California insurance commissioner urges Department of Justice to block CVS Health, Aetna merger

https://www.healthcarefinancenews.com/news/california-insurance-commissioner-urges-department-justice-block-cvs-health-aetna-merger?mkt_tok=eyJpIjoiWXpNMVltTm1OVGswTlRGbSIsInQiOiJjXC82T2s4Yms2K2RuSXhJYlpoMTd4OFRWSkVnd0pXXC9PN1wvaVBKT1dEdFI2OStpcVhWVkVzaUlPOU9maklhZG5lYlFSOGNSQ2dvTmtSTm1reE56U0JsbFEzdzJ6dmpOXC95V3RySUtmbExTbmhtUENrRDZ6REw4VisybWhwSExMVVwvIn0%3D

The merger would increase market concentration in the PBM space and put other insurers at a competitive disadvantage, Dave Jones says.

The proposed $69 billion merger between CVS Health and Aetna hit a snag on Wednesday when the California insurance commissioner urged the Department of Justice to block the deal.

California Insurance Commissioner Dave Jones said the proposed merger would have significant anti-competitive impacts on consumers and health insurance markets and would also pose a concern in the Medicare Part D market.

Nationally, Aetna has a 9 percent market share among Part D plans while CVS Health has a 24 percent market share, with even greater overlap in some geographic markets. Economic evidence suggests that increasing the market concentration and reducing competition for Part D plans will likely result in higher premiums, Jones said.

California is the largest insurance market in the U.S., according to Jones. Insurers collect $310 billion annually in premiums from individuals and businesses in the state.

“Mergers which decrease competition are not in the interest of Californians,” Jones said in the August 1 letter to Attorney General Jeff Sessions and Assistant Attorney General Makan Delrahim.

In 2016, Jones also vetoed the proposed Anthem/Cigna and Aetna/ Humana mergers that were both blocked by federal regulators.

Jones did approve of Centene’s plan to acquire Health Net, a deal that also received federal approval.

Those mergers would have combined competitors in the same industry, while CVS has dominant market power as a supplier.

Post merger, CVS would have less incentive to keep down the cost of prescription drugs for insurers competing with Aetna, Jones said. Insurers would have difficulty using CVS’s pharmacy benefit manager, CVS-Caremark.

CVS currently provides PBM services to 94 million plan beneficiaries nationally, of which 22 million are Aetna subscribers.

The merger would increase market concentration in the PBM market, eliminate Aetna as a potential entrant in that market and put other insurers at a competitive disadvantage, he said.

Many of the largest PBM competitors are also owned by health insurers, such as OptumRx, which is part of UnitedHealthcare, and Cigna, which has initiated a merger with Express Scripts.

“The PBM market’s lack of competition and the merger of CVS-Aetna is likely to put other insurers that do not own a PBM at a disadvantage,” Jones said.

The merger would not benefit consumers and it would also harm independent pharmacies, he said.

The California Department of Insurance does not have direct approval authority over the proposed acquisition because the transaction does not involve a California insurance company. It does involve Aetna subsidiary, Aetna Life Insurance Company, which is licensed by the state.

The proposed merger was announced in December. The deal has been going through the regulatory process.

 

 

Health Insurers Had Their Best Quarter in Years, Despite the Flu

https://www.bloomberg.com/news/articles/2018-05-03/health-insurers-had-their-best-quarter-in-years-despite-the-flu

Here’s a look at how the margins of the largest in the quarter, based on data compiled by Bloomberg:

U.S. health insurers just posted their best financial results in years, shrugging off worries that the worst flu season in recent history would hurt profits.

Aetna Inc., for instance, posted its widest profit margin since 2004. Centene Corp. had its most profitable quarter since 2008. And Cigna Corp., which reported on Thursday, had its biggest margin in about seven years.

Analysts at Morgan Stanley, in a research note, said insurers are in the midst of a “hot streak.”

One big reason for the windfall is the tax cuts passed by Congress last year, which in some cases more than halved what the insurers owe the government. Aetna said its effective tax rate fell to 16.8 percent from 39.6 percent, for example. Many insurers also spent less on medical care than analysts had expected, even taking into account increased spending on flu treatments.

