Today, the U.S. Department of Justice (DOJ) approved the vertical merger of leading retail pharmacy and pharmacy benefits manager (PBM) CVS with major health insurer Aetna. “While the DOJ obtained divestitures to address the horizontal overlap in CVS’s and Aetna’s Medicare Part D individual prescription drug plans, it did nothing to address the significant vertical competitive problems raised by the combination,” said AAI President Diana Moss.
The approval of CVS-Aetna comes on the heels of the DOJ’s recent approval of a similar vertical merger of PBM Express Scripts and heath insurer Cigna.
“Within a short period of time, antitrust enforcers have green-lighted a fundamental restructuring of important segments of the healthcare industry in the U.S.,” said Moss. “Competition now depends almost entirely on having ‘enough’ rivalry between integrated PBM-insurers. This ‘roll-the-dice’ model of competition stands in stark contrast to a model of standalone PBMs competing hard to gain insurers’ drug plan business and insurers aggressively seeking out competitive PBM services.”
In a March 26, 2018 letter to the DOJ, AAI raised serious concerns about the competitive effects of the proposed merger. The deal creates a large, vertically integrated PBM-insurer that operates in upstream and downstream markets featuring only a few rivals. AAI also provided testimony at the California Department of Insurance hearings on the proposed merger.
“We are disappointed that the DOJ did not address a merged CVS-Aetna’s enhanced incentives to use their market positions to disadvantage rival PBMs, independent pharmacies, and rival health insurers,” said Moss. “Competition will undoubtedly suffer, as will consumers through higher prices, lower quality, less innovation, and less choice,” Moss added, noting that any efficiencies claims would have to be monumentally large to overcome significant competitive concerns. AAI says the DOJ’s decision highlights the need for new guidelines on vertical mergers.
AAI’s advocacy against the CVS-Aetna merger explains that giant PBM-insurer organizations created by the recent swath of merger approvals will make it harder for companies with more innovative business models to enter markets. Because of widespread vertical integration, new entrants will be forced to enter at both the PBM and insurer levels to be viable competitors.
“If ever there were a vertical merger that should have been challenged by antitrust enforcers, this would be it,” said Moss. High levels of concentration in the PBM and insurer markets, demonstrated exclusionary conduct by one of the merging parties, and past enforcement actions involving consolidation in these important markets are all powerful indicators that the deal should have been deemed illegal.