Department of Justice Approves CVS and Aetna Merger Despite AMA Concerns

Signage stands outside a CVS Health Corp. store in Rock Island Illinois U.S. on Tuesday Aug. 7 2018

CVS has gained the USA government's approval to buy Aetna.

The massive merger is just the latest grand-scale restructuring of the health care industry, which is under pressure to rein in unwieldy costs while facing competitive threats from tech giants, such as Amazon, joining the fray.

The deal combines CVS' 9,000 pharmacy stores and over 1,000 walk-in clinics, with Aetna, an insurance company that covers 22 million customers.

It is the largest health insurance deal in history, far exceeding Express Scripts' (ESRX) $29 billion acquisition of Medco in 2012, the last record-holder. The approval is contingent upon the sale of Aetna's Medicare Part D Individual Prescription Drug business to WellCare, which Aetna recently announced it was prepared to do to gain regulatory approval.

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The Department of Justice gave conditional approval Wednesday to the $69 billion merger between CVS Health and insurer Aetna. In response, the Antitrust Division indicated that it had "thoroughly considered whether the merger would raise the cost of (i) CVS/Caremark's PBM services or (ii) retail pharmacy services to Aetna's health insurance rivals", and "after a careful analysis, the Division determined that the merger is unlikely to cause CVS to increase costs to Aetna's health insurance rivals due to competition from other PBMs and retail pharmacies". Aetna will provide administrative services to and will retain the financial results of the divested plans through 2019.

The deal is one of several in recent years that has consolidated power among health care companies.

Antitrust regulators believe people could benefit from the combined powers of the two companies. The filing was made both on behalf of the United States and the attorneys general offices of California, Florida, Hawaii, Mississippi and Washington. The deal, which was announced late a year ago, has been under review by the Antitrust Division (and state regulators) since that time. "Along with its thousands of retail pharmacies, CVS manages drug-benefits plans for employers and insurers", write Bloomberg's David McLaughlin and Robert Langreth. In the future, CVS and Aetna said that patients will be able to go to a local CVS in between doctor visits for glucose level monitoring, counseling on how and when to use medications and advice on weight loss programs and better dietary habits. "We are pleased to have reached an agreement with the Justice Department that maintains the strategic benefits and value creation potential of our combination with Aetna", said CVS's chief executive, Larry Merlo.

"This type of consolidation in a market already dominated by a few, powerful players present the very real possibility of reduced competition that harms consumer choice and quality", George Slover, senior policy counsel for Consumers Union, an advocacy group, has publicly stated.

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