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No Easy Answers In CVS, Aetna Merger Debate

by | Oct 4, 2018 3:49pm () Comments | Commenting has expired | Share
Posted to: Business, Insurance, Jobs, Labor, Hartford

Katherine Welles via shutterstock

HARTFORD, CT — Will the pending $69 billion merger between pharmaceutical giant CVS Health Corporation and Aetna, Inc. increase competition or limit it?

The question isn’t easy since mergers like this between two different yet similar companies in the healthcare industry is fairly new.

During the three-hour hearing Thursday, regulators asked officials from both companies what impact the merger would have on the competition in the insurance and pharmacy marketplace in Connecticut.

The Connecticut Insurance Department has 30 days now to weigh in on the merger. Whatever it decides will only influence the $69 billion deal, which is ultimately in the hands of the U.S. Department of Justice.

California’s Insurance Commissioner has already urged the U.S. Justice Department to block the merger saying it would “have significant anti-competitive impacts on American consumers and health care and health insurance markets.”

That conclusion was reached before Aetna proposed divesting itself of its Medicare drug business.

California Insurance Commissioner Dave Jones wrote on Aug. 1 that “The proposed merger of CVS and Aetna will significantly reduce competition in the PBM and Medicare Part D markets, affecting millions of health care consumers throughout the country.”

“A merger of this size and type, according to experts on health insurer and health care mergers, will likely lead to increased prices and decreased quality,” he said.

Aetna President Karen Lynch said Aetna does not have a retail footprint in any of the communities it serves.

“The Aetna and CVS transaction bring together two innovative businesses in a sector that’s very, very much in need of change,” Lynch said. “We believe the new company will offer a local experience that’s simpler to use and based on what consumers want.”

William Custer, one of two Georgia State University economists who testified Thursday, said the merger is largely a “vertical one” which tends to benefit consumers. But the two companies do currently compete against each other in the Medicare Part D arena.

Aetna announced last month that it intends to sell its Medicaid drug business to WellCare Health Plans Inc. But that deal has yet to be finalized.

If the deal between Aetna and Wellcare Health didn’t happen the merger between CVS and Aetna “would result in major increases in concentration in that particular market,” Custer told regulators.

The pharmacy benefit management system may also be impacted.

Custer said CVS could increase prices in the pharmacy benefit management system in a way that could disadvantage rivals in the insurance business. Or they could change the insurance product in ways that advantage them over their rivals.

“We cannot predict with a high level of confidence how the proposed merger would affect prices or the quality of care in the relevant markets,” Custer and Robert Klein said in their written testimony. “Hence, we cannot predict with a high level of confidence whether the proposed merger would increase, decrease, or have no effect on consumer welfare.”

The Universal Health Care Foundation said in a statement that it has concerns about the deal.

“We disagree with the fundamental argument put forth by CVS and Aetna that this merger will deliver substantial public benefits such as improved health outcomes and lower health care spending,” the foundation said.

It’s also concerned the regulatory process is not sufficient to determine whether consumers will benefit from the merger.

The Universal Health Care Foundation said the state should get assurances that the new company will report under Connecticut laws as both a Pharmacy Benefit Manager and an insurer. It should find out if the new merged entity still plans on upholding Aetna’s promise to pass prescription drug rebates on to consumers at the pharmacy counter and there should be a promise to open up CVS Minute Clinics in underserved communities.

Nathan Tinker, the CEO of the Connecticut Pharmacists Association, said they are opposing the merger because it will only further consolidate pharmacy benefit managers to the detriment of the consumer. CVS is already big and is able to use its market share to “exercise undue market leverage and generate outsized profits,” he said in his written testimony.

Tinker said sometimes if an independent pharmacy that he represents isn’t willing to accept the onerous contract terms, the pharmacy benefit manager will exclude certain pharmacies from their network, which limits patient choice. He said bringing the insurance company and its pharmacy benefit manager under the same roof is tantamount to the “fox watching the henhouse.”

It’s not an easy position to take considering CVS Health Corporation committed to keep Aetna’s headquarters in Hartford for the next 10 years and will maintain its current staffing level of 5,291 employees in Connecticut for at least the next four years. The state did not have to offer any economic incentive to the company to get that commitment.

It will also keep Aetna’s monetary commitment to the city of Hartford and its philanthropic commitment through the Aetna Foundation.

Joseph Brennan, president and CEO of the Connecticut Business and Industry Association, said the economic impacts of the merger should not be overlooked.

“We think this is a tremendous, tremendous move for the state of Connecticut to have these two companies combine,” Brennan said. “Particularly given the commitment that was made yesterday as far as the headquarters and the employment levels for a period of time.”

Brennan said this is the most optimistic he’s been in a long time about the future of the city.

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