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Our Take: Justice Department OKs CVS-Aetna merger with Part D divestiture

Oct 15, 2018

The U.S. Department of Justice (DOJ) has cleared the way for the $69 billion merger between CVS Health and Aetna Inc., with the stipulation that Aetna divests its Medicare Part D individual prescription drug plan business.

“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 health care services that American consumers can obtain,” said Assistant Attorney General Makan Delrahim of the Justice Department’s Antitrust Division.

In late September, Aetna said it was selling its Part D prescription drug plan business to Tampa, Fla.-based WellCare Health Plans. The DOJ said the transaction would satisfy its antitrust concerns.

CVS currently markets a Medicare Part D individual prescription drug plan under the SilverScript brand.

Our TakeLet’s get a sense of the magnitude of the deal before we discuss why it matters.

CVS is the nation’s largest retail pharmacy chain, owns the pharmacy benefit manager Caremark, and is the nation’s second-largest provider of individual prescription drug plans, with approximately 4.8 million members. CVS Specialty is the largest specialty pharmacy, with $35 billion in revenue and 25 percent of specialty drug prescription revenue, according to Drug Channels.

CVS also has 1,100 MinuteClinics, 83 Coram infusion and enteral care sites, and Omnicare specialized long-term care pharmacy services.

Aetna is the nation’s third-largest payer and has 2 million prescription drug plan members. Aetna also has a population health unit, ActiveHealth Management; MediCity, a health information exchange; and Cofinity, which provides medical and dental network access, medical management, transplant networks and out-of-network claims management.

Aetna has also been actively involved in value-based contracting, most notably its outcomes-based contract with Medtronic for insulin pumps and its value-based deal with Merck for the diabetes drug Januvia (sitagliptin).

Put them together and you have a massive, nationwide integrated provider of services including health care services (MinuteClinic, Coram), health and prescription drug plans (Aetna, Caremark) and pharmacy services (CVS, CVS Specialty, Caremark, Omnicare).

The combined company will benefit from CVS’ recent partnership with Epic, in which CVS is deploying Epic’s population health and analytics platform to generate insights surrounding dispensing patterns and behaviors around medication adherence.

A combined CVS-Aetna will have integrated medical and pharmacy services under one roof, with an enhanced ability to control costs. Think about it: A MinuteClinic visit is a lot less expensive than a trip to the emergency room.

Ultimately, as we have said previously, the move is a defensive one as Amazon continues to make inroads in health care and pharmacy. The deal also levels the playing field among two other powerhouse combinations: UnitedHealthcare and Optum, and the pending $52 billion merger between Cigna and Express Scripts.

Cigna and Express Scripts received DOJ approval for their merger in September.

What else you need to know
Health care premiums on the federal health exchanges are declining for the first time since the program was implemented in 2014, CMS said. The average premium for the second-lowest-cost silver plans for the 2019 coverage year will decline by 1.5 percent. Since 2014, average individual market premiums on HealthCare.gov more than doubled, from $2,784 per year in 2013 to $5,712 in 2017, CMS said. Factors contributing to the lower premiums include slower growth in some medical expenses, an overpricing of plans in 2017, less political uncertainty and insurers’ growing familiarity with the market.

Separately, CMS announced the launch of its Bundled Payments for Care Improvement-Advanced (BPCI-A) model, which began on Oct. 1. CMS said 832 acute care hospitals and 715 physician group practices are participating in the program. Under BPCI-A there are 32 bundled clinical episodes (29 inpatient and three outpatient). Participants are provided target prices before the start of each model year; participants earn more if the costs for the episode are less than the target, but must repay Medicare if the costs for the episode exceed the target.

President Trump signed two bipartisan bills into law that would ban pharmacy “gag clauses” at the pharmacy counter. The bills, known as the Patient Right to Know Act and the Know the Lowest Price Act, will allow pharmacists to discuss whether a prescription is less expensive if using insurance or paying out of pocket. The law affecting commercial insurance contracts takes effect immediately; the law affecting Medicare beneficiaries takes effect Jan. 1, 2020.

Walgreens stepped up its partnership with LabCorp to open 600 testing centers inside Walgreens retail locations over the next four years. The agreement is an expansion of a 17-store pilot program that started in June 2017. “This reflects our commitment to transform our stores into neighborhood health destinations that provide a differentiated, consumer-focused experience, while providing access to a broad range of affordable health care services at a trusted and convenient setting,” said Stefano Pessina, CEO of Walgreens Boots Alliance, in a statement.

Amedisys Inc. signed a definitive agreement to acquire Compassionate Care Hospice (CCH) last Wednesday for $340 million. Parsippany, N.J.-based CCH operates 53 locations in 24 states, with $188 million in annual revenue. After the transaction closes, Amedisys will be the third-largest hospice provider in the U.S., with 136 care centers in 34 states and an average daily census of 11,000 patients. Amedisys shares dropped 11.5 percent following the news, closing Friday at $109.20.

What we’re reading
Helping Health Care Workers Avoid Burnout. Harvard Business Review 10.12.18
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