 

 

Global M&A activity hits record high on mega US health care deals

https://www.cnbc.com/2018/04/04/global-ma-activity-hits-record-high-on-mega-us-health-care-deals.html

A CVS Pharmacy store is seen in the Manhattan borough of New York City, New York, U.S., November 30, 2017.

 

  • In the first three months of 2018, there were 3,774 deals globally, totaling $890.7 billion.
  • So far this year, there have been $393.9 billion invested in U.S. companies.
  • Domestic activity was also particularly strong in China.

Merger and acquisition (M&A) activity across the world has hit a seventeen-year-record high in the first quarter of 2018, according to a report by research firm Mergermarket.

In the first three months of 2018, there were 3,774 deals globally, totaling $890.7 billion, it said Wednesday. This was the strongest start to the year since 2001, when Mergermarket began recording the data, and represents an 18 percent increase in value compared to the first quarter of 2017.

“The extraordinary surge in dealmaking seen at the end of 2017 has carried through into 2018,” Jonathan Klonowski, research editor at Mergermarket said in the quarterly report, citing pressure from shareholders and a search for innovation as the main drivers.

“Amazon’s move into pharmaceuticals appears to have been a catalyst for dealmaking in health care-related areas with the CVS/Aetna deal announced in December and the Cigna/Express Scripts transaction this quarter,” he added.

Amazon announced a partnership with J.P. Morgan and Berkshire Hathaway’s Warren Buffett in January to reduce health costs for U.S. employees. The move has sparked fears that the retail giant could enter and compete with traditional health care businesses. As result, the sector has consolidated to fight possible future competition from Amazon.

Cigna bought Express Scripts in a $54 billion cash-and-stock deal in early March. CVS also approved the acquisition of Aetna for about $69 billion in cash and stock last month.

Such deals have been particularly relevant in the U.S., where M&A activity during the first quarter of the year represented 44.2 percent of the total global share.

So far this year, there have been $393.9 billion invested in U.S. companies, according to the report. This represented a 26.1 percent increase from the same period a year ago. “Domestic dealmaking has been a key factor registering 952 deals worth $330.8 billion,” the report said.

But it’s not only U.S. companies that seem to be consolidating in their own market. Domestic activity was also particularly strong in China, where firms spent $68.7 billion — this was the highest first quarter on record.

“Domestic M&A accounts for 85.2 percent of Chinese acquisitions in Q1 (first quarter) 2018, a significant increase from the 61.6 percent and 71.3 percent seen during 2016 and 2017,” Mergermarket said.

Moody’s: Nonprofit hospitals face volume, margin declines as insurers acquire physicians

https://www.beckershospitalreview.com/finance/moody-s-nonprofit-hospitals-face-volume-margin-declines-as-insurers-acquire-physicians.html

Image result for downward pressure on profits

As commercial payers swallow up more physician groups and nonacute care services, nonprofit hospitals will see greater pressure on their volumes and margins, according to Moody’s Investors Service.

Moody’s analysts predict insurers will be able to provide preventive, outpatient and post-acute care to their members through acquired providers at a lower cost than hospitals. As a result, insurers will begin carving out hospitals and select services from their contracts, leaving nonprofit hospitals with fewer patients and less revenue.

CVS Health’s $69 billion bid for Aetna and Optum’s takeover of Surgical Care Affiliates are examples of integrations that could threaten nonprofit hospitals’ bottom lines, Moody’s said.

On another front, nonprofit hospitals face increasing pressure from insurers moving quickly to value-based payment programs. Payers will also leverage their growing scale, driven by Medicare and managed Medicaid expansions, in rate negotiations.

“Insurers flexing their negotiating power by offering lower rate increases will likely result in more standoffs and terminations of contracts between insurers and hospitals,” according to Diana Lee, a Moody’s vice president. “To regain leverage, we expect hospitals to continue [merger and acquisition] and consolidation.”

