Posted July 19, 2018, 9:33 AM
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Justice Department evaluating CVS-Aetna merger
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Both companies provide Medicare prescription drug coverage plans
to seniors
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Enforcers likely to look at whether deal is anticompetitive in
Medicare drug markets
CVS Health Corp.’s proposed acquisition of insurer Aetna Inc.
could attract the attention of the Justice Department because it appears likely
to reduce competition in at least some of the Medicare prescription drug plan
markets in which the two companies currently compete.
It would not only be a merger between the nation’s largest health
insurer and its second largest pharmacy benefit manager and pharmacy chain, it
would also be a merger between two major Medicare prescription drug plan
administrators.
As the Justice Department weighs the deal, antitrust enforcers
could be concerned that both companies sell Medicare Part D prescription drug
plans to seniors. According to Bloomberg Intelligence analysts, a merged
CVS-Aetna would account for 33 percent of the Medicare Part D market.
The accompanying graphics show the merger could have a big impact
on Middle America. In many counties, a merger would mean that more than half of
the Medicare beneficiaries enrolled in a Part D plan would be the
conglomerate’s customers. In McPherson County, Neb., 100 percent of people
enrolled in Medicare prescription plans would have coverage through CVS-Aetna.
Antitrust enforcers generally worry these types of concentrations
could lead to increases in prices. The graphics, compiled using Centers for
Medicare & Medicaid Services data, show the potential effect of the
CVS-Aetna merger on the enrolled Medicare prescription drug population.
Impact in Midwest
A merged CVS-Aetna would appear to have the biggest impact on
enrollees in the middle U.S.
That very dark county in the middle indicating “Percent of
Medicare Part D Subscribers Covered by CVS/Aetna” is McPherson, Neb.
As of the 2010 census, McPherson had a population of 539 people.
It is the eighth least populous county in the nation. The first image of
McPherson that comes up on a Google maps search is of a dirt road, grass
fields, and a double-wide trailer in Tryon, the county seat.
In McPherson, 100 percent of Medicare Part D enrollees would be
CVS-Aetna customers post-merger. Granted, McPherson County is tiny and doesn’t
have many people enrolled in Part D plans at all.
The map above shows the number of insurers that would be offering
Part D plans, in which people are currently enrolled, after the merger.
McPherson would have one provider post-merger, CVS-Aetna. The
other single-insurer county is in Colorado—currently Humana is the only Part D
plan insurer with enrollees there.
A number of counties would end up with only two competing insurers
post-merger.
Top Insurers Offering Medicare Part D Coverage
CVS has around 6 million Part D plan customers through its
Silverscript plans. Aetna has around 3.4 million Part D customers. The proposed
merger would combine the number 3 and number 4 Medicare Part D insurers to
create the number 2 insurer in that market.
Another big pending health-care merger, Cigna’s proposed
acquisition of Express Scripts, which is also being reviewed by DOJ antitrust
enforcers, would combine the number 5 insurer with the number 9 insurer to
cover 3.6 million Part D enrollees.
For all of the scuttlebutt about a potential DOJ challenge to the
CVS-Aetna deal as a “vertical” merger, it is the market concentrations where
the two firms are competitors that enforcers would look at first, attorneys
say.
“If I’m sitting in the Department of Justice, I’m looking at the
low-hanging fruit first, which means looking at the horizontal overlap” in the
Part D markets, Jack Rovner, a health-care antitrust attorney with the Health
Law Consultancy in Chicago, told Bloomberg Law. Rovner is a Bloomberg Law
advisory board member.
“CVS-Aetna could cure that horizontal overlap with a spinoff,”
Rovner said. “But I don’t see CVS wanting to spin off its Part D product with 6
million people in it. Perhaps they would be willing to spin off Aetna’s
stand-alone Part D business, but I doubt that CVS-Aetna would want to spin off
Aetna’s Medicare Advantage [managed care] Part D business.”
Defining Markets
These graphics all include data for both “standalone” Medicare
Part D plans, which seniors can purchase as optional prescription drug
coverage, and prescription drug coverage that is available through Medicare
managed care plans, known as Medicare Advantage.
It’s far from legally settled whether standalone Part D plans and
Medicare Advantage Part D plans would be considered to be competitors by an
antitrust court evaluating CVS-Aetna.
The U.S. District Court for the District of Columbia, in the DOJ’s
challenge to Aetna’s merger with Humana, decided Medicare fee-for-service and
Medicare Advantage are not substitutes. Defining a narrower market was one of
the ways in which the court reached its conclusion that the merger of the two insurers
would be anticompetitive.
The Aetna-Humana case “raises the question of whether [a court
would] view Part D standalones and Medicare Advantage Part D plans as
substitute products,” Rovner said.
These graphics pooled both types of plans together because
consumers can purchase one or the other, and there are many indications that
seniors view them as substitutes.
“Medicare Advantage is a fast-growing product because, as the
current crop of boomers age into Medicare, most of them are used to coming off
of an employer plan, which is a PPO type plan, and they feel comfortable in
Medicare Advantage,” Rovner said.
It’s Complicated
The economics of a potential antitrust enforcement challenge to
the CVS-Aetna merger would be complex. Even in a horizontal merger challenge,
where the law is well-established, health-care markets are different than the
markets for other goods and services.
And, these data don’t reflect exactly the way a court evaluating
an antitrust challenge would look at market concentration.
The data are based on enrollment—the number of people in each
county who are actually signed up for Part D coverage. So, the data don’t
capture the total market of plans that are available. There are plans
registered with the CMS in many counties that have no enrollees—presumably
these plans aren’t attractive to purchasers because of price or other factors.
In addition, because these data are based on number of enrollees,
they don’t account for the total Medicare consumer market, either. Since
Medicare prescription coverage is optional, not everyone is enrolled in Part D
coverage.
On average, according to CMS data, 26 percent of the
Medicaid-eligible population is enrolled in Medicare Advantage prescription
drug coverage, while 49 percent have a Part D standalone plan.
So, there are a lot of additional potential customers out there
for Medicare prescription drug coverage who aren’t currently enrolled in plans.
“These are the problems that the government’s going to have in
figuring out the real competitive impact of the horizontal product overlap in
Medicare prescription drug coverage,” Rovner said. “That’s the work that some
economist is going to have to do.”
To
contact the reporters on this story: Meg McEvoy in Washington
at mmcevoy@bloomberglaw.com and
Christina Brady in Washington at cbrady@bloomberglaw.com
To
contact the editor responsible for this story: Brian
Broderick at bbroderick@bloomberglaw.com
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