CVS-Aetna Merger: Good or Bad?

It started as a low rumble.  Then, it picked up steam.  Then, it became a huge juggernaut—the now-massive wave of mergers in the health care industry.  CVS-Aetna has now become the latest big merger of healthcare titans to be approved by the US Department of Justice.  What does it all mean?  Who will be the winners?  Who will be the losers?  Will it lead to better health?  Who is for it and who is against it?  Where will it all go from here?  These are the critical questions being posed—now more prominently—as the health care industry goes through a massive wave of consolidation.

Many experts are very skeptical of the claim that consumers will benefit from them because the evidence from careful studies shows that too often the companies end up pocketing profits rather than passing savings to consumers.  Economists tend to believe that these mergers should be scrutinized very closely with an eye to preventing the undue concentration and reducing market competition.  “Unfortunately, the evidence belies all the claims and promises. Northwestern University researchers found that prices increase on average 14 percent after a hospital’s acquisition,” says Jean Bestafka, R.N., former CEO of the New Jersey Home Health Services Association.  Pfizer CEO Ian Read has often cited high US taxes as a competitive challenge for his company and a major reason for mergers that are done for the purpose of tax inversions.  An inversion is a legal restructuring of a business entity in which a US company merges with a foreign-domiciled company to lower its tax rate.  “To be successful in the future, we need to have a competitive tax rate,” Read said in response to a question about the political risk of inversion on the earnings call. “So that is why it’s an important issue for us.”

But, not everyone sees these mergers as having a negative impact.  Dr. John D. Birkmeyer, executive vice president of integrated delivery systems at Dartmouth-Hitchcock Health and a professor of surgery at Dartmouth’s Geisel School of Medicine, writes in the Harvard Business Review:

Hospitals and physician groups are merging into large health systems at unprecedented rates, fueled in part by the Affordable Care Act. Provider consolidation takes many forms, but the general trend can make it easier to share electronic records systems, coordinate care of patients, and eliminate redundant costs. Another potential benefit of integrated health systems is in addressing the persistent problem of variation in health care practice and outcomes, particularly in surgery.

Critics of President Obama think that the Affordable Care Act is the ultimate driving force behind the wave of consolidation and that it will, eventually, lead to a single-payer health care system in the United States.

According to CVS, the combined company will provide consumers with a better experience, reduced costs and improved access to health care experts in homes and communities across the country:

  • Combines CVS Health’s Unmatched Local Presence and Clinical Capabilities with Aetna’s Leading Health Care Benefits and Services
  • Provides Greater Integration of Care, Empowering Consumers and their Health Professionals to Make More Informed Decisions
  • Transaction Expected to Generate Significant Synergies for Shareholders and Benefits for Customers

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