 

After Another Merger Monday In Health Care, CVS Is Still The Company To Watch In 2018

https://www.forbes.com/sites/leahbinder/2018/01/23/after-another-merger-monday-in-health-care-cvs-is-still-the-company-to-watch-in-2018/#2dbe116f4d7c

The health care sector rallied yesterday on another “Merger Monday” with the announcement of Sanofi’s (SNY) purchase of Bioverativ (BIVV) for $11.6 billion, and Celgene’s (CELG) $9 billion purchase of 90 percent of Juno Therapeutics (JUNO). But there’s still one transformative merger that will define and reshape the U.S. health care market in 2018: the CVS/AETNA $69 billion deal announced last December.

CVS is best known for its 9,700 retail pharmacies and 1,100 walk-in clinics, but its most significant profit driver is its pharmacy benefits manager (PBM) enterprise—a middleman between pharmaceutical manufacturers and dispensers like drugstores. The company generated $177.5 billion in net revenue in 2016.

With its purchase of Aetna, another bold company and the nation’s third largest health plan, CVS upended uncomfortable business incentives built into its business model. In theory at least, the CVS PBM has new incentive to bring down drug prices and push for the most efficacious—not necessarily the most expensive—treatment choices, to achieve more competitive insurance premiums. They can also favor common sense preventive and primary care through convenience clinics.

This is what makes the CVS/Aetna deal different. It crosses sectors and realigns previously competing business incentives to better target consumer demand. Most of the merger proliferation we have seen over the past few years involves companies in similar categories within the health care industry. Providers merge with other providers, health plans with other health plans, and pharmaceutical companies with others in pharma.

Realigning incentives is the central problem in the health care marketplace, which is built on thorny knots of unintended consequences and senseless rules that resist untangling. The most famous of those knots are fee-for-service payment rules, still largely dominant, whereby payors reimburse for any and all services, regardless of quality. Among its hazards, fee-for-service incentivizes infections because it results in more care and thus pay better. Nobody thinks that is a good idea, but the business model is extremely difficult to unravel. CVS seems up to the challenge.

CVS Chief Executive, Larry J. Merlo, is the man for the job. His signature style is a laser-focus on the company’s core mission of “helping people on their path to better health,” which he is determined to accomplish even when short-term profit incentives nudge in a different direction. That was why Merlo led CVS to discontinue tobacco sales in 2014, and why CVS recently banned digitally altered photos on cosmetic products sold in their stores. Maybe it sounds logical that a health enterprise shouldn’t sell cigarettes or promote eating disorders and depression, but it takes unusual courage to turn away lucrative business.

Many greeted the news of the CVS/Aetna merger as a play to head off new ventures coming from Amazon or other new players. But what makes me optimistic about this particular deal is the new company’s combination of health industry and retail savvy. Many companies have one but not the other. Enterprising outsiders often enter the health care industry with good backing and an idea that would definitely help patients, only to end up six feet under the health care lobbyists, special interests, regulatory twists, and perverse incentives that have dogged the health care system over decades. There are large graveyards full of great companies that naively believed that normal business models work in health care. CVS is not naïve.

 

Study: ‘Big five’ insurers depend heavily on Medicare, Medicaid business

https://www.fiercehealthcare.com/cms-chip/big-five-insurers-medicare-medicaid-growth-profits?mkt_tok=eyJpIjoiT0RnMFkySXdPV0psWldSaCIsInQiOiJQSllQNlpcL2RhTzBDZFwvZXh5M1ZUSDJyUU5JTGw3dnh1QTVac01rZUFcL2pNUUhhMXBaQjBxK29ScHRrOHhsT3d6aE5pcFRJUWd4Sm0rYXA4S0RYVGE2N0czN2hhc2hsXC9EZk9mSGVLR0V1UFlwVDZpQmdkcll0eTBMNDUzTHlIZDIifQ%3D%3D&mrkid=959610&utm_medium=nl&utm_source=internal

Rising Stocks

Even as they’ve retreated from the Affordable Care Act exchanges, the country’s biggest for-profit health insurers have become increasingly dependent on Medicare and Medicaid for both profits and growth.

