Questions Remain about the Aetna-CVS Merger

By Jill Zorn |

Aetna’s takeover by CVS is on a fast track for approval at both the state and federal level.  The question is, will this merger benefit consumers?

Federal

On October 10, the Department of Justice (DOJ) announced they would approve the merger, provided that Aetna divests its Medicare Part D prescription drug plans.  Stating that “today’s settlement resolves competition concerns”, the DOJ touted the merger, saying, “The divestitures required here allow for the creation of an integrated pharmacy and health benefits company that has the potential to generate benefits by improving the quality and lowering the costs of the healthcare services that American consumers can obtain.”

Not everyone agrees that the merger will be beneficial.  For example, an article in The American Prospect opens with this line, “Aetna and CVS have more incentive than ever to use their market power to crush competition, and the Justice Department just gave them the opportunity”.

However, with this tentative settlement in place at the federal level, all that remains is that the individual states where both companies operate give their blessings to the merger.

Connecticut

The Connecticut Insurance Department (CID) held a hearing on the proposed merger on October 4.  With the federal decision already announced, CID issued their approval on October 17, well ahead of the 30 day deadline required by hearing regulations.

In the documents submitted for review ahead of the hearing, CVS argued that the merger would, “deliver substantial public benefits such as improved health outcomes and lower health care spending,”  At the hearing itself, Aetna CEO Karen Lynch, focused on the benefits to consumers, saying, “Aetna sees this as the next, and certainly most important, step in our own journey to really put consumers at the center of their care.”

Universal Health Care Foundation of Connecticut was one of the few organizations that disagreed, stating in our written comments that the $69 billion acquisition is anti-consumer and anti-competitive.

“ …The merger will lead to higher prices, not lower prices, and to reduced choices….there are no assurances that any savings, should they be achieved, will actually be passed on to consumers….(The proposed merger) represents the consolidation of monopoly power at the expense of consumers.”

 

We also used our comments to propose several conditions, should the merger be approved by CID, none of which were included in the decision order .  Our full comments are posted on the CID website, in the compilation of comments received from September 27 to October 3,  and you can also read them here.

Joining us in raising concerns were Consumers Union, the advocacy arm of Consumer Reports, (follow the link to page 3 of the document), the Connecticut Pharmacists Association (follow the link to page 24 of the document) and the Connecticut State Medical Society.

But most of the public comment submitted from local non-profits, business associations and municipalities was supportive of the merger.  A major emphasis was on the last-minute promise that Aetna would remain in Hartford for the next ten years and not cut staffing levels for at least four years.  Currently, about 5,300 people work at Aetna in Connecticut, down from 6,400 in 2009.

Other States

California held an informational hearing on the merger this past June.  Unlike Connecticut’s hearing, where in-person comments were limited to three minutes, this public meeting showcased extensive presentations from experts questioning the value of the merger.  In August, based on the testimony at the hearing, California’s Insurance Commissioner, Dave Jones, wrote a letter to the Department of Justice urging them to block the merger, concluding, “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.”

New York state held a hearing yesterday, October 18, and it seems that their regulators may not be as eager to approve the merger as those in Connecticut.  In fact, much to the dismay of Connecticut CID officials, a New York State official, Maria Vullo, Superintendent of the Department of Financial Services, sent a letter to Connecticut Insurance Commissioner Katharine Wade pointing out “…issues that may be harmful to both New York and Connecticut consumers and markets.” (See page 22)

Still, with the DOJ and Connecticut CID on record in support of the merger, it is unlikely that any state objections will stop it.

Conclusion

The acquisition of Aetna by CVS is only the latest in a series of huge consolidations in the health care industry.  Of course, keeping jobs in Hartford is important, but the creation of another “too big to fail” health care corporate behemoth is unlikely to benefit consumers in the end.

No one has a crystal ball to predict the future, but this new entity should be monitored closely.  As Brookings Institution Senior Fellow cautions, looking ahead we should watch for, “How are the benefits of consolidation allocated between shareholders and consumers…If over the next five years we see CVS margins going up along with consumer prices, then we’ll know the answer.”