On Friday, June 21st, respected antitrust lawyers David Balto and Andre Barlow submitted a brief opposing the CVS-Aetna merger on behalf of the consumer groups Consumer Action and U.S. PIRG. In the brief, they lay out how the merger will harm consumers, lead to increased concentration and greatly harm competition, and lower healthcare quality and access. They also show how the Department of Justice's (DOJ) proposed final judgment is completely inadequate for protect consumers and competition, and conclude that DOJ should reject the merger.
The $69 billion merger between the health insurance company Aetna and the pharmacy and pharmacy benefit manger (PBM) CVS would create a gigantic corporation that would be a robber baron's dream. During a two day hearing from June 4th-5th, Judge Richard Leon heard from supporters and opponents of the deal. Judge Leon has publicly been skeptical about the merger.
In exchange for approving CVS's acquisition of Aetna, the Justice Department required CVS and Aetna to divest all their Medicare prescription drug plans (PDPs) and sell them to the health insurance company WellCare. However this divestiture is small compared to the massive scale of the merger, and WellCare lacks the expertise and capacity to effectively preserve competition in these markets.
In the brief's introduction, Consumer Action and U.S. PIRG state that "the ultimate question is whether the PFJ [proposed final judgment] is in the public interest and whether the divestiture will adequately and completely restore competition. Based on the hearings, there is clear evidence that the proposed divestiture will not fully restore competition. Not only does the divestiture fail to resolve the competitive concerns identified in the DOJ’s Complaint, but it also fails to address how this merger will exacerbate conflicts of interest and self-dealing in the prescription drug supply chain. Therefore, the PFJ should be rejected."
The two consumer groups also ask the Court to "consider whether this merger will help bring down and control the escalating prices of prescription drugs or whether it will contribute to higher drug prices and less access to affordable medicines for patients." Their answer? The CVS-Aetna merger will lead to higher drug costs and harm patent access. Vertical consolidation has reshaped the healthcare industry.
The brief notes that "the White House Council of Economic Advisors has found that the three vertically integrated PBM/health insurer firms – UnitedHealth/OptumRx, Cigna/Express Scripts, and CVS Caremark – operate in a tight oligopoly and exercise market power against manufacturers, the health plans and beneficiaries they are supposed to be representing, and pharmacies.6 These conglomerates engage in self- dealing at every level throughout the supply chain, and wield their massive power to extract all value from industry participants while passing nearly nothing back to consumers. Conflicts of interest abound as evidenced by the rebates and the fees that they earn and their desperate effort to keep all pricing, rebating and negotiating practices secret."
The CVS-Aetna merger will make all these trends worse, the proposed divestiture will not restore competition, and Judge Leon should reject the merger.