In fact, Medicare and Medicaid accounted for 59% of the revenues of the “big five” U.S. commercial health insurers—UnitedHealthcare, Anthem, Aetna, Cigna and Humana—in 2016, according to a new Health Affairs study.

From 2010 to 2016, the combined Medicare and Medicaid revenue from those insurers ballooned from $92.5 billion to $213.1 billion. The companies’ Medicare and Medicaid business also grew faster than other segments, doubling from 12.8 million to 25.5 million members during that time.

All these positive trends, the study noted, helped offset the financial losses that drove the firms to reduce their presence in the individual marketplaces. Indeed, the big five insurers’ pretax profits either increased or held steady during the first three years of the ACA’s individual market reforms (2013-2016). Their profit margins did decline during those three years, but stabilized between 2014 and 2016.

Not only do these findings demonstrate the “growing mutual dependence between public programs and private insurers,” the study authors said, but they also suggest a useful policy lever. The authors argued that in order to help stabilize the ACA exchanges, federal and state laws could require any insurer participating in Medicare or state Medicaid programs to also offer individual market plans in those areas.

Nevada has already done something similar: It offered an advantage in Medicaid managed care contract billing for insurers that promised to participate in the state’s ACA exchange. The state credited that policy with its ability to coax Centene to step in and cover counties that otherwise would have lacked an exchange carrier in 2018.

It’s far less certain, though, whether such a concept will ever be embraced at the federal level during the Trump administration, since its focus has been on unwinding the ACA rather than propping it up.

Either way, recent events underscore the study’s findings about how lucrative government business has become for major insurers. One of the main goals of CVS’ proposed acquisition of Aetna is to improve care for Medicare patients, which would help the combined company “be more competitive in this fast-growing segment of the market,” CVS CEO Larry Merlo said on a call this week.

Aetna CEO Mark Bertolini added that the transaction has “incredible potential” for Medicare and Medicaid members, as the goal is to provide the type of high-touch interaction and care coordination they need to navigate the healthcare system.

 

CVS merger with Aetna: Health care cure or curse?

https://theconversation.com/cvs-merger-with-aetna-health-care-cure-or-curse-88670?utm_medium=email&utm_campaign=Latest%20from%20The%20Conversation%20for%20December%206%202017%20-%2089557547&utm_content=Latest%20from%20The%20Conversation%20for%20December%206%202017%20-%2089557547+CID_461096d86af0ad8c2eedceabf8b8a42f&utm_source=campaign_monitor_us&utm_term=CVS%20merger%20with%20Aetna%20Health%20care%20cure%20or%20curse

The announcement that CVS plans to acquire Aetna for US$69 billion raises hope and concerns.

The transaction would create a new health care giant. Aetna is the third-largest health insurer in the United States, insuring about 46.7 millionpeople.

CVS operates 9,700 pharmacies and 1,000 MinuteClinics. A decade ago, it also purchased Caremark and now operates CVS/Caremark, a pharmacy benefits manager, a type of business that administers drug benefit programs for health plans. CVS/Caremark is one of the three largest pharmacy benefits managers in the United States. Along with ExpressScripts and OptummRXTogether, these three control at least 80 percent of the market.

Should American consumers be happy or concerned about the proposed merger? As a professor of health law and bioethics, I see compelling arguments on both sides.

Good for consumers, or for the companies?

CVS and Aetna assert they are motivated by a desire to improve services for consumers and that the merger will lower health care costs and improve outcomes.

Many industry experts have postulated, however, that financial gain is at the heart of the deal.

CVS has suffered declining profits as consumers turn to online suppliers for drugs. Reports that Amazon is considering entry into the pharmacy business raise the specter of increasingly fierce competition.

The merger would provide CVS with guaranteed business from Aetna patients and allow Aetna to expand into new health care territory.

The heart of the deal

The merger would eliminate the need for a pharmacy benefits manager because CVS would be part of Aetna.

Pharmacy benefits managers, which sprang up in the early 2000s in response to rising costs of care, administer drug benefit programs for health plans. Most large employers contract with pharmacy benefits managers that are different from their health insurers.

