Justice Department approves $67 billion CVS Health-Aetna deal

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Office workstation top view of business people working around M&A, keyboard, calculator, phablet and money on wooden table - merger and acquisition concept


The U.S. Justice Department has conditionally approved CVS Health’s $67 billion acquisition of Aetna, removing one of the final barriers to a mega-merger destined to upend the healthcare industry by combining the country’s largest retail pharmacy chains with one of its largest insurers.

The acquisition highlights a growing trend of consolidation in the healthcare industry, underscored by the DOJ’s approval of Cigna’s $52 billion acquisition of PMB Express Scrips just last month.

Both deals are part of a growing trend of healthcare incumbents looking to diversify business lines and lower costs to head off potential disruption from startups and new entrants to the healthcare market like the Amazon-Berkshire-JPMorgan joint health venture.

Proponents of the CVS-Aetna deal are enthusiastic about its potential to offer care to patients in a wider variety of settings, do a better job treating chronic conditions and create a “new front door to the healthcare system.”

By steering patients to lower cost options, the logic goes that conventional health system will be pressured to lower the cost of their outpatient services. CVS also has the added advantage of growing its own front end over-the-counter pharmacy business by driving more patients into the company’s retail spaces.

On the other end, the acquisition has drawn strong opposition from groups concerned that the deal could lead to decreased competition and higher prices for patients, including from New York financial watchdog Maria Vullothe American Medical Association and the California Insurance Commissioner.

Rita Numerof, president of healthcare consulting firm Numerof & Associates, said that the merger has the potential to significantly disrupt the market for healthcare delivery organizations.

She added that the deal will boost Aetna’s ability to leverage an integrated PBM in negotiating prices and establishing preferred tiers with manufacturers, much like United Healthcare does with OptumRx.

“This will accelerate pressure on manufacturers to demonstrate compelling economic and clinical value propositions to ensure their products maintain market access. Real world evidence will be increasingly important in this evolving market,” Numerof said in an email.

CVS said in a regulatory filing that the deal is expected to close before the end of the year.

Regulatory approval for the purchase is predicated on Aetna’s previously announced plans to sell off its Medicare Part D business to WellCare Health, characterized by the company as a “a significant step toward completing the DOJ’s review of the CVS Health Transaction.”

“Today’s settlement resolves competition concerns posed by this transaction and preserves competition in the sale of Medicare Part D prescription drug plans for individuals,” Assistant Attorney General Makan Delrahim said in a statement

“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.”

The WellCare Health acquisition is expected to be effective on Dec. 31, but Aetna will provide administrative services and retain the financial risk of the business through 2019. Aetna must also allow WellCare the opportunity to hire key employees who currently operate the business, according to the terms set by the DOJ.

Photo: Kritchanut, Getty Images



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