When CVS and Aetna announced plans to merge last year, we had questions. Namely, how can a cross-industry union of two of the largest healthcare companies bring down prices and help patients when it would radically reduce competition?
This CVS-Aetna merger is poised to have terrible consequences. CVS is one of the largest Pharmacy Benefit Managers (PBMs) in the country, negotiating drug prices with manufacturers and reimbursements with insurers. Aetna, one of the country’s largest insurers, would therefore have a competitive advantage in negotiating with CVS, as CVS would no longer have an incentive to negotiate larger savings for patients but rather would be better served to rack up profits for the new, mega-company. Worse, patients would be completely in the dark about the merged company’s ability to work both sides of the negotiations to the disadvantage of patients.
PBM business practices and lack of accountability have been widely criticized:
“That’s money [PBMs are] taking straight from consumers by pocketing the rebates they squeeze from manufacturers and the rapacious clawbacks they demand from pharmacies. In this absence of true market competition, PBMs can practically choose how much to profit on the backs of consumers,” said Matt Kandrach of Consumer Action for a Strong Economy (CASE).
We aren’t the only ones with these questions. The Justice Department is probing whether the proposed merger violates federal antitrust laws, and the House Judiciary Committee is asking firm executives whether a merger would help patients, or just pad their bottom lines.
Everything we know about competition in the healthcare space leads us to believe that a merger between CVS and Aetna will drive up prices for patients and reduce incentives for innovation. Even Bob Kocher — one of Obamacare’s architects who pushed for consolidation across the industry — admitted they were wrong to believe such mergers would benefit patients. The truth is, a lot of hospitals, insurers and other healthcare players are consolidating as the result of government’s heavy hand and regulatory mandates — as a result, prices rise and patients suffer.
This trend is not going away, and the CVS-Aetna merger is not the only cross-industry acquisition in the works. Just last week, Cigna announced its intention to buy Express Scripts for $52 billion – another mega-merger that will limit competition and drive up prices for consumers.
The Justice Department’s request for information on the CVS-Aetna merger might be the first step toward greater accountability in the healthcare space on behalf of the American consumer. The Cigna-Express Scripts deal will likely invite similar scrutiny. We’re looking forward to the results, but mergers that decrease competition, stifle innovation in the healthcare market, and drive up costs should be rejected.