After a month of negotiation, CVS Health Corp (NYSE:CVS) has agreed to buy Aetna Inc (NYSE:AET) for $69 billion, about $3 billion more than it offered to begin negotiations in October.

CVS is known for its drugstores, Aetna is a health insurer and a lot of analysts were shocked when the negotiations were first announced. I was not. I praised the pending deal as a chance to get a handle on healthcare costs.

Aetna shareholders are due to get $207 per share when the deal is done, about one-third of that in CVS stock. Aetna shares were at $188 before the market opened Dec. 4. CVS was due to open at about $75 per share.

The problem for insurers is that they only control half of the industry, the money coming in. They have no control over costs. The biggest cost they face is drugs. CVS gives Aetna the opportunity to control those costs. Aetna, meanwhile, guarantees CVS customer flow.

Let’s Review

The model was proven by UnitedHealth Group Inc. (NYSE:NYSE), the largest insurer in the space after it bought Catamaran Corp. in 2015. Not only did this sink the stocks of the pure-play Pharmacy Benefit Managers (PBMs), like Express Scripts Holding Co. (NASDAQ:ESRX), which has lost nearly one-third of its value since the Catamaran deal closed, but it damaged CVS’ own Caremark PBM, and CVS stock is down one-third in that time.

While most of the market is obsessed with the idea of Amazon.com, Inc. (NASDAQ:AMZN) getting into the pharmacy business, it is this move to link the income of insurance with the outgo of drugs and care that is having the greatest impact on the marketplace.

Managed care companies like Centene Corp. (NYSE:CNC), which also own healthcare facilities and can steer patients to them, have been growing, while the traditional health insurers have been struggling.

Centene is up nearly 80% so far in 2017, profiting on Medicare and Medicaid contracts, and entering the Health Exchange market under the name AM Better.

Bring Care, Not Insurance

The lesson of Obamacare is that what people want is care, not insurance. Care means regular check-ups, monitoring of chronic conditions and profits derived from keeping people out of the hospital. Insurance is a gamble that people won’t need healthcare, which considering the nature of people, is always a losing bet.

It will take time to run this deal through regulators, and it will take more time for the two companies to integrate their back-office systems. But the combined market cap of CVS-Aetna is currently $135 billion, against $220 billion for UNH. What it indicates is more consolidation coming into the space.

That consolidation can take two forms. CVC-Aetna indicates one form, insurers buying pharmacies to fight high drug prices through formularies, lists of medicines that will be pushed for various conditions. Using generics in formularies, and choosing among name brand drugs where generics aren’t available, is one way to keep drug prices down.

Another route is to buy facilities, or at least make deals that integrate their operations with those of care companies, like the deal Centene has with WellStar Health System in Georgia, serving AM Better patients.

Over time, as insurers gain experience with front-line care, which CVS delivers through its Minute Clinics, I expect insurers to start buying hospitals or hospital chains to fill their acute care needs.

The Bottom Line on the CVS-Aetna Deal

The CVS-Aetna deal signals a new era in healthcare, with insurers finally achieving the vertical integration they need to control costs.

With Aetna now spoken for, Cigna Corp. (NYSE:CI), Humana Inc. (NYSE:HUM) and Anthem Inc (NYSE:ANTM) remain unspoken for. A deal between Aetna and Humana was among those stopped by the Obama Administration.

They won’t be stopped from merging vertically, and now they’re going to have to. Let the merger dance begin.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in AMZN.