(Updated at 1:15 p.m. ET)
Federal antitrust regulators will require CVS Health and Aetna to divest Aetna's Medicare prescription drug plan business before moving ahead with the companies' planned $69 billion merger.
The divestiture would alleviate the U.S. Justice Department's concerns that the merger would reduce competition, it said Wednesday. WellCare Health Plans will buy Aetna's Medicare Part D business, Aetna announced late last month.
"Today's settlement resolves competition concerns posed by this transaction and preserves competition in the sale of Medicare Part D prescription drug plans for individuals," Assistant Attorney General Makan Delrahim, who leads the Justice Department's antitrust division, said in the announcement. "The divestitures required here allow for the creation of an integrated pharmacy and health benefits company that has the potential to generate benefits by improving the quality and lowering the costs of the healthcare services that American consumers can obtain."
Woonstock, R.I.-based CVS and Hartford, Conn.-based Aetna still must clinch approval from some states, though CVS said many state approvals have already been granted and the merger is on track to close in the fourth quarter of 2018.
The approval of the CVS-Aetna merger comes less than a month after the Justice Department greenlit the $67 billion deal between insurer Cigna Corp. and the nation's largest pharmacy benefit manager, Express Scripts. The mega-mergers significantly alter the healthcare landscape by bringing two of the largest PBMs together with two of the largest insurers.
Both pairs say their mergers will save costs for consumers and provide better coordinated care by bringing pharmacy and insurance services under one roof.
The deals are described as "vertical mergers," because they combine companies that operate at different points along the healthcare supply chain and do not directly compete, for the most part. Federal antitrust enforcers have not successfully blocked a vertical merger in decades.
But CVS and Aetna competed directly by selling Medicare prescription drug plans, together serving 6.8 million drug plan customers. Approving the merger without conditions would have increased prices, harmed quality and customer service, and reduced innovation in 22 states, the Justice Department said. Aetna announced in late last month that it would sell its standalone prescription drug plan business, which serves 2.2 million customers, to Tampa, Fla.-based WellCare and help operate the business during the transition.
CVS and Aetna announced their plans to combine in December 2017, framing the deal as creating a new type of healthcare model where CVS' walk-in clinics and pharmacists would play a bigger role in caring for patients and coordinating their care, particularly among patients with chronic illnesses. The companies have said their proposed merger would yield $750 million in savings in its second full year and $2.4 billion annually by the fifth year.
The merger allows the companies "to combine capabilities in technology, data and analytics to develop new ways to engage patients in their total health and wellness," CVS President and CEO Larry Merlo said in a statement. "Our focus will be at the local and community level, taking advantage of our thousands of locations and touchpoints throughout the country to intervene with consumers to help predict and prevent potential health problems before they occur."
Still, some healthcare providers and antitrust experts have opposed the deal. The American Medical Association in August urged the Justice Department to prevent the merger before it could reduce competition in the Medicare Part D, PBM and other markets.
"There is every indication that extensive vertical integration resulting from the proposed merger would raise prices, reduce choice and stifle innovation in markets for PBM services, health insurance, retail pharmacy and specialty pharmacy," AMA President Dr. Barbara McAneny said.
California Insurance Commissioner Dave Jones in August also warned against the deal because the companies did not explicitly commit to lowering insurance premiums, despite the vast savings they promised would result from the combination. Jones, however, does not have direct regulatory approval over the deal.
Once the companies combine, Aetna will operate as a standalone business within CVS. Aetna President Karen Lynch will stay on as president of the business unit, and Aetna CEO Mark Bertolini will join CVS' board of directors.