Details of a $69 billion deal in which pharmacy giant CVS would take over health insurer Aetna emerged in multiple reports Sunday.
The deal, if it is realized and not shot down by regulators or the courts, will result in a company that effectively controls all aspects of a drug supply chain between manufacturers and consumers.
CVS owns a large chain of pharmacies as well as one of the top three pharmacy benefit managers (PBM) in the country. PBMs are often referred to as the middlemen between drug companies and insurers, including Aetna.
The question now is whether the companies will overcome antitrust issues -- notably whether the deal violates rules governing vertical mergers, deals where two companies at different levels of the supply chain come together -- and problems that may emerge if it is believed they control too many links.
"It is such a big merger I would be surprised if they (regulators) do not take a close look at it," Tim Greaney, a health care sector and antitrust expert and visiting professor at University California Hastings, told Patient Daily.
There could be issues if a scenario arises where Aetna's competitors fail to get adequate access to CVS's more than 10,000 pharmacies and medical centers, Greaney said. He questioned whether those rivals may be subjected to increased costs.
And there could be questions of whether Aetna's rivals have the same access to the PBM services and deals to be controlled by the merged company. This could be problematic, Greaney said.
Regulators -- often more interested in horizontal mergers, which are rivals teaming up -- may not be disposed to take a deep dive into investigating this proposed marriage, he said.
Any decision on whether to investigate or block it may also depend on which agency assumes jurisdiction, whether it's the Federal Trade Commission (FTC) or the Department of Justice. Historically, the FTC has been more hands-off when it comes to the merger of vertical businesses.
But the Justice Department last month sued to block the vertical merger of AT&T Inc. and Time Warner Inc., which surprised Greaney. It led to much speculation over whether the decision was directed by the White House and whether Time Warner's CNN was a factor.
"The real difficulty is the trade-off," Greaney said. "There is the extra market power, and possibly raised prices. That is harmful."
But, he added, there "may be synergies, health care, insurance, pharmaceutical management, integration and efficiency, and consumer benefits."
It is a balance that can be really hard to deliver, said Greaney.
In a joint interview over the weekend with Bloomberg, CVS CEO Larry Merlo and Aetna CEO Mark Bertolini said combining the companies would help CVS expand a variety of retail medical services, from vision care to nutrition advice to audiology, making basic care more convenient and less costly for consumers.
Aetna will be operated as a separate business unit, and new services will be designed to appeal broadly to customers of other insurance companies as well, the executives said.
All of the reports cited the potential of Amazon entering the drug and medical devices retail market as one of the driving forces behind the deal. There are also reports that Walmart, with its eye on Amazon, may try to enter the health insurance market, potentially carving out a deal with Humana.
