Feds approve CVS, Aetna merger

Health Care ETFs Retreat on DOJ Approval of Aetna-CVS Merger

The deal was approved because Aetna has agreed to sell its Medicare prescription-drug business, or Medicare Part D, to WellCare Health Plans Inc., which the Justice Department said "would fully resolve the department's competition concerns".

Much of the US health-care system revolves around fixing costly ailments.

Critics of the CVS-Aetna deal had anxious that the merger could lead to higher drug prices for Medicare Part D beneficiaries.

CVS proposed to buy Aetna in late 2017 in a deal that would combine the largest drugstore chain with Aetna's insurance business. According to the DOJ, the proposed divestiture to WellCare Health Plans Inc, an experienced health insurer focused on government-sponsored health plans, including Medicare Part D individual prescription drug plans, would preserve competition in the marketplace.

Once the companies combine, Aetna will operate as a standalone business within CVS.

If Aetna didn't divest its prescription drug business, the combined entity would control more than 30 percent of the Medicare Part D drug plans which Reuters reported would raise concerns from regulators.

Health Care ETFs Retreat on DOJ Approval of Aetna-CVS Merger 1
CVS, Aetna win US approval for $69 billion merger

"The divestitures required here allow for the creation of an integrated pharmacy and health benefits company that has the potential to generate benefits by improving the quality and lowering the costs of the healthcare services that American consumers can obtain", Assistant Attorney General Makan Delrahim said in a statement. Before then, tech and consumer discretionary have been in pole position, but as investors begin to cycle out of growth, they could be looking to more value-oriented sectors like health care to lead them out of the bull market and beyond. "Together, we will help address the challenges our health care system is facing, and we'll be able to offer better care and convenience at a lower cost for patients and payors". A substantial share of CVS' revenues come from its role as a so-called pharmacy benefit manager (PBM) for insurance companies and employers.

DOJ said that without the settlement, the merger would "cause anticompetitive effects, including increased prices, inferior customer service, and decreased innovation in sixteen Medicare Part D regions covering twenty-two states".

"The Cigna-Scripts and CVS-Aetna deals are doing what everyone else in the health-care space is doing right now, just on a grander scale - reacting to continued cost pressures from market forces like the ACA, consumerism and other industry players building scale against each other", said Brad Haller, a lawyer specializing in mergers and acquisitions at the firm West Monroe.

The CVS Health-Aetna deal is still subject to some state regulatory approvals, though a lot of them have been granted.

The approval comes just a few weeks after the US signed off on another deal combining a big health insurer with a pharmacy-benefits manager - Cigna Corp.'s $54 billion takeover of Express Scripts Holding Co. The deal is expected to close at the end of this year.

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