Dive Brief:

• ​The $78 billion (including debt assumption) vertical megamerger of CVS and Aetna is official, combining the retail pharmacy powerhouse with Aetna’s health insurance business to create a mammoth healthcare entity with annual revenue of over $245 billion. Aetna will continue to operate as a standalone business under the umbrella of CVS Health.
• Together the two healthcare giants will operate more than 9,700 retail locations, more than 1,100 walk-in medical clinics and a pharmacy benefit manager with nearly 90 million members. They will also operate a health insurance plan that serves nearly 45 million Americans.
• CVS Health offerings, along with any new products or services developed by the new company, will be broadly available to consumers regardless of their insurer, and Aetna members will continue to have access to a range of pharmacies beyond CVS. The company plans to introduce new services in the next couple of months, including programs targeting chronic disease management and expanded MinuteClinic services.

Dive Insight:

The new company will operate under the moniker CVS Health and has an annual revenue second only to Walmart in the U.S. Its creation exemplifies a rapidly consolidating industry and crumbling of silos in healthcare. Some analysts the company has the potential to upend the current healthcare landscape.

"Today marks the start of a new day in health care," touted CVS Health president and CEO Larry Merlo, in a press release. He called the new company, where he'll remain at the helm, the "front door to quality health care."

Aetna shareholders will receive $145 in cash and 0.84 shares of CVS stock under the terms of the transaction.

The deal is expected to achieve $750 million in cost savings in the second year after closing.

On CVS' Q3 earnings call in early November, Merlo said the post-merger plan to integrate the two companies is "largely complete." Next year will be "highly focused on the integration of the businesses" and the establishment of the new healthcare model, according to CVS executive vice president, controller and chief accounting officer Eva Boratto.

Boratto will become CFO of the conglomerate, which will expand its board to include three additional Aetna representatives and Aetna's current CEO Mark Bertolini.

Many worry about the debt implications of the deal. Following the announcement of the merger's close, Moody's downgraded CVS Health's senior unsecured rating, and confirmed its overall ratings outlook as negative.

"The large increase in debt resulting in weaker credit metrics coupled with increased competition, reimbursement rate pressure, regulatory and political uncertainty especially pertaining to drug pricing, the high execution and integration risk and the changing landscape of the healthcare sector are key risks leading to our one notch ratings downgrade," Moody's VP Mickey Chadha said.

The merger approval process has ticked along comfortably since its December 2017 announcement, though there were a few snags. CVS and Aetna have had to fiercely rebuff allegations that the merger would result in anti-competitive behavior among pharmacy benefit managers, local health insurance markets and local retail pharmacy markets.

After receiving shareholder approval in March, the union cleared its next major hurdle mid-October when it received Department of Justice approval, conditional on Aetna divesting its standalone Medicare Part D business to a WellCare subsidiary.

The federal government's nod allowed the deal to move forward with its required 28 state approvals. 

The last two states to approve, New Jersey and New York, yielded Nov. 21 and Nov. 26, respectively. New York approved following a contentious back-and-forth between CVS/Aetna execs and state regulators.

During a public hearing in October, New York Department of Financial Services Superintendent Maria Vullo threatened to derail the merger unless the companies agreed to not raise insurance premiums in the state and to New York regulation of the CVS pharmacy benefits manager.

Vullo's concerns CVS would raise premiums for 1.1 million Aetna policyholders in the state to help pay back the $40 billion it borrowed to finance the merger were not enough to sink the deal (under which the combined companies promise not to pass along any acquisition costs).

To cinch the Empire State, CVS and Aetna pledged $40 million to support health insurance education and enrollment, committed to enhanced consumer and health insurance rate protections and agreed to privacy controls and cybersecurity compliance, among other caveats.

California's green light, received just a week before the deal closed, was also in no ways assured — its insurance commissioner publicly repudiated the marriage earlier this year. The state's reluctant OK also came with conditions: that the combined company wouldn't increase premiums to offset acquisition costs, and any unrelated premium increases would be kept to a minimum. CVS-Aetna also had to agree to put about $240 million in California's healthcare delivery system.

Concerns about the deal have been rampant throughout the process, and not just at the state level.

The American Medical Association, for one, can't be happy at the news. The group released a scathing report earlier this year arguing the proposed acquisition would reduce competition across many markets, harming patient care — a concern shared by New York's Vullo.

"The proposed transaction, if approved, would create an incredibly large market share in the health care market for the combined company, in an already concentrated marketplace, and is likely to increase prices for members and reduce options for consumers, without any discernible increase in quality," Vullo wrote to Katherine Wade, commissioner of Connecticut's insurance department, in September.

At a Connecticut Insurance Department public hearing in October, Charles Bell of the Consumers Union agreed, pointing to the fact that the top three PBMs control 72% of the market already. "These new insurance-PBM combinations threaten to be major healthcare oligopolies," he said.

But company execs argue it isn't in the business interests of the new entity to do so, and stress its cost-saving potential for patients, primarily through lowering of insurance premiums, and for the company itself.

And it's not all about the money, say CVS and Aetna officials. Marrying the CVS pharmacy benefit management arm with Aetna's health plan will allow the amalgam business to treat patients more holistically.

The more than 1,100 Minute Clinics that CVS runs will play a key role in the equation, allowing the combined company immediate access to consumers at the point of care.

The deal also poses a threat to providers as it may increase access to clinical pharmacy services, Lindsay Conway, managing director at the Advisory Board told Healthcare Dive last month.

Though the deal may have initially been prompted (at least in part) by Amazon's apparent interest in entering the pharmacy business in 2017, the e-commerce heavy hitter has more dipped its toe in the water with its June acquisition of PillPack, as opposed to diving in and investing heavy resources in the space. Amazon told regulators in 2017 it didn't plan on ever selling drugs itself.

This year has proven far more fruitful for megamergers than its predecessor. DoJ nixed the attempted horizontal merger of Aetna and Humana along with a proposed deal between Anthem and Cigna in 2017, but granted approval for two major PBM-insurance combinations this year: CVS-Aetna and Cigna-Express Scripts.