CVS Health and Aetna are moving smoothly towards finalizing their merger, pending an approval from the U.S. Department of Justice (DOJ). In December 2017, CVS announced that it would buy Aetna for approximately $69 billion. If kept on track, the deal is expected to close later this year.
CVS Health is known for its pharmacy services, and according to the CVS Health website, there are over 1,100 Minute Clinic locations across 33 states and the District of Columbia. CVS Health is responsible for managing 2.5 billion prescriptions, and serving about 5 million customers each day through its pharmacy services. Aetna is a giant in the health insurance industry, covering over 20 million patients in the U.S.
Together, CVS Health and Aetna intend to lower health care costs and increase health care accessibility, especially with CVS Health’s Minute Clinic services.
What Does the Deal Mean for Consumers?
Currently, there is a lot of speculation about the potential effects of the merger. Some believe that the merger will ultimately harm consumers and the industry, while others believe it can help reduce costs and inefficiencies.
CNBC reports, “the acquisition gives CVS more scale to bargain for better prices for the prescription drugs it sells through its PBM business.” PBM stands for “pharmacy benefit managers” which is a third party that negotiates prescription drug benefits for a commercial health plan. There is speculation that Aetna would be able to provide customers a reduced co-payment, but only at CVS stores.
Additionally, according to another CNBC report, Thomas Moriarty, the executive vice president, chief policy and external affairs officer and general counsel for CVS told a congressional panel in February 2018 that “Within the next year or so, CVS and Aetna expect Minute Clinics to perform about 90 percent of services provided in primary care facilities, up from about 40 to 45 percent now,” so with reduced costs, the implication is that more people can receive treatment for less. According to CVS’ website, Minute Clinic provides services including vaccines, women’s services, allergies, STD treatment, Flu-like symptoms, coughs and bronchitis, and bronchitis.
The CVS-Aetna deal has been referred to as a vertical merger, which involve companies that are not direct competitors (as in a horizontal merger), but are companies in different areas of the same market or sector. Antitrust authorities usually give vertical mergers more leeway. Vertical mergers, which buy along a company’s supply chain, do not buy out companies that provide the same or similar services as the acquiring business, as opposed to horizontal mergers. An example of a horizontal merger is when Facebook bought Instagram in 2012.
Despite the potential benefits, many are concerned about the vast amount of health information that CVS would amass if the deal goes through. In March 2018, The American Antitrust Institute (AAI) warned the DOJ that the merger puts consumers at risk as it could reduce competition.
The AAI points out that the merger “would pair up the largest retail pharmacy chain and one of the two largest PBMs with the 3rd largest health insurer in the U.S,” so even though CVS and Aetna are not from the same industry, they are both very large entities in their respective sectors. The AAI also brings up how Cigna, another major health insurance provider, has agreed to merge with Express Scripts, another PBM. With these two mergers in progress, the AAI writes that this “would trigger a fundamental restructuring of the U.S. healthcare system.”
The merger potentially means that costs may decrease, but CVS still acquires the information of Aetna’s over 20 million patients. Consumers might be concerned over what the new company will do with such information.