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CVS, Aetna Merger May Face Antitrust, Consumer Protection Issues

The CVS and Aetna merger is likely to face legal hurdles related to consumer protections, industry competition, and regulatory hearings from the Department of Justice.

CVS-Aetna merger may face antitrust issues.

Source: Thinkstock

By Thomas Beaton

- The American Antitrust Institute (AAI) has warned the Department of Justice (DoJ) that the proposed CVS and Aetna merger would violate consumer protections and damage competition in the healthcare industry.

AAI believes that the merger of CVS Health, the US’s largest pharmacy benefit manager (PBM) and pharmacy retailer, with the nation’s third largest payer would allow both organizations to exclude competitors from the market.

The warning comes on the heels of a proposed merger between Cigna and Express Scripts, which would contribute to limiting consumer healthcare choices, AAI said.  

Both the CVS-Aetna and Cigna-Express mergers would alter the health insurance industry to a point where three payer-PBM organizations would have significant control over the healthcare marketplace.

“Together with the merger of Express Scripts-Cigna, CVS-Aetna would trigger a fundamental restructuring of the US healthcare system,” AAI said.

“Assuming both mergers move forward, the three largest integrated PBM-insurer systems (i.e., CVS-Aetna, Express Scripts-Cigna, and Optum Rx-United Healthcare) that would dominate the markets would have weak, if any, incentives to compete.”  

AAI suggested that the DoJ must be mindful of potential vertical integration practices that could create anti-competitive situations.

The CVS-Aetna and Cigna-Express Scripts mergers both raise concerns because of their potential to streamline distribution and production of health plans and pharmacy benefits. Vertically integrated companies could raise their costs for competitors and even cut off rivals from receiving resources.

AAI added that while the merging organizations suggest vertical integration would reduce consumer costs, there is no evidence to indicate that consumers would benefit.

“There is also growing skepticism over whether vertical mergers actually deliver the efficiencies claimed by their proponents,” AAI said. “With no ability to hold merging parties’ ‘feet to the fire’ to make good on the purported benefits of their deal, the antitrust agencies must be vigilant.”

Payer-PBM mergers may also dominate healthcare market share to the point where competitors would have no ability to participate.

AAI found that Aetna, Cigna, CVS, and Express Scripts already control significant shares of the market.

Aetna is the first or second largest payer in 59 out of 389 metropolitan areas, according to the AMA. The market share held by the nation’s four largest insurers, including both Aetna and Cigna, increased from 74 percent to 83 percent from 2006 to 2014.

CVS Caremark owns 25 percent of the nation’s PBM market and Express Scripts owns 24 percent, AAI found.

“CVS has a particularly hefty presence and accounts for 30 percent or more of contract pharmacy networks for 180 large covered entities such as hospitals and medical centers in local geographic markets in the US,” AAI added.

“CVS makes up 80 percent or more of the contract pharmacy networks of over 20 covered entities and 100 percent of the contract pharmacy networks of at least 14 covered entities.”  

Through majority market share ownership, CVS could negatively influence drug formularies and pharmaceutical benefits of rival insurers. Consumers that maintain coverage with another insurer outside of Aetna may face higher costs for both insurance and pharmacy benefits.

“High PBM market concentration and the inability of smaller PBMs to discipline competition increases the risk of input foreclosure and raises barriers to entry to potential entrants in health insurance,” AAI said. “Higher insurance premiums, lower quality, and less innovation in relevant health insurance markets would be the likely outcome, to the detriment of consumers.”

AAI concluded their report by suggesting that entities involved in large mergers should have to promise DoJ that consolidation would lead to lower consumer costs.

The consolidated healthcare organizations would also have to convince DoJ that creating a merger provides efficiencies that offsets harmful anti-competitive effects on the healthcare market.  

“We hope the DOJ will give [the merger] the intense scrutiny it deserves,” said AAI. “A move to block the proposed merger and the cascade of further restructuring of the healthcare sector that it would likely trigger would protect competition and consumers in vitally important healthcare markets.”

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