March 2, 2018

Will the proposed CVS-Aetna merger benefit patients? A congressional subcommittee seems optimistic.

Daily Briefing

    Lawmakers on the House Judiciary Committee's Subcommittee on Regulatory Reform, Commercial and Antitrust Law during a hearing Tuesday seemed fairly open to a proposed merger between Aetna and CVS Health.

    The House subcommittee held the hearing to discuss the proposed merger's potential effects on the health care industry. The merger currently is pending shareholder and regulatory approval, and is expected to close in the second half of 2018. If the deal goes through, Aetna shareholders will receive $207 per share in the form of $145 in cash and $62 per share in CVS stock. The combined entity would have roughly $240 billion in annual revenue and would likely be the largest U.S. health insurer and pharmacy benefits manager.

    Aetna, CVS officials say merger would benefit the health care industry

    Aetna and CVS officials during the hearing said the companies' proposed merger would benefit the health care industry by improving population health, bringing more business to primary care providers, and reducing health care costs.

    CVS EVP Thomas Moriarty in prepared testimony wrote, "By combining pharmacy and medical information, pharmacists will be better able to help coordinate population health, provide information from the doctor to the patient at the pharmacy counter, and give patients tools to more effectively manage their health, which will keep a patient on track with his or her care plan in between physician visits and improve patient care."

    During the hearing, Moriarty said "62 million Americans don't have access to adequate primary care," adding that about 50% of individuals who visit CVS Minute Clinics do not have primary care physicians.

    Moriarty said CVS's clinics can increase U.S. residents' access to care—and as a result reduce costly ED visits—by  offering "primary care at off-hours," which he said "is clearly something we can build out even more so with Aetna." According to Moriarty, the average out-of-pocket cost for visiting a Minute Clinic is between $75 and $80 for patients, compared with about $600 to $800 for an ED visit.

    In response to a question about the merger's effect on underserved communities, Aetna EVP Thomas Sabatino said, "We believe that by getting close to our communities, getting much more focused on our people and their issues, we can get at the social determinants of health. ... This transaction allows us an opportunity to do that, to get where the people are, in every community in which we (are in)."

    Lawmakers, experts discuss merger's potential effects

    According to Politico's "Pulse," lawmakers during the hearing asked Aetna and CVS officials few "tough" questions, and subcommittee Chair Tom Marino (R-Pa.) said the officials' testimony was "very encouraging."

    Several industry experts who attended the hearing also touted the proposed merger. For instance, Lawrence Wu, president of Nera Economic Consulting, praised the proposed merger's potential to increase U.S. residents' access to primary care, which he said could bring down overall health care costs. "Half of all admissions to hospitals come through the ED, which is an expensive place," Wu said, adding, "If the proposed transaction can reduce the costs of diagnostic care ... then the proposed transaction is a big step forward."

    Craig Garthwaite, director of the Health Enterprise Management Program at Northwestern University, said, "Often medical and pharmacy insurance benefits are offered by different firms, and (pharmacy benefit managers) are often focused on how their decisions on [copayments] and which drugs to cover affect drug spending rather than (on) total health spending." However, he said, "A merged CVS/Aetna will have both the incentives and the information to offer a more coordinated benefit that considers these spillovers."

    However, Garthwaite in a prepared statement wrote that Aetna and CVS would have few incentives to pass on savings generated under the merger to consumers. Further, Garthwaite expressed concerns about increasing consolidation in the health care industry. "Lawmakers should be legitimately concerned about both equity and efficiency and therefore must consider value capture in addition to value creation," he wrote, adding, "At a minimum, the efficiency of this merger hinges on the degree of competition in the health insurer market."

    According to Healthcare Dive, Sabatino addressed such concerns in his prepared testimony, writing, "This is a vertical transaction with no significant overlap in our existing business. Aetna's core business is health insurance, while the vast majority of CVS Health's revenue comes from retail pharmacies and pharmacy benefits management."

    But George Slover, senior policy counsel at Consumers Union, expressed caution, noting that benefits from health care industry mergers sometimes "turn out to be illusory or imagined." He said, "We could instead see reduced competition which brings no benefit, except to CVS/Aetna" (Frieden, MedPage Today, 2/28; Diamond, "Pulse," Politico, 2/28; Minemyer, FierceHealthcare, 2/27; Lim, Healthcare Dive, 2/27).

    More on pharmacy and population health

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