Wednesday, 10 October 2018

$69 Billion Merger of Aetna and CVS

CVS medical

CVS Health and Aetna $69 Billion Merger Is Approved With

The Justice Department’s approval of the $69 billion mergers between CVS Health and Aetna
on Wednesday caps a wave of consolidation among giant health care players that would
leave American consumers with less control over their medical aid and prescribed drugs.
The approval marks the close of an era, during which powerful pharmacy benefit managers
brokered drug prices among pharmaceutical companies, insurers, and employers.
But a combined CVS-Aetna could also be even more formidable. As the last major free-standing
pharmacy manager, CVS Health had revenues of about $185 billion last year and provided
prescription plans to roughly 94 million customers. Aetna, one of the nation’s largest
insurers with about $60 billion in revenue last year, covers 22 million people in its health

The two companies say that they're going to be better ready to coordinate look after consumers because of the
mergers help tighten cost controls. Larry J. Merlo, the chief executive of CVS Health, said in a
a statement that the approval “is a crucial step toward bringing together the strengths
and capabilities of our two companies to enhance the buyer health care experience.”
But critics worry that buyers could find yourself with far fewer options and better expenses.
Just last month, the Justice Department also approved the takeover of Express Scripts, a
major CVS rival, by the big insurer Cigna.

“This sort of consolidation during a market already dominated by a couple of, powerful players
presents the very real possibility of reduced competition that harms consumer choice and
quality,” George Slover, senior policy counsel for Consumers Union, an advocacy group, said
in a statement.

The consumer organization had opposed the Aetna-CVS merger, arguing that folks
enrolled in Aetna health plans might be forced to hunt care at CVS retail clinics, and that
those who weren't insured by Aetna could pay higher prices for drugs than those that

“The combination of CVS and Aetna creates a huge market the force that we haven’t seen
before,” Mr. Slover said.

The Justice Department had undertaken an antitrust review of these types of deals,
approving many because they involve distinct businesses. It granted conditional approval to
the CVS-Aetna deal as long as Aetna sold off its private Medicare drug plans.

Amid the growing outcry over the high price of medicines, pharmacy managers have been
vilified alongside big drug makers. Critics say pharmacy managers’ secretive deals — under
which price-setting strategies are not publicly disclosed — enrich companies on all sides of
the prescription pipeline while failing to profit consumers.

In addition to the 2 major entities now attached to powerful insurance companies,
OptumRx, another major pharmacy manager, is owned by UnitedHealth Group. Anthem,
which operates for-profit Blue Cross plans in several states are developing its own in-house
pharmacy operation.

“There are going to be mammoth organizations,” said Adam J. Fein, the chief executive of
Drug Channels Institute, a research firm.
Now that generic drugs account for about 90 percent of all prescriptions, the role of
pharmacy benefit managers referred to as P.B.M.’s, has changed over time, with higher drug
prices largely a product of the rise inexpensive specialty medicines for conditions like
rheumatoid arthritis or cancer.

“The job of the P.B.M. is being transformed,” Mr. Fein said.
Facing the prospect of competition from outsiders like Amazon, whose tentative forays into
the pharmacy business has already surprised the industry, established players have also
been looking for ways to stay relevant to their customers and enlarge their share of the
health care market.

The companies “are feeling pressure to try to something different or it'll be done to them,”
said Brian Marcotte, the chief executive of the National Business Group on Health, which
represents large employers.

Some employers are actively looking for alternatives to the status quo. This year, Amazon,
JPMorgan Chase and Berkshire Hathaway announced plans to form a new company to
address the high costs and frustrations that their employees must contend with as they
navigate the existing system.

“It’s a disruptive period of time when the players are rearranging themselves,” said David W.
Johnson, the chief executive of 4sight Health, a consultant.
Five state attorneys general — from California, Florida, Hawaii, Mississippi, and Washington
— joined with the Justice Department in conditionally approving the Aetna-CVS deal. The
the merger is expected to be finalized sometime before the end of the year.

The preliminary approval was based on Aetna’s decision to sell its plans to WellCare Health
Plans to deal with the government’s concerns that the combined companies would control
too much of the market. But state regulators and consumer groups have also raised other
concerns about the impact of the merger, saying that the shortage of huge pharmacy managers
that aren’t affiliated with insurers could make it difficult for smaller competitors in either

Previous mergers within the industry have left consumers with fewer choices and better drug
bills, said David A. Balto, an antitrust lawyer who is the critic of the pharmacy managers.

“This is a marketplace that hasn’t done well because of a lack of transparency, and
transparency may be even weaker,” said Mr. Balto, who had worked at the Federal Trade
Commission and the Justice Department.

Affiliations with large insurers could change that dynamic, he added. “It might correct a number of the more pernicious practices.”
Mr. Balto warned that while state officials have not traditionally overseen pharmacy
managers, the combined mammoths “could bring them into the crosshairs of regulation.”
The mergers also show how far organizations are crossing the traditional line between
insurance companies responsible for paying for care and providers responsible for
delivering it.

There have always been organizations that perform both functions, but the lines have been
increasingly blurred. UnitedHealth, for example, has been aggressively buying physician
practices and surgery centers, while Humana announced plans to become the nation’s
the largest provider of hospice care.

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