Tag: merger

CVS and Aetna Merger

By Brandon Huber, Class of 2019

According to the Wall Street Journal, CVS and Aetna are reportedly in serious talks over a
potential merger between the two healthcare giants. With the potential buyout price in the
ballpark of $70 billion, the deal would not only set the record for the largest merger of any two
companies in 2017, it would easily be considered the largest health provider merger of all time,
shattering Express Scripts’ $29 billion merger with Medco back in 2012.
The deal would combine CVS, currently the largest pharmacy retail chain, with Aetna, the third
largest health insurer provider in the United States. Although both companies have declined to
comment on the negotiations of the deal, there have been reports that a deal could be reached
by the two companies as soon as December. Despite the growing pressure over the last few
years on healthcare providers to consolidate, due in large part to soaring medical costs, a
merger of this size promises to send a shockwave across the entire healthcare industry.
The merger comes on the heels of news that Amazon, the online retail giant, almost certainly
will enter the prescription-drug market as soon as 2019. Although Amazon has not yet
announced any official plans to enter the pharmacy retail business, there can be little doubt
that even rumors of such plans would be enough to motivate CVS, and other pharmacy retail
chains, to find creative ways to expand and grow.
CVS’ buyout of Aetna, at least from the outset, seems to present the perfect opportunity for
both companies to benefit from the deal. On the other hand, however, whether consumers
stand to gain any benefit from the merger remains to be seen. From Aetna’s perspective, the
merger affords the opportunity to provide better care management. Insurers have long
believed that the best way to control rising healthcare costs is to ensure they have more access
into the lives of their beneficiaries. The deal would help Aetna ensure its beneficiaries were
staying on their medicines, getting the care they need at more cost-effective locations—like a
CVS health clinic—as opposed to a more expensive and perhaps unnecessary hospital visit.
Conversely, not only would CVS be able to expand its reach within the healthcare market, the
deal would drive more traffic to its stores as more of Aetna’s insured beneficiaries would seek
preventive care and treatment for less serious medical issues at the clinics located within CVS
stores. Additionally, CVS could expect an influx of customers because Aetna’s beneficiaries
would likely use CVS to get their prescriptions filled.
With that said, however, despite the near guarantee that both parties would benefit
significantly from such a deal, there are some who remain skeptical as to whether the deal will
benefit consumers. According to Amanda Starc, associate professor of strategy at
Northwestern's Kellogg School of Management, CVS’ position as a pharmacy benefit manager would allow the merged companies to negotiate lower drug prices with pharmaceutical
manufacturers. It is unlikely, however, that these newly acquired drug-rates, now available to
Aetna as a result of its newly acquired market power, would translate into lower prices for
customers and not into profits for the company.

Anthem-Cigna Merger Blocked by Federal Judge

By Ann Hogan, Class of 2018

In July of 2016, the Department of Justice brought suit to block the $54 billion merger of Anthem and Cigna. In the complaint, the DOJ alleged, “Anthem’s purchase would eliminate it as a competitive threat and substantially lessen competition in numerous markets around the country. The harm to competition in any one of these markets is sufficient to enjoin the transaction.” If the DOJ is unsuccessful and Anthem and Cigna are allowed to merge, it would become the largest health care provider in the nation. “Anthem has argued that the deal would save health insurance customers over $2 billion in medical costs because Cigna customers will be able to access discounts that Anthem is able to offer its customers.”

However, on February 8, 2017, Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia ruled in favor of the DOJ stating, “it would violate antitrust law for the second- and third-largest health insurers in the U.S. to combine.” The company made a statement that it, “promptly intends to file a notice of appeal and request an expedited hearing.”

Two weeks prior to Judge Jacksons’ ruling blocking the Anthem-Cigna merger, Judge John D. Bates of the United States District Court for the District of Columbia blocked the Aetna and Humana merger on antitrust grounds. Judge Bates wrote, “the court is unpersuaded that the efficiencies generated by the merger will be sufficient to mitigate the anticompetitive effects for consumers in the challenged markets.” It seems that the judges side with the DOJ’s view that the merger of the top two companies would not be beneficial to consumers.