Nevertheless, a consolidation along the lines of a CVS/Caremark and Aetna merger would not be unprecedented. The nation’s largest health insurance company, United Healthcare, operates its own pharmacy benefits manager, OptumRx.

Pharmacy benefits managers process and pay prescription drug claims, negotiate with manufacturers for lower drug prices, and can employ other cost-saving mechanisms. They thus act as intermediaries between the insurer and pharmacies.

They also make a lot of money. They have been controversial in recent years for how they do so, allegedly keeping a keener focus on profits than on patients.

The merger has not been finalized and requires approval from government regulators, which isn’t always easy to get. In 2016 the U.S. Department of Justice sued to block two health insurer mergers: one between Aetna and Humana and a second between Anthem and Cigna. The government objected on antitrust grounds, arguing that the mergers would unduly restrict competition. Both efforts were abandoned.

CVS and Aetna argue that their proposed merger is different. It is a vertical rather than a horizontal merger, which means that it would combine companies providing different services for patients (insurance and filling prescriptions) rather than two companies doing the same thing.

However, the Trump administration is currently opposing another vertical merger, that between AT&T and Time Warner. It is unclear whether the administration will likewise oppose the CVS/Aetna merger.

Benefits of a merger

There is some evidence that a merger could help consumers.

A merger could result in more negotiating power. Combining the power of a leading pharmacy and a top insurer may allow CVS/Aetna to negotiate more effectively for price discounts from drug and device manufacturers.

It also could cut out the middleman. PBMs themselves have been blamed for raising health care costs. They often do not pass on negotiated drug discounts to consumers, but rather keep the money themselves. In addition, many believe they “make money through opaque rebates that are tied to drug prices (so their profits rise as those prices do).” With the merger, CVS/Aetna would not need CVS/Caremark to function as an intermediary. Eliminating a profit-seeking middleman from the picture could lower consumer prices.

The merger could provide easy access to health care for minor injuries and illnesses. CVS said it plans to expand its MinuteClinics, walk-in clinics that provide treatment by nurse practitioners for minor conditions. Also, CVS said it would offer more services, such as lab work, nutritional advice, vision and hearing care, and more. Thus, CVS promises that its clinics will become “health hubs.”

Many patients could turn to these clinics instead of seeking more expensive care from physicians or emergency rooms. Furthermore, health hubs could provide “one-stop shopping” convenience for some patients. This could be particularly beneficial to elderly individuals or those with disabilities.

Another benefit could be improved and expanded data analytics, which could result in better care. Combining information from patients’ health insurers with that of their pharmacies, including nonprescription health purchases, may promote better care. CVS pharmacists and health hub providers would be able to monitor and counsel patients regarding chronic disease management, pain management, prenatal care and other matters. Such attention could reduce the risk of complications and hospitalizations and thus also decrease expenditures.

Increase of other risks?

Skeptics argue that the CVS/Aetna merger is unlikely to yield cost savings and improved outcomes. They note that mergers in the health care sector generally lead to higher, not lower, prices and worry about other adverse consequences.

If the market shrinks to fewer pharmacy benefits managers because of consolidation, costs may actually increase. The remaining pharmacy benefits managers may have little incentive to compete with each other by demanding discounts from drug companies. As noted above, they may actually profit from higher pharmaceutical prices and thus welcome increases.

After the merger, Aetna may require those it insures to use only CVS pharmacies. In addition, it may require individuals to turn to CVS MinuteClinics for certain complaints even if patients prefer to visit their own doctors. Such restrictions would mean less choice for consumers, and many may find them to be very distressing.

The merger could also decrease competition and bar other companies from entering the pharmacy market. For example, Aetna may refuse to cover prescription drugs that are not purchased from CVS. In that case, Amazon may find it extremely difficult if not impossible to break into the industry. Less competition, in turn, often means higher prices for consumers.

It is difficult to predict the precise consequences of a CVS/Aetna merger. One way or another, however, its impact will likely be significant.