CVS Health and Aetna close $70 bil­lion merger

Modern Healthcare - - News - By Shelby Liv­ingston

NEARLY ONE YEAR af­ter agree­ing to merge in a bid to rein­vent health­care for Amer­i­cans, CVS Health and Aetna sealed the deal Nov. 28, bring­ing to­gether one of the na­tion’s largest phar­macy chains and one of the largest health in­sur­ers.

Their goal? The lofty as­pi­ra­tion of trans­form­ing care de­liv­ery for the bet­ter. But the jury is still out on whether they’ll ac­com­plish that or leave em­ploy­ers and pa­tients on the hook for higher costs.

“To­day marks the start of a new day in health­care and a trans­for­ma­tive mo­ment for our com­pany and our in­dus­try,” CVS Health CEO Larry Merlo said in the an­nounce­ment. “By de­liv­er­ing the com­bined ca­pa­bil­i­ties of our two lead­ing or­ga­ni­za­tions, we will trans­form the con­sumer health ex­pe­ri­ence and build health­ier com­mu­ni­ties through a new in­no­va­tive health care model that is lo­cal, eas­ier to use, less ex­pen­sive and puts con­sumers at the cen­ter of their care.”

The $70 bil­lion merger scored ap­proval from U.S. Jus­tice De­part­ment an­titrust en­forcers and in­sur­ance reg­u­la­tors in 28 states, de­spite warn­ings from provider groups, pa­tient ad­vo­cates, economists and an­titrust ex­perts that the com­bi­na­tion could harm com­pe­ti­tion and pa­tients. Last Mon­day, New York reg­u­la­tors be­came the last to sign off on the deal with con­di­tions.

There’s one more pro- ce­du­ral hur­dle to clear though. Judge Richard Leon of the U.S. Dis­trict Court for the Dis­trict of Co­lum­bia late last week raised the prospect of thwart­ing the deal. Reuters re­ported that Leon was upset about be­ing viewed as a “rub­ber stamp.” He must ap­prove the Jus­tice De­part­ment agree­ment. A hear­ing was sched­uled for Dec. 3.

As­sum­ing the deal goes through, Aetna will be a stand-alone unit within CVS and led by mem­bers of its cur­rent man­age­ment team. Mark Ber­tolini will re­sign as Aetna CEO but will have a seat on CVS’ board of di­rec­tors.

Some ex­perts ques­tion if the con­di­tions that states im­posed on the com­pa­nies will ef­fec­tively mit­i­gate any an­ti­com­pet­i­tive ef­fects..

“Is this go­ing to be some­thing that ac­tu­ally does some­thing new that’s in­no­va­tive? Can these two com­pa­nies come to­gether in a way that they can do bet­ter things or do things less ex­pen­sively with­out com­pro­mis­ing qual­ity or con­ti­nu­ity of care? And you know that’s just not clear yet,” said Martin Gaynor, pro­fes­sor of eco­nom­ics and pub­lic pol­icy at Carnegie Mel­lon Univer­sity.

The com­pa­nies say they will of­fer bet­ter, cheaper, in­te­grated health­care.

The merger comes amid mount­ing frus­tra­tion among em­ploy­ers and pa­tients over ris­ing med­i­cal and pre­scrip­tion drug costs and anger over the role that phar­macy ben­e­fit man­agers, such as CVS’ own Care­mark, play in sticker-shock drug costs. CVS and Aetna painted their com­bi­na­tion as a so­lu­tion to the health­care sys­tem’s short­com­ings.

The com­pa­nies say 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. By year two, the com­pa­nies ex­pect the com­bi­na­tion to yield sav­ings of $750 mil­lion from stream­lin­ing ad­min­is­tra­tive func­tions, ne­go­ti­at­ing bet­ter pric­ing and manag­ing care more ef­fec­tively.

Ex­perts who study health­care con­sol­i­da­tion don’t buy into these claims. In his forceful June tes­ti­mony to Cal­i­for­nia reg­u­la­tors, Whar­ton School pro­fes­sor of health­care man­age­ment Law­ton Burns la­beled them “hol­low prom­ises,” not­ing that the com­pa­nies have yet to de­tail how they will ac­com­plish their goals. Burns doubted that CVS’ re­tail clin­ics could ef­fec­tively man­age the care of chron­i­cally ill pa­tients. He ar­gued there’s no con­sis­tent ev­i­dence that ver­ti­cal in­te­gra­tion re-

duces costs or im­proves qual­ity.

