CVS-Aetna merger is a robber baron’s dream come true

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Predicting a merger’s effect on consumers and competition is usually difficult. But in the case of the recently announced $69-billion merger of CVS Health Corporation and Aetna, we have hard evidence from previous health-care mergers that indicate this combination is a bad deal for consumers and competition.

If this pharmacy and pharmacy benefit manager (“PBM”) giant and insurance company are allowed to join forces, the results will be higher prices and less choice for payors and consumers. The antitrust cops should just say no to this deal.

{mosads}History can teach important lessons that undermine CVS’ claims that consumers will win from this deal. Look at CVS’ acquisition of Caremark, one of the nation’s dominant PBMs.


CVS, a retail pharmacy giant, took advantage of vertical integration through its acquisition of Caremark, a PBM giant, by excluding competition, reducing patient access to vital healthcare services from the pharmacists of choice and driving up prices.

When it acquired Caremark in early 2007, CVS formed exclusive pharmacy networks that prevented consumers from accessing pharmacists of their choice and that increased their costs to prescription drugs. Consumers supposedly were rewarded with increased choice — a mythological claim unless the only place one wanted to get drugs was at a CVS store or a CVS mail order operation.

The results not surprisingly were less access and higher costs. In addition, CVS, like other dominant PBMs, uses its mail order operations to over-dispense drugs, raising costs. CVS will undoubtedly enter into similarly exclusive arrangements if it is permitted to acquire Aetna, one of the largest health insurers in the country. 

While CVS proclaims that its acquisition of Aetna will result in “substantial efficiencies,” $750 million in “operating cost savings” and that the combined company will “dramatically further empower consumers,” nothing could be further from the truth.

Efficiencies, even if realized, are rarely passed on to consumers in the form of lower prices and better services. In fact, past health insurer-PBM alliances have not led to lower health-care prices or improved quality of care.

In 2015, UnitedHealthcare, the largest U.S. insurer, acquired CatamaranRx, then the fourth-largest PBM, into its OptumRx PBM. United now owns the third-largest PBM. Do insurer/PBM combinations benefit consumers or payers? Not in the least.

There is no evidence of greater integration, greater patient focus to improve health care, improved care, lower premiums and overall costs, increased savings or any resulting benefits passed on to consumers. Rather, consumers have suffered through higher drug prices, fewer choices, poorer service and increased fraud and abuse.

These instances of decreased consumer welfare have been evidenced by recent lawsuits against Optum for charging patients co-pays for drugs that exceed the cost of the medication itself.

Let’s be honest: The reason for these mergers is the escalating profits of PBMs, which exist in a competition-free environment John D. Rockefeller could only dream of.

The PBM market is dominated by three PBMs, and a lack of transparency and regulation provides a fertile environment for them to escalate profits through kickback arrangements (known as rebates) and other efforts to escalate drug costs.

There are increasing compelling efforts that much of the rise in drug costs is due to PBM rebate schemes that inflate the price of drugs. Because of a lack of regulation and transparency, PBMs can pocket a large portion of the rebates, far greater than any value they provide.

Undoubtedly, the PBMs are in many cases making more money per prescription than the retail pharmacy that is buying and dispensing the drug. This merger would allow CVS to put this scheme on steroids. Without independent health insurers to question the costs, there’s no one to police the PBM rebate scheme or to make sure rebates are ultimately passed on to employees and consumers. 

As drug prices increase, PBMs are not fulfilling their role as the independent middlemen with the responsibility of reducing costs. If CVS and Aetna are the same company, the rebates negotiated between the merged firm and drug manufacturers will belong to this gigantic new firm, and there is nothing to prevent the newly merged company from engaging in the same behavior.

The past record of PBM mergers is bleak for consumers. CVS might claim the merger is necessary to obtain increased bargaining power, which will in turn bring down prescription drug prices. But because the market is not competitive or transparent, those kickbacks are increasingly pocketed by the PBMs.

The Obama administration accepted the so called buyer power argument when it struck a Faustian bargain in 2011, allowing Express Scripts and Medco to merge. Consumers have paid dearly for that bargain in higher prices and less choice. The Trump administration would be wise not to repeat that error.

David Balto is an antitrust attorney based in Washington, D.C. He previously served as policy director at the Federal Trade Commission and as an attorney in the Justice Department’s Antitrust Division. He directed the Coalition to Protect Patient Choice, a coalition of consumer groups formed to raise concerns on health care consolidation.

Tags Aetna CVS Caremark CVS Health Drugs Express Scripts Health Pharmacy benefit management

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