DOJ Approves CVS-Aetna $69B Merger, On Condition Aetna Divest Part D Business
The Department of Justice (DOJ) has approved a $69 billion merger between mega-pharmacy retailer CVS Health and health insurer Aetna, after Aetna entered into an agreement with the DOJ to divest is Medicare Part D prescription drug plan business.
According to a statement released by the DOJ on Wednesday, the settlement, in which Aetna will sell off its Part D business, was a condition of the merger’s approval and resolves the DOJ’s “competition concerns.”
The deal is the latest in a wave of combinations among healthcare companies, including many pharmacy benefit manager (PBM) and insurer integrations. Last month, the Justice Department approved Cigna’s $67 billion takeover of Express Scripts.
CVS Health announced in early December 2017 its intention to acquire Aetna in a $69 billion-dollar merger, marking the largest ever in the health insurance industry. Woonsocket, R.I.-based CVS operates the nation’s largest retail pharmacy chain, owns a large pharmacy benefit manager called Caremark, and is the nation’s second-largest provider of individual prescription drug plans, with approximately 4.8 million members. CVS earned revenues of approximately $185 billion in 2017. Aetna, headquartered in Hartford, Connecticut, is the nation’s third-largest health-insurance company and fourth-largest individual prescription drug plan insurer, with over two million prescription drug plan members. Aetna earned revenues of approximately $60 billion in 2017.
Following news of the deal back in December, there was speculation that antitrust regulators might not approve the deal. Back in January 2017, a federal judge blocked a merger that would have resulted in Aetna acquiring Louisville, Ky.-based insurer Humana, which at the time was the largest acquisition of its type in the history of health insurance in the U.S., reported at $37 billion. At the time, U.S. District Judge John D. Bates in Washington said that proposed deal would “violate antitrust laws by reducing competition among insurers.” Similarly, a proposed combination of two other health insurers, Anthem and Cigna, was also shot down last year.
According to the DOJ’s statement issued today on the CVS-Aetna deal, the Justice Department’s Antitrust Division had significant concerns about the anticompetitive effects of the merger with regards to the Medicare Part D businesses. CVS and Aetna are significant competitors in the sale of Medicare Part D prescription drug plans to individuals, together serving 6.8 million members nationwide, according to the DOJ.
In a press release issued today, CVS Health said, “DOJ clearance is a key milestone toward finalizing the transaction, which is also subject to state regulatory approvals, many of which have been granted.” CVS Health's acquisition of Aetna remains on track to close in the early part of Q4 2018, the company said.
“DOJ clearance is an important step toward bringing together the strengths and capabilities of our two companies to improve the consumer health care experience,” CVS Health president and CEO Larry J. Merlo, said in a statement. “We are pleased to have reached an agreement with the DOJ that maintains the strategic benefits and value creation potential of our combination with Aetna. We are now working to complete the remaining state reviews.”
Merlo also said, “CVS Health and Aetna have the opportunity to combine capabilities in technology, data and analytics to develop new ways to engage patients in their total health and wellness. Our focus will be at the local and community level, taking advantage of our thousands of locations and touchpoints throughout the country to intervene with consumers to help predict and prevent potential health problems before they occur. Together, we will help address the challenges our health care system is facing, and we'll be able to offer better care and convenience at a lower cost for patients and payors.”
Following the close of the transaction, Aetna will operate as a standalone business within the CVS Health enterprise and will be led by members of its current management team.
The American Medical Association (AMA), an industry group that has been opposed to the merger, issued a statement saying the agreement that Aetna divest its Part D business doesn't go far enough to protect patients.
"While the AMA welcomes the U.S. Department of Justice (DOJ) requiring Aetna to divest its Medicare Part D drug plan business, we are disappointed that the DOJ did not go further by blocking the CVS-Aetna merger," Barbara L. McAneny, M.D., president, American Medical Association, said in a statement. "The AMA worked tirelessly to oppose this merger and presented a wealth of expert empirical evidence to convince regulators that the merger would harm patients. We now urge the DOJ and state antitrust enforcers to monitor the post-merger effects of the Aetna acquisition by CVS Health on highly concentrated markets in pharmaceutical benefit management services, health insurance, retail pharmacy, and specialty pharmacy."
Agreement with DOJ Resolves “Competition Concerns”
Late last month, Aetna agreed to sell its Part D business to WellCare. According to a Securities and Exchange Commission (SEC) filing from WellCare Health Plans last month, WellCare entered into an asset purchase agreement with Aetna to acquire the company’s entire standalone Medicare Part D prescription drug plan business, which has 2.2 million members. According to the agreement, Aetna will provide administrative services to and retain the financial risk of the Part D business through 2019. In that filing, it states that Aetna is divesting its Part D business as part of CVS Health’s proposed acquisition of Aetna.
“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 of the Justice Department’s Antitrust Division, 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.”
In its statement, the DOJ referred to WellCare as “an experienced health insurer focused on government-sponsored health plans, including Medicare Part D individual prescription drug plans.”
The Department’s Antitrust Division, along with the offices of five state attorneys general, today filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia to enjoin the proposed transaction, along with a proposed settlement that, if approved by the court, would fully resolve the Department’s competitive concerns. The participating state attorneys general offices represent California, Florida, Hawaii, Mississippi, and Washington.
In a complaint filed to the U.S. District Court, DOJ attorneys argued that without the divestiture, the combination of CVS, which markets its Medicare Part D individual prescription drug plans under the “SilverScript” brand, and Aetna would cause “anticompetitive effects, including increased prices, inferior customer service, and decreased innovation in sixteen Medicare Part D regions covering twenty-two states.” DOJ attorneys also argued that the loss of competition between CVS and Aetna would result in “lower-quality services and increased costs for consumers, the federal government, and ultimately, taxpayers.”
Under the terms of the proposed settlement, Aetna must divest its individual prescription drug plan business to WellCare and allow WellCare the opportunity to hire key employees who currently operate the business. Aetna must also assist WellCare in operating the business during the transition and in transferring the affected customers through a process regulated by the Centers for Medicare and Medicaid Services (CMS).
