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CVS’s $69 billion merger with Aetna is approved in deal that could transform health-care industry

Drugstore chain operator CVS Health said on Dec. 3, 2017, it had agreed to acquire health insurer Aetna for $69 billion. (Video: Reuters)
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Antitrust officials gave CVS the green light on Wednesday to purchase Aetna, the nation’s third-largest health insurance company, in a $69 billion deal that could potentially transform the health-care industry and change how millions of Americans receive basic medical services.

The Justice Department approved the deal on the condition that the companies sell off Aetna’s Medicare Part D prescription drug business.

The tie-up will allow CVS — whose retail pharmacy business serves 5 million customers a day — to turn more of its brick-and-mortar locations into front-line clinics for basic medical services and patient monitoring. By deepening its knowledge of and relationships with patients, CVS has said the combination could help Americans stick with medication regimens and stay out of the hospital.

Driving that new approach to care will be the immense amounts of data generated not only by CVS’s 9,800 retail outlets and 1,100 MinuteClinics but also from Aetna’s 22 million medical members.

The result could make CVS a destination for more than flu shots and treatment of minor illnesses.

“Our focus will be at the local and community level,” CVS chief executive Larry Merlo said in a statement, “to intervene with consumers to help predict and prevent potential health problems before they occur.”

Much of the U.S. health-care system revolves around fixing costly ailments. But in trying to head off the worst cases, CVS and Aetna are aiming to become a part of the nation’s social fabric, using the local retail pharmacy as both a window into people’s lives beyond the doctor’s office and assuming the role of a health-care assistant.

The CVS merger could lead to a future in which the company coordinates transportation for patients who have difficulty showing up for routine medical appointments, Aetna chief executive Mark Bertolini has said. That help could extend to nutrition counseling or even the use of wearable devices that automatically notify patients and health-care providers of a potential problem.

The Aetna acquisition is also expected to give CVS more leverage in its negotiations with drugmakers over drug prices, analysts say. A substantial share of CVS’s revenue comes from its role as a “pharmacy benefit manager” for insurance companies and employers. As health-care costs have risen, PBMs have emerged as important power players in the pharmaceutical supply chain.

Critics of the CVS-Aetna deal had worried that the merger could lead to higher drug prices for Medicare Part D beneficiaries. Opponents such as the American Medical Association also said the acquisition could increase insurance premiums and out-of-pocket expenses more broadly.

“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,” the AMA’s president, Barbara McAneny, said Wednesday in a statement. “We now urge the DOJ and state antitrust enforcers to monitor the post-merger effects of the Aetna acquisition.”

The Justice Department said Wednesday that although the deal as originally proposed could have resulted in harms to competition, the two companies’ divestiture of Aetna’s Medicare pharmacy service effectively addresses the issue.

"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,” said Makan Delrahim, the Justice Department’s antitrust chief, in a statement.

The marriage of the two firms underscores a wider trend toward consolidation in the health-care sector, and analysts said the CVS deal is likely to spur more acquisitions in the industry. The Justice Department’s announcement follows a decision last month by regulators to bless a similar PBM deal involving the insurance company Cigna and Express Scripts.

"The Cigna-Scripts and CVS-Aetna deals are doing what everyone else in the health-care space is doing right now, just on a grander scale — reacting to continued cost pressures from market forces like the ACA, consumerism and other industry players building scale against each other,” said Brad Haller, a director specializing in mergers and acquisitions at the firm West Monroe.

The industry faces outside pressures, as well, from technology firms who increasingly view health care as a market opportunity., for example, is seeking to challenge the traditional dominance of drugstores by selling over-the-counter medicines and supplements. (Amazon chief executive Jeffrey P. Bezos owns The Washington Post.) And the company is partnering with Berkshire Hathaway and J.P. Morgan on a venture to reduce costs in the health-care industry by targeting middlemen.

Surveys show that the public is optimistic about the tech industry’s efforts to reshape health care. More than half of Americans said they were very or somewhat confident in the ability of Silicon Valley to reduce costs and make patient data more accessible, in a report published by the consulting firm PwC in April. But tech giants have come under growing scrutiny from regulators for their privacy practices.

On Wednesday, the top law enforcement officials of three states — Connecticut, New Jersey and Washington state — and the District of Columbia announced they had reached settlements with Aetna resolving allegations that the company had mishandled patient information and violated their privacy. Aetna had allegedly mailed notices regarding HIV medications to roughly 12,000 individuals across the country using envelopes with large windows, allowing the patients' HIV status to be revealed, according to the state officials. The company has agreed to pay fines to each state and to change its privacy and security policies.

The CVS deal is expected to close by the end of the year.