As the specter of Amazon.com Inc. looms over the health-careindustry, it’s easy to see the tech giant’s threat as a majorfactor behind the megadeal between CVS Health Corp. and Aetna Inc.

Yet the $67.5 billion deal will build a company to match upagainst a rival that already has businesses spread deep across thesector: UnitedHealth Group Inc.

The takeover, announced Sunday, will combine CVS’s drugstores,clinics and drug-distribution operation with Aetna’shealth-insurance products. The companies’ executives say thetransaction will make health care more accessible to consumers atCVS locations, promising higher quality, lower costs and moreconvenience.

UnitedHealth, the biggest U.S. health insurer, already offersmany similar services. Its Optum business works with more than30,000 doctors across more than 230 urgent-care clinics and 200surgery centers, as well as regular doctors’ offices. It doesn’town drugstores, but its pharmacy-benefit manager serves 65 millionpeople -- compared with 90 million members at CVS’s PBM.

“The path here has been led by UNH/Optum,” Matthew Borsch, ananalyst at BMO Capital Markets, said in a research note about theCVS-Aetna deal. “We see a bold strategy to match (and possibly leapfrog) the health-care/PBM integration strategy.”

The integration is part of a wide-ranging effort byhealth-insurance companies and the federal government to shift careaway from paying for each service, and toward paying doctors andhospitals for taking better care of patients and keeping themhealthier. The move, known as value-based care, challengestraditional reimbursement models and business strategies across theindustry.

The UnitedHealth model of putting different parts of care underthe same roof can remove perverse incentives from the system. Somecritics have said that pharmacy-benefits managers, known as PBMs,have cause to push up drug prices to improve their profits, forexample.

Making them part of the same company that also delivers care andoffers health insurance can ensures it doesn’t happen,said Craig Garthwaite, a professor ofstrategy at Northwestern University’s Kellogg School ofManagement.

|

‘Better outcomes’

“The things you need to do if you want to get people to behealthier, or at least reduce their spending and get betteroutcomes, require a lot of investments that come from both theinsurance company and the locations of care,” Garthwaite said.

When different parts of the system combine, “everyone’s profitmotives are aligned at providing care that leads to good outcomes,”he said.

To be sure, the prospect of Amazon’s potentially entering somepart of the drug business, such as distribution or retail, probablyplayed into the CVS-Aetna tie-up. The addition of a health insurerlessens CVS’s reliance on front-of-the-store sales at its retailpharmacies -- products like toothpaste and shampoo that alreadyface some competition from Amazon.

Speculation has been rife over the past months that the Internetbehemoth is planning an entry that could shake up the sector. Sofar Amazon has made no clear move to do so, and hasn’t commentedpublicly on its intentions.

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.