The Department of Justice (DOJ) recently cleared the merger of CVS Health Corporation (CVS) and Aetna Inc. (Aetna), only requiring divestiture of Aetna’s horizontally overlapping Medicare Part D prescription drug plan business. Aetna is primarily a health insurer, while CVS primarily has significant businesses in pharmacy benefit management (PBM) and retail pharmacy. DOJ approved the overall deal, citing benefits of the creation of an integrated pharmacy and health benefits company that could lower health care costs. For example, the merging parties claimed Aetna’s insurance customers would have access to more local healthcare options through CVS’s expanding health related services (such as its MinuteClinics). DOJ found no vertical competitive problems arising from the companies’ significant operations at different points in the health care supply chain.
This approval, despite possible vertical concerns, is perhaps not surprising given that DOJ had shortly before approved the vertical merger of health insurer Cigna Corporation with PBM Express Scripts Holding Co. With respect to the CVS/Aetna merger, DOJ stated that while it considered whether the combined entity might try to raise the cost of PBM services or retail pharmacy services to other health insurers in order to favor Aetna’s health insurance business, it concluded that such a result was unlikely due to what it characterized as sufficient competition from other PBMs and retail pharmacies. DOJ also found that the combined entity would not have an incentive to raise costs to Aetna’s health insurance rivals, because it would lose PBM (or retail pharmacy) business that it would not be able to offset through capturing additional health care insurance customers.
These findings differ from those argued by DOJ in its recent challenge of AT&T’s purchase of Time Warner. In the AT&T/Time Warner merger, DOJ specifically maintained that there was an incentive for the combined entity to raise distribution rivals’ costs. DOJ argued that Time Warner’s programming is unique, giving it the ability to raise distribution rivals’ costs without incurring offsetting programming losses. By contrast, in the CVS/Aetna merger, DOJ found that CVS’s PBM services are not unique and face sufficient competition from other suppliers of PBM services (despite recent PBM consolidation). Thus, CVS would not be able to raise Aetna’s insurance rivals’ costs. In sum, DOJ is continuing to examine vertical issues, and case specific facts likely will determine which mergers will raise vertical concerns.