16 June 2019
CVS Health and Aetna said their combination would result in lower healthcare costs for consumers. Photo: Bloomberg
CVS Health and Aetna said their combination would result in lower healthcare costs for consumers. Photo: Bloomberg

CVS, Aetna win US approval for US$69 billion deal

Pharmacy chain CVS Health Corp. won US antitrust approval for its US$69 billion acquisition of health insurer Aetna Inc., paving the way for a combination with potential to cut US healthcare costs for consumers, Reuters reports.

The companies have said they will save administrative and patient care costs when they combine, in part by steering Aetna customers to walk-in clinics in CVS stores for less expensive medical services.

CVS could offer more preventive care services and screenings in its clinics, such as enabling patients with diabetes to monitor blood sugar levels, avoiding higher cost visits to doctors or emergency rooms.

CVS aims to cut costs by US$750 million annually by the end of the second year after the deal closes.

It is the second large recent healthcare deal to win US Justice Department approval. The agency gave the green light to health insurer Cigna Corp.’s US$52 billion acquisition of the nation’s largest pharmacy benefit manager (PBM), Express Scripts Holding Co., on Sept. 17.

Shares of CVS and Aetna each rose about 1 percent on Wednesday, a day when the broader market was sharply lower, with CVS trading at US$80.20 and Aetna at US$206.48.

The deal was approved on the condition that the companies sell Aetna’s standalone Medicare prescription drug plan business, known as Medicare Part D, the Justice department said.

Aetna last month said it would sell all of those standalone plans for prescription drugs that are part of the Medicare program for Americans aged 65 and older and the disabled to WellCare Health Plans Inc (WCG.N), paving the way for the deal’s approval.

Without the sale the two companies would have owned more than a 30 percent share of those standalone Medicare drug plans, creating concern about the amount of control the new CVS would have had over this part of the Medicare insurance market. Drugs administered by doctors and hospitals are covered under a separate Medicare benefit.

Together Aetna and CVS have 6.8 million members in standalone Medicare drug plans, the Justice Department said. CVS also has a large PBM business.

“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,” Makan Delrahim, head of the department’s Antitrust Division, said in a statement.

California, Florida, Hawaii, Mississippi and Washington also joined the antitrust review.

‘Bad for healthcare’

“We know that over consolidation is bad for healthcare and leaves millions of Californians with fewer options. We will keep close watch to ensure that the terms of this settlement are met,” California Attorney General Xavier Becerra said in a statement.

CVS chief executive Larry Merlo said in a statement that the deal is on track to close early in the fourth quarter. CVS first announced plans to buy Aetna last December.

Since then, online retailer Inc. stepped into the healthcare market with the purchase of online pharmacy PillPack, which Wall Street analysts say can help it expand further in healthcare and undercut major players across the prescription drugs supply chain.

Amazon has also aligned itself with JP Morgan Chase & Co. and Berkshire Hathaway Inc BRKaN to experiment with new models for employee healthcare – one of Aetna’s target markets for health insurance.

The decision comes as the Trump administration intensifies pressure on healthcare industry “middlemen” such as PBMs over practices it says increase the cost of prescription medicines for US consumers.

After the deals were announced, antitrust experts described them as “vertical” combinations that were less troublesome from a competitive standpoint than a previous round of proposed consolidation deals among insurers, which were blocked.

The Justice Department sued and won its case to stop Aetna’s US$37 billion plan to acquire smaller US health insurer Humana Inc. It also blocked a combination of health insurers Anthem Inc. and Cigna.

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