Earlier this month, Judge Richard Leon of the United States District Court in Washington completed his review of the United States Justice Department’s decision to permit CVS Health, the owner of the largest pharmacy chain and one of the largest pharmacy benefit managers (PBMs), and Aetna, a leading American health insurer, to merge, determining that the agreement did not violate antitrust law.
While many in the healthcare industry had voiced concerns that the merger would hurt competition, particularly affecting independent pharmacies, Aetna agreed to sell its Medicare prescription drug plan business to WellCare Health Plans in order to further open up the market. In granting the motion, Judge Leon stated that, “CVS’ and the government’s witnesses, when combined with the exiting record, persuasively support why the markets at issue are not only very competitive today, but are likely to remain so post-merger.”
But Kamaljit Behera, a transformational health senior industry analyst with Frost & Sullivan, a global market research and analysis firm, says critics’ concerns of the merger are not without merit. With this agreement now in place, CVS has no real incentive to keep drug prices lower for insurers who are competing with Aetna, especially as WellCare continues to rely on CVS for pharmacy benefit management and retail pharmacy services. And it’s not clear that Centene’s decision to acquire WellCare for $15.27 billion, which many hoped would reduce potential antitrust issues, will offset those issues.
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“We are seeing further centralization of power,” he said. “Today, five PBMs control more than 85% of the market and the top five pharmacies have more than 40% of the retail market share. This centralization of power without enforcement of transparency in margins and rebates is one of the reasons for the ambiguous and high drug pricing in the United States.”
Since November 2018, the industry has carefully followed CVS’ transformation from a pharmacy chain to a more all-encompassing health services company. CVS has added additional primary health services at its MinuteClinics as well as expanded its virtual care options for patients with chronic health conditions. In addition, it has availed itself of Aetna’s vast trove of data in order help identify the right locations for future clinics and HealthHUBs. The company also plans to open 1500 more HealthHUBs—which provide health services right in its pharmacy retail stores—by 2021. Taken together, these moves show the kind of market power CVS’ and Aetna’s consolidation has brought to bear.
While the deal had not officially gone through until this latest review, CVS and Aetna were already essentially operating as a single entity—a fact that did not go unnoticed by Judge Leon, who took a moment to chastise the very common practice of companies acting as if merger deals were closed while the decision remained under court review, as required by the Antitrust Procedures and Penalties Act, better known as the Tunney Act.
“If the Tunney Act is to mean anything, it surely must mean that no court should rubber-stamp a consent decree approving the merger of ‘one of the largest companies in the United States’ and ‘the nation’s third-largest health-insurance company,’ simply because the government requests it.”
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What will the end result be? Khushbu Jain, a transformation health industry analyst, also at Frost & Sullivan, says CVS’s enhanced reach in the healthcare industry may offer greater convenience to consumers—but it likely won’t translate into what patients most want to see: lower healthcare or drug costs.
“The industry is already heavily consolidated,” she explains. “Cigna announced its acquisition of Express Scripts in March, soon after the CVS-Aetna news came out. And, in preparation for market headwinds and that concentration of power, companies are already looking at expanding their offerings in order to compete. For example, Anthem has now launched its own PBM, IngenioRx.”
She adds that in light of high drug prices as well as poor transparency regarding what drives those costs, drug price comparison websites and apps— such as BlinkHealth and RxRevu, as well as ePharmacy vendors like Amazon+PillPack—may end up the real winners in the long run from these large-scale mergers, as they can offer the savings consumers are seeking.
“Pharmacies, in general, will become the central cog in patient care and recovery and elevate their roles from being a commodity provider to an active participant in the patient care regimen,” she says. “Pharmaceutical companies will be in duress as the balance of power shifts—and price pressure increases from all sides.”