The Department of Justice’s blessing for CVS Health’s takeover of Aetna will have ripple effects that go far beyond the candy racks at your local drugstore.
The green light that came Wednesday for the $69 billion deal was already well-telegraphed; the Trump administration had just given the thumbs-up to Cigna’s plan to buy Express Scripts. And to assauge antitrust regulators, Aetna agreed last month to sell its Medicare Part D drug plan business to WellCare. But that’s a minor concession in the grand scheme for CVS.
Although CVS still needs some state approvals, the Department of Justice agreement was the big milestone — a key victory for chief executive Larry Merlo and his leadership team.
The CVS deal upended Aetna CEO Mark Bertolini’s plans to move the health insurer’s headquarters to New York. Instead, CVS pledged to keep Aetna’s headquarters in Hartford for at least 10 years and to hold firm Aetna’s Connecticut employment level of 5,300 people for at least four years. As CVS grows into what’s essentially a new business for the pharmacy chain, its headquarters workforce of 5,500 in Woonsocket, R.I., is also expected to increase. And Aetna is moving ahead with its own plans to add 250 jobs to its relatively new Boston-area outpost, a consumer health and services office in Wellesley.
Then there’s the wave of “vertical mergers” — uniting companies that aren’t direct competitors — that could be ushered in after this deal.
A federal judge famously rebuked the Trump administration’s fierce challenge to AT&T’s Time Warner acquisition. Trump’s Justice Department subsequently took a friendlier approach with the Aetna and Cigna mergers. For example, Justice found that the CVS deal would be unlikely to cause CVS to increase pharmacy costs for Aetna’s health insurance rivals.
Let the game of musical chairs begin. Maybe we’ll see that Walmart-Humana combination, first rumored to be in the works back in the spring.
Closer to home, the DOJ approval might help prod along a health care merger in Massachusetts. This seems like good news for any executives at Partners HealthCare, the Boston-based hospital giant, and Harvard Pilgrim, the Wellesley-based insurer, who believe in combining the two organizations. Representatives for both companies say discussions about exploring ways to collaborate remain ongoing, with a focus on improving the experience for patients while controlling costs.
And everyone in the industry is wondering what Amazon is up to. The Seattle-based retail giant is expanding in the prescription drug business with its $1 billion purchase of Somerville’s PillPack. And it’s working with Berkshire Hathaway and JPMorgan Chase on an unusual, Boston-based health care initiative.
Details remain scant, although the three companies have hired a high-profile local medical expert, Atul Gawande, to run the venture.
With Aetna under its wing, CVS Health becomes a stronger competitor to anything Amazon dreams up, and it is more likely to remain an independent corporate force as the merger mania continues.