CVS Health and Aetna closed their $69 billion merger on Wednesday, November 28, 2018 bringing together one of the nation’s largest pharmacy chains with health insurance giant Aetna yet, there are still many unanswered questions.

  • What about antitrust implications?
  • Will this merger reduce healthcare costs?
  • How will it impact consumers/patients?

What about antitrust implications?

Antitrust regulators have been more permissive of these kind of mergers because they are considered vertical mergers. Vertical mergers are between two companies in different but related markets as opposed to horizontal mergers which is between two companies in the same business.

CVS Health had revenues of about $185 billion last year, and provided prescription plans to roughly 94 million customers and health care services in 9,700 locations. Aetna, one of the nation’s largest insurers with about $60 billion in revenue last year, covers 23.1 million medical members, 14.5 million dental members and 15.2 million pharmacy benefit managers as customers, according to the company’s website. The merger deal would create a company with combined annual revenues of $240 billion.

The Justice Department said it would approve the merger if CVS and Aetna resolve the overlap between their Medicare Part D plans. To satisfy these concerns, Aetna sold this part of its business to WellCare Health Plans.

A federal law requires the Justice Department to seek approval from a federal court for a settlement after it has addressed key issues with the merging companies. Judge Richard J. Leon, of the United States District Court in the District of Columbia did not block the $69 billion merger, but he expressed his concerns over the Justice Department’s approval of the merger and on December 21, 2018, issued an order where 4 conditions were imposed:

  • CVS and Aetna must operate as a separate and distinct unit from CVS retail pharmacy and pharmacy benefit manager CVS Caremark.
  • Aetna maintain its historical control over its pricing and product offerings.
  • Aetna personnel retain their current pay and benefits.
  • CVS Health maintain a firewall to prevent the exchange of competitively sensitive information between the two companies.

The merger deal also needed an approval by state regulators. California and New York regulators approved the deal with the following conditions:

  • CVS refrains from offering preferential pricing to Aetna.
  • New York provider networks will maintain access to the same percentage of independent pharmacies before and after the merger for three years.
  • The company must also annually report the pharmacy rebates Aetna receives and the amount returned to customers.
  • CVS-Aetna must refrain from raising premiums for the first five years but a threshold for maximum premium hikes was not identified.

Judge Leon held three days of hearings June 4, 5, and 6, 2019.   At the hearing on June 4, three witnesses, including the American Medical Association, expressed concern that the merger would further consolidate the health insurance market and drive up out-of-pocket costs for consumers. The AMA testified the divestiture would actually reduce competition in the prescription drug business because Aetna was a competitor with CVS and other providers.

At the three day hearing, Judge Leon said “the merger gives CVS extra leverage because it gains so many new clients by partnering with Aetna and gives CVS an unfair advantage with drug manufacturers, who would favor CVS over other pharmacy benefit managers (PBMs).” CVS’s PBM now handles Aetna’s prescriptions and that agreement is set to expire in 2023. Judge Leon expressed concern the merger would not allow Aetna to shop for another PBM. Judge Leon has scheduled additional oral arguments on the case in July.

Will this merger reduce health care costs?

CVS expects the deal to save a potential $750 million after two full years from streamlining administrative functions, negotiating better pricing and managing care more effectively. The two companies say that they will be

“better able to coordinate care for consumers and tighten cost controls. They will offer better, cheaper, integrated healthcare. CVS walk-in clinics would become community healthcare hubs where pharmacists would manage patients’ care and counsel them between primary-care visits. Combined funds and advanced analytics would allow them to tackle the social determinants of health and manage the care of chronically ill patients, where the bulk of healthcare spending lies.”

CVS said it has begun to put the new healthcare model in place and will introduce new products and services in the coming months that will

“target better, more efficient management of chronic disease using the networks, technology and the people of the combined company.”

CVS said it will offer services focused on self-management for patients’ chronic conditions, nutritional and behavioral counseling, and assistance with durable medical equipment. It will also offer new preventive health screenings in high-risk communities to diagnose and treat chronic illnesses. Finally, CVS said it is developing programs, such as medication reviews, and expanding services and hours at its clinics to reduce medical costs and keep patients away from the hospital and emergency room.

How it will impact consumers/patients?

It is unclear how the predicted savings of $750 million will translate to savings for consumers/patients. There is an ever growing sentiment that these savings will not be seen by the consumers/patients and instead their costs will go up and their care compromised. Here are some of those explanations of why this merger may be a bad idea:

  1. Patients will lose the ability to shop around for a lower price because the new captive audience will likely be required to use CVS pharmacies for their prescription and non-prescription needs. Although CVS claims Aetna members will be able to go to non-CVS pharmacies, it is unclear whether a financial incentive could be used to limit this activity.
  2. Patients will be compelled to use mail-order delivery for medications even when they need to interact with a pharmacist in person.
  3. The combined company may force its patients to use CVS walk-in MinuteClinics in place of their personal physicians. The MinuteClinics are staffed by mid-level professionals, not doctors and they tend to over-prescribe and over-refer to specialists, driving up system costs. Nearly half of people who visit walk-in clinics with cold or flu symptoms walk out with an antibiotic, despite clear guidelines that antibiotics are useless for treating such viruses, according to a Centers for Disease Control study. These clinics disrupt the doctor-patient relationship that has long been proven to improve health outcomes, especially in cases of chronic illness.
  4. It is unclear how many stores will be able to provide the many benefits CVS has advertised this merger would create. If it will only be a limited number of stores, will a small population be served and the projected savings severely curtailed? Only 11 percent of stores are currently offering clinical services. Those that are not, will require remodels, upgrades and other physical changes to their retail locations. CVS Health’s debts could hamper the speed with which these transformation can be made. CVS announced in early June it plans to open 1,500 HealthHUB stores by the end of 2021, remodeling its drugstores to increase their focus on health services and health products.
  5. Aetna members may lose access to the pharmacists’ services they were receiving at their current non-CVS pharmacy for a period of 2 or more years.

So is the merger a good deal? Time will tell. Experts say Judge Leon could force the Justice Department to renegotiate the terms of the merger with CVS and Aetna or could force the Department of Justice to go to court to challenge the merger. We will keep you posted.

CVS-Aetna Merger – a Good Deal?

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