Skip to main content

Analysis

CVS-Aetna Merger Secures DOJ Approval, With Strings Attached

By Steven Porter  
   October 10, 2018

Federal antitrust regulators made the planned sale of Aetna's Part D business to WellCare a condition of the CVS-Aetna deal.

Aetna's plan to sell its Medicare Part D business to WellCare Health Plans has satisfied federal regulators, who signed off on Aetna's planned megamerger with CVS Health.

The Department of Justice announced Wednesday that it will allow the $69 billion CVS-Aetna deal to proceed if the sale to WellCare is completed.

"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 DOJ's Antitrust Division said in a statement.

Related: Why Health Systems Should Worry About Walgreens and CVS

Related: WellCare to Buy Aetna's Part D Plans Ahead of CVS Deal

Related: Cigna–Express Scripts Merger Clears DOJ Antitrust Review

"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," Delrahim added.

The DOJ and five state attorneys general—from California, Florida, Hawaii, Mississippi, and Washington—filed a federal lawsuit Wednesday to block the merger, simultaneously proposing a settlement to resolve the matter. The settlement must be approved by a judge before it can take effect, the DOJ said.

Regulators had been concerned that combining the CVS Medicare Part D plans with Aetna's could reduce competition and result in higher prices, worse customer service, and a dampened drive for innovation across 22 states, the DOJ said.

"From the closing statement [in the lawsuit], we see that the DOJ identified a horizontal overlap and identified a means to resolve it," Andrea Agathoklis Murino, partner and co-chair of Goodwin's antitrust and competition law practice in Washington, D.C., told HealthLeaders in an email. "The identity of the buyer is crucial to DOJ's comfort that competition will be maintained and potentially even enhanced in the overlap area.  I would imagine that DOJ's comfort with WellCare was among the deciding factors tipping their decision to accept the settlement and allow the rest of the transaction to proceed."

George Slover, senior policy counsel for the advocacy group Consumers Union, which opposed the deal, said this merger posed anticompetitive questions to an unprecedented degree.

"The combination of CVS and Aetna creates an enormous market force that we haven't seen before, straddling more market sectors and creating new and potentially far-reaching profit-maximizing incentives to undermine competition," Slover said in a statement.

The conditional approval comes just shy of a month after the DOJ signed off on a $52 billion deal between Cigna and Express Scripts.

The pressure to consolidate comes as pharmacy benefit managers (PBM) come under increased political scrutiny and as retail giants traditionally seen as operating outside the healthcare sector express a desire to root out its inefficiencies.

Brian Marcotte, CEO of the National Business Group on Health, told The New York Times that the companies "are feeling pressure to do something different or it will be done to them."

CVS Health President and CEO Larry J. Merlo called Wednesday's announcement "an important step" toward the two companies' goals.

"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," Merlo said in a statement. "We are now working to complete the remaining state reviews."

Merlo said the merger will allow CVS and Aetna to combine their technology, data, and analytics to serve patients in new and more-holistic ways.

Lawsuit to Stipulate Terms of CVS-Aetna Merger by HLMedit on Scribd

Editor's note: This story was updated to include commentary from Andrea Agathoklis Murino.

Steven Porter is editor at HealthLeaders.


KEY TAKEAWAYS

Federal regulators and five states filed a lawsuit to block the merger but simultaneoulsy proposed a settlement to allow it to proceed.

The settlement would green light the $69 billion deal on the condition that a planned divestiture to WellCare is completed.

The pressure to consolidate comes amid pressure on PBMs and possible competition from retailers.


Get the latest on healthcare leadership in your inbox.