Verticality of CVS-Aetna Deal Likely Means No Regulatory Challenges
Merging a pharmaceutical line with a major insurer creates a huge player in the industry but not a monopoly. It also opens the possibility of CVS Health buying hospitals and other outlets.
The acquisition of Aetna by CVS Health is likely to go through without antitrust challenges by federal regulators and could spur more vertical integration of healthcare entities, one analyst says.
The size of the merger is not enough to make it a problem for the U.S. Department of Justice, says Randal L. Schultz, a partner at the law firm of Lathrop Gage and chair of the firm's Healthcare Strategic Business Planning Practice group.
The deal is different from the $48 billion deal to merge insurance giants Anthem and Cigna that was halted by a federal judge in February, Schultz says. That proposed merger ran into antitrust concerns because the resulting company would have monopolized too much of the healthcare insurance market. The other potential antitrust concern is price fixing, and that does not seem to be likely with this merger, he says.
Unlike the horizontal merging of two large health insurers, combining CVS and Aetna will be vertical integration, and that makes all the difference, Schultz says.
"CVS Health is a pharmacy buying network. That's their big power, where they're really a big player and capture the market, even though they're in the business of retail drug stores too," he says. "This has the potential for changing the healthcare industry because it introduces entrepreneurial ideas into the healthcare marketplace, and we don't have that now. It doesn't create a horizontal monopoly that would violate antitrust laws, and it doesn't create a system in which this one large player is able to control prices across the board."
Schultz notes the prominence of the CVS Minute Clinics in the company's drug stores, which serve a consumer need for efficient and convenient healthcare services while drawing customers in for more profitable retail purchases. More Aetna customers will be driven to those clinics for care, Schultz expects, because it is more cost effective for the insurer and can be more appropriate than patients going to emergency rooms and other expensive settings.