Yesterday several consumer groups, concerned about the merger of CVS and Aetna and its harmful effects on competition and consumers, submitted comments on the merger and the proposed final judgment to the Department of Justice. In these comments, they argue that CVS's acquisition of Aetna is harmful to consumer choice and ordinary Americans and that the Department of Justice's proposed final judgment is woefully inadequate for protecting consumers. They urged the Court responsible for approving the merger to carefully review the transaction.
The comments were sent on behalf of Consumer Reports, U.S. PIRG, Consumer Action, and the Universal Health Care Foundation of Connecticut. They were not alone; 94 other organizations also commented on the merger, among them the AIDS Healthcare Foundation.
The consumer groups observe that the Department of Justice has approved the merger, and that it only required a divestiture of Aetna's standalone individual Medicare Part D prescription drug plans. The divestiture package is completely inadequate, and the buyer, a company called WellCare, is very unlikely to maintain competition. WellCare is substantially smaller than Aetna and probably does not have the capacity to handle such a large increase in covered lives (it will go from covering one million people to over three million people). WellCare is acquiring the assets at a price significantly below their supposed value, and the company has failed as a divestiture buyer in the past. Merger remedies usually fail to effectively restore competition, and structural remedies, especially divestitures, especially don't deliver the promised benefits. Consumers are facing fewer choices and paying higher prices in a number of industries because of failed merger remedies.
In health care, remedies have an even more dismal track record. In the past, the Department of Justice required a divestiture of 12,700 lives in 51 counties before approving the merger of Humana and Arcadian-and WellCare was one of the buyers. WellCare failed to restore competition. And less than two years ago, Judge John Bates ruled that the merger of Aetna and Humana was anticompetitive, and noted Aetna's and Humana's divestitures to Molina Healthcare did not resolve the competitive problems resulting from the merger. In that case, Molina also paid a low purchase price for the Medicare Advantage contracts, and in the past it had been unsuccessful in attempting to enter that market-just like WellCare's situation for the merger.
Next, the consumer advocates note that DOJ's proposed final order on the merger will not protect consumers. DOJ itself acknowledges that competition between Aetna and CVS has led to lower health care prices, improved drug formularies, better pharmacy networks and benefits, and product innovation. WellCare is very unlikely to preserve this competition-Aetna has 22.2 million members and is worth $55 billion, while WellCare has 4.371 million members and is worth $8.36 billion. And WellCare's Medicare Part D membership has actually declined over the past few years. DOJ even notes that effective entry into this market is very difficult-WellCare's pas record does not give confidence that it will enter and compete well.
Moreover, the pharmacy benefit manager (PBM) market is highly concentrated, and past mergers involving CVS have not benefited consumers. When CVS acquired Caremark in 2007, it used its newly acquired PBM to exclude competition, reduce patients’ access to vital healthcare services from their pharmacists of choice, and increase prices. It also steered many of its PBM customers to its own pharmacies and mail order operation. Past health insurer-PBM alliances have not led to lower health care prices or improved quality of care. In 2007, UnitedHealthcare merged CatamaranRx, then the fourth-largest PBM, with its own OptumRx PBM, and in 2011, Express Scripts and Medco, two of the three largest PBMs at the time, merged. While both deals promised efficiencies that would result in lower prices for consumers, there has been no evidence of improved care, lower premiums and overall costs, increased savings, or any resulting benefits passed on to consumers.
Finally, the organizations urge the Court to carefully review the proposed final judgment, and make sure that it is as thorough as possible to prevent post-merger harm. Judge Richard Leon, who will decide whether to finally approve the merger, has criticized DOJ and suggested that during their approval process they did not adequately address concerns about competition. During a hearing today on the merger, he criticized the Antitrust Division, saying their responses were intemperate, unhelpful, and hostile to the Court's role in the approval process.
We hope that Judge Leon carefully listens to these consumer groups, and heeds their warnings about this harmful acquisition.