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CVS Health Corp.’s proposed acquisition of insurer Aetna Inc. could attract the attention of the Justice Department because it appears likely to reduce competition in at least some of the Medicare prescription drug plan markets in which the two companies currently compete.
It would not only be a merger between the nation’s largest health insurer and its second largest pharmacy benefit manager and pharmacy chain, it would also be a merger between two major Medicare prescription drug plan administrators.
As the Justice Department weighs the deal, antitrust enforcers could be concerned that both companies sell Medicare Part D prescription drug plans to seniors. According to Bloomberg Intelligence analysts, a merged CVS-Aetna would account for 33 percent of the Medicare Part D market.
The accompanying graphics show the merger could have a big impact on Middle America. In many counties, a merger would mean that more than half of the Medicare beneficiaries enrolled in a Part D plan would be the conglomerate’s customers. In McPherson County, Neb., 100 percent of people enrolled in Medicare prescription plans would have coverage through CVS-Aetna.
Antitrust enforcers generally worry these types of concentrations could lead to increases in prices. The graphics, compiled using Centers for Medicare & Medicaid Services data, show the potential effect of the CVS-Aetna merger on the enrolled Medicare prescription drug population.
A merged CVS-Aetna would appear to have the biggest impact on enrollees in the middle U.S.
That very dark county in the middle indicating “Percent of Medicare Part D Subscribers Covered by CVS/Aetna” is McPherson, Neb.
As of the 2010 census, McPherson had a population of 539 people. It is the eighth least populous county in the nation. The first image of McPherson that comes up on a Google maps search is of a dirt road, grass fields, and a double-wide trailer in Tryon, the county seat.
In McPherson, 100 percent of Medicare Part D enrollees would be CVS-Aetna customers post-merger. Granted, McPherson County is tiny and doesn’t have many people enrolled in Part D plans at all.
The map above shows the number of insurers that would be offering Part D plans, in which people are currently enrolled, after the merger.
McPherson would have one provider post-merger, CVS-Aetna. The other single-insurer county is in Colorado—currently Humana is the only Part D plan insurer with enrollees there.
A number of counties would end up with only two competing insurers post-merger.
CVS has around 6 million Part D plan customers through its Silverscript plans. Aetna has around 3.4 million Part D customers. The proposed merger would combine the number 3 and number 4 Medicare Part D insurers to create the number 2 insurer in that market.
Another big pending health-care merger, Cigna’s proposed acquisition of Express Scripts, which is also being reviewed by DOJ antitrust enforcers, would combine the number 5 insurer with the number 9 insurer to cover 3.6 million Part D enrollees.
For all of the scuttlebutt about a potential DOJ challenge to the CVS-Aetna deal as a “vertical” merger, it is the market concentrations where the two firms are competitors that enforcers would look at first, attorneys say.
“If I’m sitting in the Department of Justice, I’m looking at the low-hanging fruit first, which means looking at the horizontal overlap” in the Part D markets, Jack Rovner, a health-care antitrust attorney with the Health Law Consultancy in Chicago, told Bloomberg Law. Rovner is a Bloomberg Law advisory board member.
“CVS-Aetna could cure that horizontal overlap with a spinoff,” Rovner said. “But I don’t see CVS wanting to spin off its Part D product with 6 million people in it. Perhaps they would be willing to spin off Aetna’s stand-alone Part D business, but I doubt that CVS-Aetna would want to spin off Aetna’s Medicare Advantage [managed care] Part D business.”
These graphics all include data for both “standalone” Medicare Part D plans, which seniors can purchase as optional prescription drug coverage, and prescription drug coverage that is available through Medicare managed care plans, known as Medicare Advantage.
It’s far from legally settled whether standalone Part D plans and Medicare Advantage Part D plans would be considered to be competitors by an antitrust court evaluating CVS-Aetna.
The U.S. District Court for the District of Columbia, in the DOJ’s challenge to Aetna’s merger with Humana, decided Medicare fee-for-service and Medicare Advantage are not substitutes. Defining a narrower market was one of the ways in which the court reached its conclusion that the merger of the two insurers would be anticompetitive.
The Aetna-Humana case “raises the question of whether [a court would] view Part D standalones and Medicare Advantage Part D plans as substitute products,” Rovner said.
These graphics pooled both types of plans together because consumers can purchase one or the other, and there are many indications that seniors view them as substitutes.
“Medicare Advantage is a fast-growing product because, as the current crop of boomers age into Medicare, most of them are used to coming off of an employer plan, which is a PPO type plan, and they feel comfortable in Medicare Advantage,” Rovner said.
The economics of a potential antitrust enforcement challenge to the CVS-Aetna merger would be complex. Even in a horizontal merger challenge, where the law is well-established, health-care markets are different than the markets for other goods and services.
And, these data don’t reflect exactly the way a court evaluating an antitrust challenge would look at market concentration.
The data are based on enrollment—the number of people in each county who are actually signed up for Part D coverage. So, the data don’t capture the total market of plans that are available. There are plans registered with the CMS in many counties that have no enrollees—presumably these plans aren’t attractive to purchasers because of price or other factors.
In addition, because these data are based on number of enrollees, they don’t account for the total Medicare consumer market, either. Since Medicare prescription coverage is optional, not everyone is enrolled in Part D coverage.
On average, according to CMS data, 26 percent of the Medicaid-eligible population is enrolled in Medicare Advantage prescription drug coverage, while 49 percent have a Part D standalone plan.
So, there are a lot of additional potential customers out there for Medicare prescription drug coverage who aren’t currently enrolled in plans.
“These are the problems that the government’s going to have in figuring out the real competitive impact of the horizontal product overlap in Medicare prescription drug coverage,” Rovner said. “That’s the work that some economist is going to have to do.”
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