California approves CVS-Aetna merger with a $240M investment back to the state

California regulators signed off on the merger but made CVS and Aetna agree to keep premium increases to a minimum. (Makaristos/Wikipedia)

California regulators have approved the $69 billion CVS-Aetna mergers, with a few caveats. 

As part of an approval from the California Department of Managed Care (DMHC), CVS and Aetna have agreed to invest nearly $240 million into the state's healthcare system, including $166 million in "infrastructure and employment" over the next three years. The majority of that will go toward building and renovating CVS facilities in California. 

The new healthcare behemoth will also invest nearly $23 million to boost the number of healthcare workers in "underrepresented communities" through scholarships and loan repayment programs. Another $22.5 million will go towards joint initiatives and accountable care organizations that support value-based models.

The company will put $6 million towards improving provider directories and standardizing encounter data. 

"Our primary focus in reviewing a health plan merger is to ensure compliance with the strong consumer protections and financial solvency requirements in state law," DMHC Director Shelley Rouillard said in a statement (PDF). "The Department thoroughly examined this merger and determined enrollees will have continued access to appropriate health services and also imposed conditions that will increase access and quality of care, remove barriers to care and improve health outcomes." 

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Another important caveat: CVS and Aetna agreed not to increase premiums because of acquisition costs and keep premium rates at a minimum. 

Specifically, the companies agreed that the ratio of administrative costs to premium revenues will not exceed 15% annually. If premiums do exceed that threshold, then Aetna and CVS must file a report with the state explaining why. 

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"For any Aetna Health premium rate increase deemed unreasonable or unjustified by the Department, Aetna Health shall meet and confer with the Department and make a good faith attempt to resolve any differences regarding the premium rate increase," according to the agreement (PDF). "This applies to all commercial lines of business subject to rate review by the Department at the time the rate is filed."

"The undertakings are binding and enforceable by the DMHC," spokesperson Ashley Robinson said in an email to FierceHealthcare. "The plan is required to report compliance to the DMHC, which we will track and monitor compliance. Failure to comply with the undertakings may result in a referral to the DMHC Office of Enforcement."

California Insurance Commissioner Dave Jones previously urged the Department of Justice to block the merger, citing reduced competition in Part D plans. But federal antitrust regulators approved the merger after Aetna agreed to sell off its Part D business to WellCare. 

CVS CEO Larry Merlo said he expects the deal to close by Thanksgiving