With a $66 billion deal between Aetna and CVS reportedly imminent, more questions are emerging about whether the acquisition will survive regulatory scrutiny.
Citing people familiar with the matter, The Wall Street Journal reported that a tie-up between CVS and Aetna could be announced as early as Monday, as the two companies are in advanced stages of negotiation.
The deal would combine one of the country’s largest health insurers with a company that is not only a retail and pharmacy giant but also one of the biggest pharmacy benefit managers.
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For both Aetna and CVS, combining forces would help them compete with UnitedHealth Group and its powerful healthcare services subsidiary, Optum, which already boasts an integrated PBM. CVS would be able to steer Aetna members to its PBM and pharmacies, and use assets like Minute Clinics and its Coram home infusion business to help Aetna improve health outcomes and reduce costs.
The deal could also help CVS fend off the competitive threat of Amazon’s entry into the drug distribution business. And it would allow Aetna to offset headwinds like margin compression in its commercial business, Leerink Partners analyst Ana Gupte wrote in a research note (PDF).
Antitrust issues
This would be the second major merger that Aetna has attempted in recent years, as its bid to purchase Humana failed following a successful challenge from antitrust regulators. Anthem also failed in its attempt to acquire Cigna.
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While a CVS-Aetna deal is more of a vertical combination than those two mergers, that doesn’t necessarily mean that it will easily win approval from regulators. For one, Gupte noted that CVS and Aetna would have to divest a portion of their Part D covered lives.
Perhaps more concerning, though, is the Department of Justice’s decision to block another vertical deal: the AT&T-Time Warner merger.
“The recent DOJ action against the ATT-Time Warner merger provides a roadmap of how mergers of this type can harm competition,” antitrust attorney David Balto said in an email to FierceHealthcare.
Balto, who led efforts to oppose the Aetna-Humana and Anthem-Cigna deals, added that “mergers like these have a dismal history.” Not only do they lead to less consumer choice and more exclusionary conduct, he said, but “the promises of consumer savings from past insurance company-PBM alliances are as fanciful as a unicorn.”
Another potential wrinkle in the deal comes from CVS’ recently announced partnership with Anthem to help the insurer create its own PBM. The Aetna-CVS deal could face additional scrutiny, Gupte predicted, if Anthem is forced to walk away from that pact with CVS due to cost disadvantages and confidentiality challenges.