California Insurance Commissioner Dave Jones urges U.S. Justice Department to block merger of CVS and Aetna
News: 2018 Press Release
SACRAMENTO, Calif. – California Insurance Commissioner Dave Jones today issued his finding that the proposed merger of CVS Health and Aetna, Inc. would have significant anti-competitive impacts on American consumers and health care and health insurance markets. Jones formally recommends that the United States Department of Justice sue to block the proposed merger.
On June 19, 2018, Jones held a public hearing at which executives of CVS and Aetna testified about the proposed merger. Expert testimony was provided by a panel of academics in the area of health care competition, with additional testimony from consumer and medical provider representatives, and members of the public. Reports prepared by the expert witnesses and comment letters from members of the public, as well as the hearing transcript, are available on the California Department of Insurance website. Jones reached his findings and recommendation regarding the proposed merger after he and the Department of Insurance conducted an in-depth review and analysis of the testimony, studies, and written comments.
Jones found that the proposed merger poses competitive concerns in the Medicare Part D market, where both companies currently compete, as well as in the highly-concentrated market for Pharmacy Benefit Manager (PBM) services, and in the retail pharmacy market. These anti-competitive impacts pose a risk of higher costs for California consumers.
"The proposed merger of CVS and Aetna will significantly reduce competition in the PBM and Medicare Part D markets, affecting millions of health care consumers throughout the country," said California Insurance Commissioner Dave Jones. "A merger of this size and type, according to experts on health insurer and health care mergers, will likely lead to increased prices and decreased quality. Further, partial divestiture or other remedies traditionally used by the Department of Justice will not adequately protect consumers or address the adverse consequences of a merger of CVS and Aetna. Traditional methods to avoid market concentration will not address potential impacts on service quality, the power to charge excessive rates, or the creation of barriers to block a potential market participant with the resources to enter into new markets.
Finally, the CVS-Aetna merger will eliminate Aetna as an important potential competitor in the PBM market. In the present health insurance and health care markets, it is impossible to create de novo a PBM competitor with the strength, experience, and provider relationships that Aetna has established. Loss of Aetna as a potential competitor in the PBM market is an irreplaceable loss of competition because of the extraordinary concentration of the PBM market and high barriers to entry. If there are any other entities considering entry into the PBM market, they will now have to enter the market in conjunction with a health insurer. Single entry PBMs will no longer be feasible to compete with these behemoths.
For these reasons, I conclude that the proposed merger of CVS and Aetna will have anti-competitive effects and not be in the interest of consumers or health insurance and health care markets in California and nationally. The CVS and Aetna merger will harm Californians and our health insurance market, and is likely to increase drug prices for consumers rather than reduce them. The CVS and Aetna merger will harm consumers in markets across the United States. Accordingly, I request that the United States Department of Justice sue to block the CVS-Aetna merger."
Jones' findings and recommendations are contained in a detailed, comprehensive 15 page letter formally submitted today to the U.S. Department of Justice, which has an open investigation regarding the proposed merger.
Led by Insurance Commissioner Ricardo Lara, the California Department of Insurance is the consumer protection agency for the nation's largest insurance marketplace and safeguards all of the state’s consumers by fairly regulating the insurance industry. Under the Commissioner’s direction, the Department uses its authority to protect Californians from insurance rates that are excessive, inadequate, or unfairly discriminatory, oversee insurer solvency to pay claims, set standards for agents and broker licensing, perform market conduct reviews of insurance companies, resolve consumer complaints, and investigate and prosecute insurance fraud. Consumers are urged to call 1-800-927-4357 with any questions or contact us at www.insurance.ca.gov via webform or online chat. Non-media inquiries should be directed to the Consumer Hotline at 800-927-4357. Teletypewriter (TTY), please dial 800-482-4833.