Like­wise, Tim Gre­aney, a pro­fes­sor at Univer­sity of Cal­i­for­nia Hast­ings Col­lege of the Law, said he is skep­ti­cal the merger will pro­duce ben­e­fits for con­sumers. While the Jus­tice De­part­ment’s re­quire­ment that Aetna di­vest its Medi­care pre­scrip­tion drug busi­ness to Wel­lCare Health Plans al­le­vi­ated some anti-com­pe­ti­tion con­cerns, the deal still raises the pos­si­bil­ity that the com­bined com­pany would raise costs for Aetna’s ri­val in­sur­ers that need PBM ser­vices or deny ri­val phar­ma­cies ac­cess to Aetna mem­bers.

More­over, the com­bi­na­tion de­prives the in­creas­ingly con­sol­i­dated PBM mar­ket of a po­ten­tial com­peti­tor in Aetna. That’s also the case with Cigna Corp.’s ac­qui­si­tion of the na­tion’s largest PBM, Ex­press Scripts, which is ex­pected to close this year. Unit­edHealth Group’s Op­tumRx unit com­pletes the triad of dom­i­nant PBMs that will have lit­tle in­cen­tive to of­fer com­pet­i­tive prices to smaller in­sur­ance ri­vals, Gre­aney said.

“The con­cern there is we’ll have an oli­gop­oly along the lines of what we’ve seen in other mar­kets like air­lines—that we’ll have less vig­or­ous com­pe­ti­tion,” he ex­plained.

In a state­ment, the AIDS Health­care Foun­da­tion, a not-for-profit provider of treat­ment to peo­ple with HIV/AIDS, re­it­er­ated its con­cerns that the com­bined com­pany will force pa­tients in­sured by Aetna to use CVS walk-in Min­uteClin­ics in place of their per­sonal physi­cians, or com­pel pa­tients to use mail-or­der de­liv­ery for med­i­ca­tions even when they need to in­ter­act with a phar­ma­cist in per­son. The foun­da­tion fur­ther wor­ried that com­pet­ing phar­ma­cies would be driven out of net­work and in­de­pen­dent phar­ma­cies out of busi­ness.

CVS re­sponded to some crit­ics’ con­cerns by say­ing the com­bined com­pany’s prod­ucts and ser­vices will be broadly avail­able to pa­tients re­gard­less of their in­surer, phar­macy or PBM, while re­tail and spe­cialty phar­macy and other ser­vices would con­tinue to be avail­able to other health plans. Aetna mem­bers will still be able to fill pre­scrip­tions at non-CVS phar­ma­cies, it said.

New York reg­u­la­tors at­tempted to mit­i­gate some anti-com­pe­ti­tion con­cerns by de­mand­ing CVS re­frain from of­fer­ing pref­er­en­tial pric­ing to Aetna. The state’s De­part­ment of Fi­nan­cial Ser­vices said CVS-Aetna also agreed that its New York provider net­works will main­tain ac­cess to the same per­cent­age of in­de­pen­dent phar­ma­cies for three years. The com­pany must also an­nu­ally re­port the phar­macy re­bates Aetna re­ceives and the amount re­turned to cus­tomers.

New York and Cal­i­for­nia reg­u­la­tors de­manded the com­bined com­pany also re­frain from rais­ing pre­mi­ums to pay for the ac­qui­si­tion. The Cal­i­for­nia De­part­ment of Man­aged Health Care fur­ther said CVS-Aetna must keep pre­mium in­creases “to a min­i­mum” for five years but didn’t de­fine a thresh­old for max­i­mum pre­mium hikes.

But Gaynor ques­tioned the ef­fec­tive­ness of these con­di­tions. Be­hav­ioral and con­duct con­di­tions don’t change the un­der­ly­ing in­cen­tives the com­pa­nies may have to do things that harm com­pe­ti­tion, he said. It’s also dif­fi­cult to mon­i­tor and de­tect whether a com­pany vi­o­lates a con­di­tion.

“These are big cor­po­ra­tions, and so there are lots of ways to move money around that could have the same im­pact of pref­er­en­tial pric­ing but wouldn’t be read­ily de­tectable,” Gaynor said.

Still, some ex­perts hope the com­bined CVS and Aetna does dis­rupt the stag­nant realm of care de­liv­ery. As an in­te­grated com­pany, it’s pos­si­ble that Aetna will have more power when ne­go­ti­at­ing prices from drug­mak­ers or re­bates from PBMs, said Ray­mond Brown, North Amer­i­can clin­i­cal phar­macy leader at con­sult­ing firm Mercer. Ben­e­fits should also arise from more in­for­ma­tion-shar­ing be­tween the PBM and in­surer, he said. But he doubted the merger would add any trans­parency to the murky busi­ness of phar­macy ben­e­fit man­age­ment.

Al­ready, 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 diag

● nose and treat chronic ill­nesses.

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