Merged CVS-Aetna won't extend transparency, competition guarantees

Dec. 4, 2018

CVS and Aetna are making promises to Georgia that they seem unwilling to make to Ohio and the rest of the country.

The Peach State in November said it would approve the merger of the two companies only if they made guarantees regarding competition and transparency. A spokesman for CVS Health last week declined to say that a merged company would make similar guarantees in other states.

The companies are on the cusp of a $70 billion merger that would combine the nation's No. 1 pharmacy chain and No. 2 pharmacy benefit manager with the No. 3 health insurer. The U.S. Department of Justice gave its blessing to the deal even though the American Medical Association and other groups said the merged giant likely would engage in anti-competitive practices that would increase health costs and limit access.

The Dispatch has been conducting a yearlong investigation of prescription drug pricing, including an in-depth look at the work of CVS Caremark and other pharmacy benefit managers, companies that serve as the middleman in the prescription drug chain from manufacturer to consumer.

The reporting uncovered a number of questionable practices by CVS even before the merger. They include cutting reimbursements to independent pharmacies and then offering to buy them, as well as forcing patients to buy their most expensive — and for the company, most profitable — drugs at CVS's mail-order pharmacies.

As part of the CVS/Aetna merger process, insurance regulators in the states where Aetna and its subsidiaries do business had to give their approval. Georgia Insurance and Safety Fire Commissioner Ralph Hudgens just gave his on Nov. 19 — after the merging companies agreed to make some guarantees. Among them:

• CVS/Aetna must allow other providers, such as pharmacies, physicians and clinics, to join its networks on the same terms as all providers. Thomas Greaney, an anti-trust expert who helped draft the AMA's objections to the merger, told The Dispatch in August that the merged company might be able to use its huge networks in three related marketplaces to lock competitors out and raise prices. This guarantee aims to avoid that.

• CVS/Aetna must allow Georgia patients to use any pharmacy, physician, clinic or other provider regardless of whether it's in its networks, so long as the provider accepts the same conditions as those within its networks. This aims to protect patients' access to care.

• CVS/Aetna can't force patients to fill prescriptions at CVS pharmacies.

• CVS must disclose how much in rebates it receives from drug manufacturers and how much of that money it pockets. Such rebates are significant, and they're negotiated behind a wall of secrecy, leaving consumers flummoxed over how much their medicines really cost.

The Georgia groups that advocated for the guarantees — including the state's medical, pharmacy and oncology associations — declared it a "one-of-a-kind" victory.

"In what can only be described as a major win for patients and community health-care providers, Georgia's conditions for approval were significant and noteworthy," the pharmacy association said in a statement.

The group appears to be correct in saying that the concessions are unique to Georgia. Asked whether the company would make the same guarantees to Ohio and other states, CVS spokesman Michael DeAngelis did not respond with an unqualified "yes."

"The terms of our agreement with the Georgia Department of Insurance are similar to the state’s 'any willing provider' law, with which we currently comply," he said in an email. "We also comply with similar laws in other states where applicable. In addition, CVS Caremark contracts with a wide network of valued pharmacy partners and suppliers to offer clients and their members the broadest array of pharmacy services possible, including in Ohio. Independent pharmacies make up about 40 percent of the pharmacies in our network."

In terms of rebates, DeAngelis said, "The overwhelming majority of rebates we receive — approximately 98 percent — are returned to clients and used to lower costs for payors and their members. And our agreements with all of our Medicaid (managed-care organization) clients in Ohio require us to pass 100 percent of any supplemental rebates we receive back to those clients. In other words, CVS Caremark retains zero dollars in rebates for Medicaid prescriptions in Ohio."

However, rebates are regarded as proprietary information, so it's difficult to know how much CVS collects.

Also, said Antonio Ciaccia of the Ohio Pharmacists Association, it's not always clear that when pharmacy benefit managers refer to "rebates" they're talking about all discounts they receive from manufacturers, so it's also difficult to know whether all of those discounts are flowing back to taxpayers through Ohio Medicaid.

He added that if CVS/Aetna could make guarantees to Georgia, it can make them to Ohio, too.

"Given the Ohio PBM experience that still has yet to be remedied, we believe Ohioans should be afforded those same protections," Ciaccia said. "Based on what we’ve seen from CVS in Ohio, it would seem the concessions made in Georgia should be the floor rather than the ceiling for what needs to be done to better protect consumers from this new health care monolith."

As in Georgia, the Ohio Department of Insurance had to sign off on the merger, but it didn't extract the guarantees Georgia did. States where Aetna or one of its subsidiaries operate had to sign off on the deal and the company has only a small subsidiary in Ohio. Also, Ohio insurers are governed by different laws than they are in Georgia, said Chris Brock, a spokesman for the department.

As a merged company, however, CVS/Aetna will have a big presence in the Buckeye State. As a general matter, Ohio insurance regulations seek to create a level playing field where one competitor isn't advantaged over another, an insurance department spokeswoman said.

"Moving forward, they're going to have to comply with the laws in Ohio," Brock said. "If consumers have complaints, they can reach out to us and we'll be reviewing them."

In a related matter, the CVS/Aetna merger ran into unexpected problems Thursday, Reuters reported. Judge Richard Leon of the U.S. District Court for the District of Columbia noted AMA objections to the merger and complained that the companies and the Justice Department were using him as a "rubber stamp."

Leon said he might delay approval until next summer or reject it altogether. On Monday, he ordered the parties to present written arguments on why the merger should go through and set another hearing for Dec. 18.