Five questions for the CVS-Aetna deal

CVS on Sunday night said that it will acquire health insurer Aetna.

If approved, the merger of the nation’s largest pharmacy and third-largest health insurer could have major implications for the industry.

Here are five immediate questions about the big business deal.

Will it be approved?

It’s not clear that antitrust regulators will look favorably on the $69 billion merger.

Earlier this year, Aetna ended its attempt to acquire Humana, another insurance company. The deal would have created the largest private Medicare insurer in the country.

Aetna had faced significant obstacles. Former Attorney General Loretta Lynch sued Aetna to prevent the deal, and it was eventually blocked by a federal court.

{mosads}The CVS deal could be different. For one, CVS and Aetna don’t have as much business in common as Aetna and Humana. CVS is primarily a retail pharmacy, Aetna is an insurer.

The companies do have significant overlap in the Medicare prescription drug market. CVS is currently the leading standalone drug plan, and the two combined would own about 30 percent of the market, according to Tricia Neuman of the Kaiser Family Foundation.

One potential wild card is President Trump. In an October executive order, Trump promised to “re-inject competition in the health care markets” by limiting “excessive consolidation.”  

The merger would seem to violate that order, and the administration’s Justice Department is also trying to block the proposed merger of AT&T and Time Warner.

Will it lead to lower drug prices?

There is potential for the deal to lower overall health-care spending, which could lead to lower drug prices.

Analysts say the new company can lower spending if it promotes CVS’s walk-in MinuteClinics as an alternative to emergency rooms.

CVS and Aetna could disrupt the role of pharmacy benefit managers, which are companies that help insurers devise and run their drug benefits, including serving as middlemen in negotiating prices between insurers and drug manufacturers.

“It’s the lower overall cost of therapy. It’s not just the drugs. It’s not just the [pharmacy benefit managers]. It’s the overall outcome for the patient,” Aetna CEO Mark Bertolini told Reuters in an interview.

Craig Garthwaite, a professor of strategy at Northwestern University’s Kellogg School of Management, said the deal could lead to greater industry cooperation.

“Now the [benefit manager] and health insurer will be the same company. Now they will see how decisions about [the managers] will affect medical spending. That doesn’t happen much,” he said

Dan Mendelson, CEO of consulting firm Avalere Health, said traditional pharmacy benefit managers aren’t focused on lowering the overall cost of care.

“One of biggest problems with the [benefit manager] business model is it’s focused on reducing drug costs, not overall medical costs,” Mendelson said. “This transaction will make CVS’s [pharmacy benefit managers] much more responsive to the needs of health plans.”

Will it lead to better care?

The companies’ executives say the transaction will make health care more accessible to consumers at CVS locations. They promise higher quality, lower costs and more convenience.

Typically, mergers in the health-care sector have led to higher prices and no better outcomes.

But many analysts predict the merger has the potential to improve health outcomes.

When different parts of the system work together, “you at least create the incentives for better outcomes to occur,” said Garthwaite.

“I don’t want to say this is going to be better for everyone,” he added, “but if we want to move to the idea to value based care,” future mergers like Aetna and CVS make sense.

Will it decrease access to care?

Consumer advocates worry about the increasing use of narrow pharmacy networks. With the increased focus on quality, some insurers have narrowed the list of covered providers so they can more closely monitor costs and quality.

With CVS gaining more market share, that pressure could increase.

Advocates say the merger could also make it harder for new companies to enter the market that’s dominated by industry giants.

Garthwaite said that in the long run, the merger might make it harder for new insurers to enter the market because they won’t be able to negotiate lower drug prices than the larger firms.

The National Community Pharmacists Association warned of detrimental effects for consumers and community pharmacy providers.

“The anticipated efficiencies CVS and Aetna tout may benefit the merged company more than the consumer, who is likelier to be driven to use health care resources chosen by the health plan rather than those of his or her own choosing,” CEO B. Douglas Hoey said in a statement.

Will consumers see results quickly?

Mega-mergers take time. According to Bloomberg Intelligence analysts Jonathan Palmer and Jason McGorman, CVS and Aetna will likely file their deal with antitrust authorities in the next few weeks.

This will trigger a 30-day clock within which the agencies will decide whether responsibility to review the deal goes to the Justice Department or the Federal Trade Commission.

If an in-depth review is commenced, which they said is likely, that must be initiated in the 30 days after the initial filing. This would extend the review by up to 12 months.

Even if the merger is approved, it could take time for consumers to see any benefits.

According to experts, this type of merger is rare. Unlike the Humana deal, the CVS acquisition of Aetna is a “vertical” integration of companies in different sectors of the health-care marketplace.

“Consumers who use Aetna can expect more choices available to them, and the pharmacy will be integrated into their care in a positive way,” said Mendelson, but it will take time. “Consumers using the pharmacy won’t see any immediate new change, except maybe some co-branding.”