US Gov’t OKs $69-Billion Merger of CVS, Aetna with Conditions
In a deal that would mark a new business model for healthcare delivery, the US Department of Justice (DOJ) has granted conditional approval for the $69-billion merger of CVS Health Corporation (CVS), the largest retail pharmacy chain in the US, and Aetna, the third-largest health-insurance company in the US, which will allow the companies’ merger to proceed under the condition that Aetna divests its Medicare Part D prescription drug-plan business.
The proposed divestiture of Aetna’s prescription drug-plan business to WellCare Health Plans, a health insurer focused on government-sponsored health plans, including Medicare Part D individual prescription drug plans, would fully resolve the DOJ’s competition concerns and allow the merger to progress.
The DOJ is requiring the divestment by Aetna of its Medicare Part D prescription drug-plan business due to the anticompetitive effects that it would cause with the combination of CVS, which markets its Medicare Part D individual prescription drug plans under the SilverScript brand. CVS, the largest retail pharmacy chain in the US, and Aetna, the third-largest health-insurance company in the US, are competitors in the sale of Medicare Part D prescription drug plans to individuals, together serving 6.8 million members nationwide, according to information from the DOJ. As part of the agreement reached with the DOJ, Aetna entered into an asset purchase agreement with a subsidiary of WellCare Health Plans for the divestiture of Aetna’s standalone Medicare Part D prescription drug plans, which have an aggregate of approximately 2.2 million members. Aetna will provide administrative services to and will retain the financial results of the divested plans through 2019.
CVS, headquartered in Woonsocket, Rhode Island, 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, according to information from the DOJ.
“…[T]he 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,” said the DOJ in an October 10, 2018 statement.
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, an agency within the US Department of Health and Human Services.
“Today’s [October 10, 2018] settlement resolves competition concerns posed by this transaction and preserves competition in the sale of Medicare Part D prescription drug plans for individuals,” said Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division, in the DOJ 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.”
The transaction is still subject to state regulatory approvals, many of which have been granted, according to information from CVS. CVS Health says its acquisition of Aetna is on track to close in the early part of the fourth quarter of 2018. Until the close of the transaction, CVS Health and Aetna will continue to operate as two separate companies.
“DOJ clearance is an important step toward bringing together the strengths and capabilities of our two companies to improve the consumer healthcare experience,” said CVS Health President and Chief Executive Officer Larry J. Merlo in an October 10, 2018 company statement. “We are now working to complete the remaining state reviews. 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 healthcare 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.