way” payers will figure out whether such expensive newdrugs are actually making people better and saving money by keepingthem out of the hospital, he said.

A merger of CVS and Aetna would create a health-care behemothand put huge pressure on standalone players such as Express ScriptsHolding Co. and Walgreens Boots Alliance Inc. Express Scripts wouldbecome the last major standalone pharmacy-benefit manager notallied with a major insurer.

All channels

CVS and Aetna have held discussions about a potential deal,according to people familiar with the matter who asked not to beidentified as the details aren’t public. A newly combined companywould “own the entire chain, from prescribing and fillingprescriptions to the health plans that pay for them,” said MichaelRea, of Rx Savings Solutions, which has an app that helps patientsfind lower cost drugs.

Under a combined roof, the insurance arm of CVS-Aetna could helpkeep costs down by routing patients needing basic urgent care toCVS-owned walk-in clinics and keeping them out of expensivehospital emergency rooms, analyst Ann Hynes of Mizuho Securitiessaid in a note to clients. The company would also become aformidable competitor to UnitedHealth Group Inc., the biggesthealth insurer and owner of its own PBM unit, OptumRx.

But even with the new clout, a merger isn’t likely to bederailed by federal antitrust authorities, said John Briggs, anantitrust attorney at Axinn Veltrop & Harkrider inWashington.

CVS and Aetna declined to comment.

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Walgreens, the No. 2 drugstore operator, could also feel thepressure. A CVS-Aetna marriage could cause the drugstore chain tolook for its own acquisition targets, with Express Scripts beingthe most likely, Charles Rhyee, an analyst at Cowen & Co.,wrote in a note to clients Friday.

And then there’s Amazon.com Inc., which recently gaineddrug-wholesaler licenses in 14 states. The looming threat of thee-commerce behemoth entering the mail-order pharmacy business andpushing down profit margins for drug distributors, benefit managersand retail pharmacies intensifies the pressure on standaloneplayers.

For CVS, the move is “a natural defense against the potentialthreat of Amazon entering the retail pharmacy market,” Rhyeesaid.

Another possibility is that Amazon could buy Express Scripts.That would give the internet retailer an instant and large footholdin both the PBM industry and the mail-order pharmacy business.

‘Strong’ model

Health insurer Anthem Inc., Express Scripts’ biggest currentclient, announced earlier this month that it would leave ExpressScripts when its contract ends at the end of 2019 to form its ownPBM unit. And Prime Therapeutics, another major player, managesdrug benefits for nonprofit Blue Cross and Blue Shield plans innumerous states.

“Our model is strong and thriving,” said Jennifer Luddy, aspokeswoman for Express Scripts. “We believe in the value that weprovide to our customers as an independent PBM.”

On an earnings call this week, Express Scripts Chief ExecutiveOfficer Tim Wentworth said he was open to a deal with Amazon tohelp serve cash-paying patients.

Walgreens declined to comment.

In terms of the CVS-Aetna deal, antitrust authorities will lookclosely at the competition between the companies in sellingMedicare Part D plans for the elderly, said Briggs, theattorney.

There could be fight between the Justice Department and theFederal Trade Commission, which share antitrust enforcement, overwhich agency will investigate the merger, according to Briggs. TheJustice Department handles insurer mergers and successfully stoppedthe combination of Aetna and Humana Inc. this year. The FTCinvestigates retail pharmacy deals. In September, it clearedWalgreens’ acquisition of 1,900 Rite Aid Corp. stores afterWalgreens shrank the size of the deal.

Still, a CVS-Aetna deal would likely win approval because anumber of other major players will remain in the Part D market, hesaid.

“That’s an easy fix,” Briggs said. “The whole deal is not goingto crater on account of Part D.”

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