The American Medical Association (AMA) released a statement Wednesday urging the Department of Justice (DOJ) to block CVS Health’s proposed $77 billion acquisition of insurance giant Aetna, Inc, due to concerns over potential anticompetitive practices.
 
Retail pharmacy is no stranger to significant mergers, such as when Thriftway, Eckerd, Longs, and Safeway were absorbed by larger chains Walgreens, CVS, and Albertsons. Meanwhile, mergers and acquisitions that joined disparate health care businesses were more unique. However, since the merger of CVS and Caremark in 2006, deals such as Rite Aid acquiring EnvisionRx, United Health’s acquisition of Catamaran, Walgreens and Prime Therapeutics' formation of AllianceRx Walgreens Prime, and Diplomat’s purchase of National Pharmaceutical Services illustrate a paradigm shift toward the creation of vertical health care giants.
 
“The CVS-Aetna deal is popularly described as a vertical merger involving 2 companies that don’t operate in the same markets,” AMA President Barbara L McAneny, MD, said in a press release. "But in fact, CVS and Aetna do operate as rivals in some of the same markets, raising substantial concerns that are specific to horizontal mergers. A merger of these 2 rivals would risk a substantial reduction of competition in the stand-alone Medicare Part D prescription drug plan market and the pharmacy benefit management services market.”

Aetna’s services encompass approximately 23 million medical members, 14.5 million dental members, and 15.2 million pharmacy benefit manager (PBMs) customers, while CVS has more than 9700 locations and brings in approximately $40 billion in specialty drug revenue. When the merger was announced, CVS said the deal presented a novel opportunity to rethink access to lower-cost, high-quality care across multiple settings.
 
"With the analytics of Aetna and CVS Health's human touch, we will create a health care platform built around individuals,” Larry J Merlo, president and chief executive officer, CVS Health, said in a December 2017 press release. “We look forward to working with the talented people at Aetna to position the combined company as America's front door to quality health care, integrating more closely the work of doctors, pharmacists, other health care professionals and health benefits companies to create a platform that is easier to use and less expensive for consumers."
 
A 29-page analysis put together by the AMA suggests that the merger will cause premiums to rise as a result of greater market concentration in 30 of 34 Medicare Part D regional markets. The analysis also stated that in 10 of 34 Medicare Part D regional markets, the merger would exceed a federal antitrust threshold for a merger projected to enhance market power by encouraging 1 or more firms to increase prices, lower output, inhibit innovation, or otherwise harm customers due to less incentive for competition.
 
However, Bloomberg reported on Tuesday that the DOJ antitrust division’s investigation into the merger did not reveal any vertical competition concerns. Instead, the government is more focused on competition between the companies in the prescription drug market, according to the report.
 
The article noted that the merger may have a smoother road to approval if the vertical concerns are not the center of the investigation, since completing the deal may only require CVS and Aetna to divest themselves of assets in areas in which the companies compete directly.
 
Bloomberg predicts the CVS-Aetna deal will face an easier path to approval than Cigna’s proposed $67 billion purchase of Express Scripts due to opposition from billionaire investor Carl Icahn, who purchased a stake in Cigna and called the deal a “travesty.”
 
The AMA also expressed concerns that Aetna and CVS have their own individual shares of the PBM services market. If the merger is approved, Aetna leaving the market would mean the loss of an established national health insurance company with a large customer base, years of experience, and capital, according to the AMA.
 
Furthermore, the association said the horizontal aspects of the merger could increase anticompetitive practices by increasing barriers to market entry and foreclosing competitors due to both companies currently operating in concentrated or highly-concentrated markets.
 
“There is every indication that extensive vertical integration resulting from the proposed merger would raise prices, reduce choice, and stifle innovation in markets for PBM services, health insurance, retail pharmacy, and specialty pharmacy,” McAneny said in the statement.
 
CVS Health disagreed with the AMA’s contention that the merger would eliminate competition in the marketplace.

“We believe that competition within each of the business segments in which we operate—pharmacy benefit management, pharmacies and insurers—is fierce and will remain so,” the company said in a statement reported by Reuters.