CVS-Aetna Merger Approved By DOJ: What CEOs Should Know

The Justice Department approved the $69 billion CVS-Aetna merger. What will be the larger impact of vertical integration in healthcare?
The Justice Department approved the $69 billion CVS-Aetna merger. What will be the larger impact of vertical integration in healthcare?

The Justice Department approved the $69 billion merger between CVS and Aetna, a combination that is sure to send shockwaves throughout the healthcare industry.

The deal, announced late last year, was approved this week after the one major stipulation from federal authorities was satisfied. The combined company had to divest the Aetna’s Medicare Part D prescription drug plan business due to an overlap with the Medicare drug business that CVS offers. In September, Aetna announced plans to sell its Medicare Part D prescription drug plan to WellCare.

CVS-Aetna is the second major healthcare merger to get clearance from the Department of Justice in a month. Insurance company, Cigna Corp. and benefits manager, Express Scripts, got the green light a few weeks ago.

Vertical integration is sure to have an impact on the healthcare industry, one way or the other. Some healthcare executives, such as Zoë Barry, CEO of ZappRX, a software platform that streamlines medication prescription and prior authorization for specialty providers, are optimistic about its potential influence.

“When you start to see that vertical integration where you have CVS, and then you have CVS Caremark, and then you have CVS Caremark Aetna, it’s actually a good thing because you’re going to get the more holistic cost profile of that patient. It’s likely going to lead to better opportunities for patients and certainly for ZappRx, which has a lot of data points [on]s how expensive a patient is off [doing a certain] therapy versus [another] therapy,” Barry said in her interview to Chief Executive.

Others are a little more skeptical. Chief Executive spoke with David E. Williams, president, Health Business Group in Boston, who shared some of his initial thoughts on what this CVS-Aetna deal will mean for healthcare CEOs and what to watch out for as the two companies combine.

1. What will a combined CVS-Aetna look like? Williams says it will be interesting to see if the companies do more together as one company or continue to keep the relationship at arm’s length. “They talked a lot about Aetna making use of [CVS’s] Minute Clinic and doing more care at the pharmacy, we’ll see if that happens,” says Williams. “The extent of operational integration will be something to watch.”

2. Consolidation—who is it good for? With the large mergers in healthcare, Williams says the choice for consumers goes down and the cost of care tends to go up. For competing healthcare companies, CVS-Aetna has an economies of scale that will be hard to compete against. For employers, this merger could mean more expensive insurance plans. While it might be hard to measure, Williams says there is sure to be an anti-competitive impact this deal has on the market, along with the Cigna-Express Scripts deal. “I think these combinations hurt the market.”

3. Primary care. One area of the healthcare sector that Williams says could really feel the negative effect of this deal will be primary-care physicians and groups. “There’s a real threat to [traditional] primary care as part of this,” he says.

4. Next up. The natural question is what will be the next mega-merger in healthcare? Williams says one situation worth watching will be a potential merger between Partners Healthcare and Harvard Pilgrim, a major insurance company and health system in the Boston area. This could set the stage for other potential provider-payer mergers across the country.

5. But don’t hold your breath. Williams notes that things tend to move slowly in healthcare, so the domino impact of the CVS-Aetna deal may not be felt immediately.