Based on a partnership with Urology Times, articles from the American Association of Clinical Urologists (AACU) provide updates on legislative processes and issues affecting urologists. We welcome your comments and suggestions. Contact the AACU government affairs office at 847-517-1050 or [email protected] for more information.
On March 9, Cigna agreed to buy pharmacy benefits manager (PBM) Express Scripts in a $52 billion deal—the latest in a wave of consolidations that is reshaping the already turbulent health care landscape. This merger comes on the heels of the attempted acquisition of Aetna, the nation’s third largest health insurance company, by CVS Health, which operates the PBM giant Caremark.
If the potential Aetna-CVS merger is any indication, the deal between Cigna and Express Scripts is likely to draw scrutiny from policymakers on Capitol Hill. In a Feb. 27 hearing before the House Judiciary Regulatory Reform, Commercial and Antitrust Law Subcommittee, Ranking Member Jerrold Nadler (D-NY) emphasized that “the health care sector is already highly concentrated, and there remains a concern that dominant firms, including a post-merger CVS-Aetna, would have the ability and the incentive to exclude competitors or diminish competition.”
Some believe that these sweeping consolidations come in reaction to not only rising health care costs, but also the possibility of new companies with new business models, like the recent alliance between Amazon, Berkshire Hathaway, and JPMorgan, entering the arena and disrupting the health care market. But while costs and potential disruptions may be partially to blame, these mergers are in part also symptomatic of a wider consolidation trend across the entire health care delivery system, particularly with respect to vertical integration within the industry.
Horizontal mergers vs. vertical consolidations
While horizontal mergers draw fierce opposition, vertical consolidations fail to elicit a similar response.
In July 2015, Anthem, another health insurance giant, announced its intention to buy Cigna in a roughly $48 billion deal, creating a for-profit insurer with annual revenue of more than $115 billion. Nearly 2 years later, however, the deal came to a grinding halt when Anthem terminated the merger following multiple rulings by federal courts that blocked the deal on antitrust grounds. The termination was due, at least in part, to a successful campaign by the American Medical Association and other advocacy groups, including 17 state medical societies, to stop the acquisition and preserve competition in the health care field.
Almost immediately, the Anthem-Cigna merger caught the attention of the AMA, which released an annual analysis of insurance markets a few months after the announcement. The analysis demonstrated that nearly half of all states could see diminished competition in local health insurance markets if the Anthem-Cigna and another potential merger between Aetna and Humana were allowed to proceed. These types of horizontal mergers between health insurers, according to the AMA, would lead to reduced competition and have a negative impact on physician markets and the quality of patient care, an argument that ultimately proved persuasive to the U.S. Department of Justice, Congress, state attorneys general, insurance commissioners, and federal courts.
But while the AMA was successful in preventing this horizontal integration between health insurers, vertical consolidations—or mergers between two entities within a given industry that are at different parts of the supply chain or delivery system and thus not direct competitors, such as the recent PBM-insurer mergers—also raise anticompetitive concerns that could potentially impact physician markets and the health care field in general.