Aetna CEO Mark Bertolini will resign his position post-closing of CVS Health's $69 billion acquisition of Aetna and join the board of directors for CVS Health, executives said Thursday during a Connecticut Insurance Department hearing on the merger.
Aetna President Karen S. Lynch will replace Bertolini as the insurer's top executive, and will have oversight for the day-to-day operations. Under the management structure, Lynch will also serve as executive vice president of CVS Health.
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Larry Merlo, president and CEO of CVS Health, will also become the CEO of the combined company.
There are no plans to make any changes immediately after Aetna merges with CVS, said said Colleen McIntosh, senior vice president, corporate secretary and assistant general counsel for CVS Health.
Synergies of $750 million in savings are expected to be carried out within the second full year of the merger. Savings will include cutting duplicative senior roles, with costs of $400 to $600 million expected to pay one-time severance packages for some top executives, said Mario Ramos, senior vice president, COO and CFO of Aetna Integration.
In a commitment letter, CVS promised to keep Aetna's corporate headquarters in Hartford, Connecticut for at least 10 years and to retain current staffing levels of about 5,291 employees for at least four years. Aetna has been in Connecticut for 165 years.
Bertolini did not attend Thursday's hearing by the Connecticut Insurance Department to consider granting approval of the acquisition. Department officials made no decision following the hearing, with the public comment period open through the end of day.
WHY THIS MATTERS
Federal regulators are currently considering the merger that is expected to go through by the end of the year.
Anti-competitive concerns from the Department of Justice prompted Aetna to divest some of its Medicare Part D plans to WellCare.
CVS already provides pharmacy benefit services for Aetna, with the insurer representing about 11 percent of CVS Health's revenues. CVS also has other customers for its PBM services.
Insurer and pharmacy benefit manager mergers and collaborations, such as the recent Cigna and Express Scripts deal, have become a popular means of vertical integration for payers to take cost out of the system.
The current system is fragmented and siloed, Lynch said.
The combined CVS-Aetna system will have better analytical capabilities to learn more about health needs of the 46 million members served by Aetna, she said. This includes learning more about the social determinants such as housing, transportation and food insecurity, that can affect care.
Sixty-percent of factors leading to premature death have nothing to do with care related to a physician or even genetics, Lynch said. The health system can no longer ignore social and environmental factors.
Paying attention to patient needs outside of the hospital or outpatient setting is becoming necessary to meet the needs of value-based care. Aetna will have 20 percent of its contracts with providers in value-based models by 2020. In Connecticut, that figure is expected to be 90 percent, according to Lynch.
Both CVS and Aetna executives pressed the benefits of the merger as being consumer-centric.
The transaction gives CVS the opportunity to become the new "front door" to the health system by engaging patients where they are, Lynch said.
Nurse practitioners staff CVS Health's MinuteClinics, which give patients access to care after hours. Most consumers see their pharmacist more often than they see their doctor.
Studies have shown that hospital readmission rates decline when patients have access to primary care 30 days after discharge, said William Custer, associate professor at Georgia State University.
The combination with Aetna will build better communication technology between doctor, pharmacy and patient, said Thomas M. Moriarty, executive vice president, chief policy and external affairs officer, and general counsel, CVS Health.
Diabetes and heart disease threaten to bankrupt the system, he said. About 8.9 percent of the population is diabetic.
The company can deploy digital tools to manage the care of patients with diabetes. It means more enhanced care between physician visits through such efforts as remote monitoring of blood glucose levels, Moriarty said. The entire healthcare system will benefit from the greater use of information and analytics to avoid unnecessary hospital visits.
ON THE RECORD
"This brings together two businesses in a sector very much in need of change," Lynch said.