CVS Health and Aetna will defend their proposed merger before Congress on Tuesday in a bid to assure lawmakers an expansive combined company will benefit both the U.S. healthcare system and its patients.
The $69 billion merger would link thousands of CVS retail pharmacies and Aetna’s insurance offerings to create a firm with annual revenues of about $245 billion. But questions remain if the combined company would actually lower costs for consumers and whether it can survive antitrust reviews.
The U.S. Department of Justice recently sought more information about the merger, but the companies maintain the request was not unexpected and say the deal is still set to close in the second half of 2018. A shareholder vote is set to be held March 20.
CVS will argue that the merger will allow for better-integrated patient care by enabling pharmacists, equipped with both pharmacy and medical information, to play a bigger role between physician visits.
“By combining pharmacy and medical information, pharmacists will be better able to help coordinate population health, provide information from the doctor to the patient at the pharmacy counter and give patients tools to more effectively manage their health, which will keep a patient on track with his or her care plan in between physician visits and improve patient care,” Thomas Moriarty, EVP and general counsel for CVS Health, said in prepared testimony.
The House Judiciary Regulatory Reform, Commercial and Antitrust Law Subcommittee intends to “examine the potential competitive impacts of the proposed merger on consumers and the health insurance, pharmacy benefit managers (PBMs), and retail pharmacy markets.”
“Competition is an important factor in healthcare costs and drug prices. As we review the proposed merger between CVS Health and Aetna Inc., we should examine the potential positive and negative impacts that this merger could have on American consumers and the economy,” House Judiciary Committee Chairman Bob Goodlatte, R-VA, said in a statement announcing the hearing.
One expert warns there is an open question about whether any value created through the merger would be transferred to consumers, warning that without a competitive health insurance market, there are few incentives to pass on value through lower prices.
“Lawmakers should be legitimately concerned about both equity and efficiency and therefore must consider value capture in addition to value creation. At a minimum, the efficiency of this merger hinges on the degree of competition in the health insurer market,” Craig Garthwaite, associate professor of strategy at the Kellogg School of Management at Northwestern University, said in prepared testimony.
The expert hedged that despite the risks, “non-specific fears that an increase in social welfare may not be shared seem like a poor reason to halt value creating activities.”
Aetna tried to assuage fears that the merger would create enough antitrust concerns to hold up the deal.
A DOJ challenge lead to the demise of an attempted merger between Aetna and Humana in 2017, but an Aetna executive looks to argue that the CVS deal is materially different.
“I want to remind the committee that this is a vertical transaction with no significant overlap in our existing business. Aetna’s core business is health insurance, while the vast majority of CVS Health’s revenue comes from retail pharmacies and pharmacy benefits management,” Thomas Sabatino, Jr., EVP and general counsel for Aetna, said in prepared testimony.
But one potential risk of a successful merger between CVS and Aetna could be additional barriers for entry into the healthcare space for a new company, Garthwaite warns.
“If this strategy is successful, it could mean that future success in the health insurance industry would require firms to have the capabilities to be a payer, PBM, and provider. This is a complex set of tasks that may be difficult and especially costly for potential new entrants to replicate,” Garthwaite said.
Another concern is a class-action lawsuit raised by a group of anonymous HIV/AIDS patients represented by Consumer Watchdog who allege CVS funneled them to CVS pharmacy locations by altering how it administered its CVS Caremark PBMs.
David Balto, former policy director of the Federal Trade Commission, previously told Healthcare Dive that CVS Caremark’s past actions of using market power to push consumers toward its own pharmacies call into question whether the Aetna merger would be good for consumers.