Prominent politicos are voicing concerns about the wave of impending mergers in the health-care industry.
On August 1, California insurance commissioner Dave Jones urged the Justice Department to block the merger of Aetna and CVS, fretting it “will have anticompetitive effects and … harm consumers.” Days later, the American Medical Association echoed his concerns.
The concerns are certainly understandable. After all, most mergers are “horizontal” — taking place between two companies in the same space — so often decrease competition. Think of the 1998 integration of oil giants Exxon and Mobil or the 2008 union of Sirius and XM: Both benefitted shareholders but reduced consumer choice.
But the impending health-care mergers are “vertical.” While the companies are in the same industry — health care, in both these cases — they operate in radically different spaces in the supply chain.
That’s why, by all indications, these mergers won’t stifle competition — but rather should benefit consumers by bringing down costs and improving access to care.
Consider Aetna and CVS. They don’t compete with each other — one sells insurance, the other owns pharmacies and retail health clinics and administers drug plans. So if the merger goes through, the level of competition in these various markets would remain roughly the same.
Still, some worry that this new conglomerate could somehow force customers to fill prescriptions at CVS. In this way, the deal would give an unfair advantage to CVS retail locations.
The simplest way to execute such a strategy, however, would be to provide discounts for Aetna patients who shop at CVS. This might hurt other pharmacies — particularly independent ones — but it would save patients money.
Aetna might also reward patients who use CVS’s walk-in clinics for their non-urgent medical needs. Again, this isn’t something to fear. The fact is, Americans aren’t using these sorts of clinics enough. According to one analysis in the journal Health Affairs, one in four emergency-room visits could have been handled at an urgent-care center or retail clinic.
Shifting patients away from the ER and towards alternative clinics could save our health sector more than $4 billion a year, according to that same study. Those savings would likely be reflected in lower premiums and out-of-pocket costs for patients.
Many skeptics worry about both mergers’ impacts on the market for pharmacy benefit managers.
These firms, known as PBMs, operate as middlemen between insurers and drug companies. As such, they have enormous clout in setting drug prices, crafting formularies, and determining patients’ out-of-pocket costs.
Some also worry that if the mergers take place, the newly acquired PBMs will give preferential treatment to their parent insurers. If anything, though, both these mergers will make the insurance industry less eager to do any business, at all, with any PBM.
That’d be great news. PBMs weren’t created to benefit patients. Indeed, by one estimate, PBMs secure discounts of 37 percent on brand-name drugs — more than $100 billion in savings each year. Very little of that money is passed on to patients in the form of lower out-of-pocket drug costs at the pharmacy. Integrating this tier will save consumers money.
Those who worry about mergers in our health sector ignore a simple fact: Not every merger reduces competition. If handled properly, both Aetna-CVS and Cigna-Express Scrips might actually improve access to quality, affordable health care for millions of Americans.