AET Aetna Inc. (delisted)

By Anna Wilde Mathews and Aisha Al-Muslim 

CVS Health Corp. completed its nearly $70 billion acquisition of Aetna Inc., forging a new industry giant and starting the clock ticking on ambitious goals of curbing health-care costs and improving consumers' experience.

The combined company faces significant challenges in bringing together its diverse set of health assets, including CVS's sprawling network of pharmacies, a pharmacy-benefit manager and Aetna's employer insurance, Medicare and Medicaid managed-care businesses. Aetna will be operated as a stand-alone unit, and CVS will continue using the brand in reference to its insurance products.

In an interview, CVS Chief Executive Larry Merlo said the merged company has the right combination to smooth the fragmented health-care experience for consumers. "We have the capabilities to connect the dots in a very differentiated way," he said.

Analysts said CVS faces a heavy lift in uniting two complicated companies that have very different business models and approaches -- and making changes in a health-care system that has long been resistant to them. "Bringing these parts together is hard," said Sam Glick, a partner with consulting firm Oliver Wyman, a unit of Marsh & McLennan Cos. "The industry and consumers will be watching closely to see if one-plus-one is really greater than two."

Mr. Merlo said the companies have been cooperating closely on planning integration efforts, and they already have operational ties because CVS has been acting as Aetna's PBM. "The two organizations know each other well, from a cultural point of view," he said. He said CVS has learned from successfully executing earlier mergers.

The combined company will move quickly to begin introducing new initiatives, Mr. Merlo said, and a handful of planned new pilot stores will open in the first half of the first quarter of 2019. The company expects to be able to understand pretty quickly which elements of the pilots are effective, he said.

For the pilots, CVS will remodel some of its existing locations to be part of the company's planned hub-and-spoke setup, Mr. Merlo said. CVS has said a geographic area would have a main pharmacy offering a larger, upgraded array of services and other drugstores referring patients to the hub when needed.

Among the changes being tested will be upgraded versions of CVS's MinuteClinics, as well as efforts to help patients with diet and nutrition issues and guide them in understanding their health-plan offerings, the CEO said. He said CVS also wants to "act as that integrator" for patients' needs, helping them to connect with other services such as transportation or access to food.

CVS has said it expects to achieve savings of more than $750 million in the second year of its deal, from a combination of reduced corporate expenses, integration of operations and cuts to medical costs. On the medical-cost side, the company has said it wants to improve patients' adherence to their prescriptions and start pushing care to lower-cost sites. That includes reduced use of emergency rooms and moving certain types of therapies, such as infusion of drugs, out of expensive settings such as hospitals.

The company has said a major focus will be on better managing five chronic conditions: diabetes, cardiovascular disease, high blood pressure, asthma and behavioral health.

CVS has said it would offer specific financial guidance for the combined company in February. "Investors are going to continue to probe around better understanding the strategy the combined company is going to take, " said Matthew Borsch, an analyst with BMO Capital Markets.

The new CVS is part of a broader trend of health-care companies that are vertically integrating, in different forms. CVS will compete against UnitedHealth Group Inc., which includes the biggest U.S. health insurer as well as a PBM, a data powerhouse and a sprawling network of physicians, urgent-care clinics and surgery centers. Cigna Corp. is moving forward with its own acquisition of Express Scripts Holding Co., uniting an insurer and PBM.

Write to Anna Wilde Mathews at anna.mathews@wsj.com and Aisha Al-Muslim at aisha.al-muslim@wsj.com

(END) Dow Jones Newswires

November 28, 2018 14:17 ET (19:17 GMT)

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