Photo: Arek Socha from Pixabay

Last October, the U.S. Department of Justice (DOJ) and five state attorneys general sued to prevent CVS Health (the nation’s largest retail pharmacy and one of the two largest pharmacy benefit managers) from acquiring Aetna (the nation’s third largest insurer). Their complaint alleges that the merger violates federal antitrust law by reducing competition, raising healthcare prices, reducing quality and stifling innovation.

Bringing this action was the right decision. But shortly after, the DOJ agreed to a settlement that allowed the merger, without addressing the anti-competitive concerns raised in the first place.

In the DOJ’s opinion, Aetna could allay the anti-competitive concerns if it sold its individual Medicare Part D prescription drug plans (PDPs) to the insurer WellCare. Despite the DOJ’s view, based on WellCare’s history, it’s fair to predict that this divestiture, and perhaps the entire merger, will probably harm consumers. 

Just as with many prescriptions, we can expect a litany of adverse side effects — in this case, increasingly exorbitant healthcare costs, costlier prescription medications and a reduction in patients’ choices.

In part because of these risks, U.S. District Judge Richard J. Leon, called for a rare hearing to review the proposed settlement, take expert testimony, and consider whether the proposed settlement is in the public interest.

The issues raised by the pending CVS Health-Aetna merger are similar to those raised by Aetna’s failed attempt to acquire its health insurance rival Humana a few years ago. To resolve competition concerns in that case, Aetna and Humana had proposed to sell a number of their individual plans to Molina Healthcare. The DOJ sued to block the merger and, following a trial, the court found that the merger would violate federal antitrust law. The court believed that the proposed sale of the individual plans did not adequately address the anti-competitive concerns.

WellCare’s involvement brings another alarming dimension to the current merger proposal: the company has failed in the past in similar situations. For example, in 2012, WellCare purchased divested plans during another insurance merger, but then sold off that business segment a couple of years later, negating the attempt to maintain a competitive marketplace.

Especially given WellCare’s mediocre track record, the size of the transaction between WellCare and Aetna should raise additional red flags. If the agreement goes through, WellCare will triple its business — from managing approximately 1 million individual PDPs to more than 3 million. Unlike CVS and Aetna, WellCare does not have the established infrastructure nor an existing, successful business model to manage that many plans.

The proposed settlement attempts to address these inevitable administrative difficulties by allowing WellCare to use Aetna’s administrative services. Although this might help WellCare administratively, it brings up conflict of interest concerns because it fails to remove Aetna from the business it has divested. Moreover, evidence shows that these arrangements usually lead to the buyer going out of business, sometimes in an astonishingly short time-frame.

The healthcare industry already lacks enough competition to protect consumers from price gouging and poor service. Approving this proposed settlement will directly harm consumers. Prescription drug prices will rise, healthcare costs will increase, and healthcare companies will further limit consumers’ choices. The federal district court reviewing the proposed settlement should reject it.