2 massive healthcare deals just got approved by the DOJ - and they will change healthcare as we know it
- The US Department of Justice has now cleared two healthcare megamergers, after CVS Health and Aetna's $69 billion merger got the green light from the agency on Wednesday.
- In September, the agency also cleared Cigna's $67 billion merger with Express Scripts.
- The acquisitions, once officially closed, will redraw the healthcare industry as we know it, giving health plans a lot more control over who's paying for prescription drugs.
The US Department of Justice has now cleared two healthcare megamergers, after CVS Health and Aetna's $69 billion merger got the green light from the agency on Wednesday.
In September, the agency also cleared Cigna's $67 billion merger with Express Scripts.
The deals, once closed, will redraw the healthcare industry as we know it.
In CVS and Aetna's case, the deal creates a new type of company that includes a health insurer, a retail pharmacy, and a company that negotiates prescription drug prices with drugmakers called a pharmacy benefits manager. As part of the agreement with the DOJ, CVS and Aetna have to divest Aetna's Medicare Part D prescription drug plan business.
And in Cigna and Express Scripts' case, the deal brings a health insurer and a PBM under the same roof and ends the days of the standalone PBM.
The move to go into other lines of business comes shortly after the DOJ blocked two health insurer mergers in 2016 that would have combined Aetna and Humana and Cigna and Anthem. The blocking of these so-called horizontal mergers suggested that big healthcare companies might need to look elsewhere for combinations.
Because vertical mergers, which combine different business all under one roof, don't impact the size of the market in a way that'd make any one anti-competitive, they tend not to get challenged as frequently as horizontal mergers.
"Vertical mergers tend not to be a problem," Andrea Agathoklis Murino, a partner with Goodwin's Antitrust & Competition Law practice, told Business Insider. That is, unless there's an instance in which prices go up because of the merger.
But there had been some pushback to the CVS-Aetna tie-up. The American Medical Association said on Wednesday it was disappointed with the DOJ's decision.
"We are disappointed that the DOJ did not go further by blocking the CVS-Aetna merger," AMA president Barbara L. McAneny said in an emailed statement. "The AMA worked tirelessly to oppose this merger and presented a wealth of expert empirical evidence to convince regulators that the merger would harm patients."
To be sure, the deals aren't set in stone just yet. The companies still need to get the OK from state insurance agencies, which both sets of companies say they're still working on.
What this means for healthcare
The boundaries of the healthcare business are changing. Instead of growing by acquiring other companies in the same business, companies have started to move into new lines of business, with no two combinations looking exactly the same.
It's part of a push by healthcare companies to both cut costs and gain more control over the patients in need of their services. It's coming as large tech companies seek ways to disrupt the healthcare industry as it faces new medications that challenge the way we pay for treatments.
Should the deal go through, Cigna wouldn't be alone in controlling both the insurer and PBM part of paying for prescriptions. UnitedHealthcare, for example, owns the PBM OptumRx, while Anthem, which owns a variety of Blue Cross Blue Shield health-insurance firms, will be launching its own PBM called IngenioRx. And with the CVS Health-Aetna deal, CVS Caremark, the PBM unit of CVS and Aetna will be under the same roof as well.
With both acquisitions, Cigna and CVS both will have more oversight into who's paying for prescriptions.
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