Ohio experience raises questions about CVS-Aetna merger
August 19, 2018
Health-care giant CVS and insurer Aetna are poised to merge into a conglomerate that would dominate three important links in the health-care chain.
It would combine the nation’s largest retail pharmacy group with the third-largest health insurer. It also would include the country’s second-largest pharmacy benefit manager — the middleman between insurers and pharmacies that extracts discounts from drug manufacturers, bills health plans and determines how much pharmacies are paid. Already the seventh-largest corporation in the United States, CVS estimates that, post-merger, it would move up a few notches on that list.
CVS says the $70 billion deal would lead to better health care for consumers by simplifying the system, increasing access, promoting better primary care and lowering costs.
But Bob Blake isn’t so sure.
At the end of June, he closed Blake’s Manchester Pharmacy, leaving the depressed town on the Ohio River in Adams County bereft of a place to buy prescription drugs.
“The closest one is 10 miles away,” Blake said. “At best, it’s going to be a 20-mile round trip if (his former customers) can drive a car, but most often they can’t.”
So instead, many of his elderly or otherwise frail clients are relying on family members to get their medicine, or they’re paying others to make the drive.
Blake said he was forced out of business after 31 years by what he sees as anti-competitive practices by CVS Caremark, which is the pharmacy benefit manager, or PBM, to four of Ohio’s five Medicaid managed-care plans. In areas such as Manchester, with a high proportion of Medicaid patients, pharmacists have little choice but to contract with CVS Caremark and accept whatever reimbursements it pays.
“It was a matter of we couldn’t keep losing money like we were,” Blake said.
He's far from alone. This past week, the Canton Repository reported that pharmacists across Stark County were groaning under CVS reimbursement cuts — and often receiving letters from CVS offering to buy their pharmacies. They join pharmacies across Ohio, Iowa, Arkansas, New Jersey, New York and many other states who got CVS buyout offers after CVS Caremark cut their rates.
In other actions that Ohio critics view as anti-competitive, CVS has set up web portals for consumers to compare drug prices, but the sites give clear preference to CVS pharmacies, automatically putting them at the top of every comparison list. And CVS Caremark pushes some Medicare recipients on SilverScript, the company's supplemental drug plan, to CVS retail stores.
CVS Caremark is among the PBMs making Ohioans diagnosed with cancer sometimes wait weeks to get medication because the PBMs require it to be provided by their company’s own mail-order center instead of allowing the patient get it immediately from the same facility where they were diagnosed. Josh Cox, pharmacy operations director for a large oncology practice in Dayton who sits on the Ohio State Board of Pharmacy, said a CVS representative falsely told him in June that Cox was legally required to shift a patient's cancer-drug prescription to CVS.
The U.S. Justice Department is expected to decide within a month whether to accept CVS’s assurances that it won’t use its dominance in the three major sectors of the medical marketplace to drive out competition. But Blake and others believe the company’s conduct in Ohio should make regulators skeptical.
“The reporting from The Dispatch and Ohio has clearly revealed there are all kinds of red flags in the Ohio marketplace,” said former U.S. Attorney Steve Dettelbach, the Democratic candidate for Ohio attorney general. Current Attorney General Mike DeWine said he is monitoring the situation.
If the Justice Department clears the merger, state attorneys general still have powers to oppose it.
Dettelbach said much more extensive analysis would have to be done before going forward with that. His Republican opponent, Ohio Auditor Dave Yost, agreed, but said, “CVS already has a substantial footprint and in order to have a free market, you have to have competition.”
At stake in the merger battle is whether cheaper, more accessible, seamless health care will be available — as CVS promises — or whether monopolistic practices will drive up costs and drive out competitors in under-served areas such as Manchester.
"Unless blocked, this merger would likely injure consumers by raising prices, lowering quality, reducing choice and stifling innovation in five poorly performing markets across the country: Medicare Part D ..., PBM services, health insurance, retail pharmacy, and specialty pharmacy," James L. Madara, CEO of the American Medical Association, wrote in an Aug. 7 letter to Makan Delrahim, the assistant attorney general in charge of the Justice Department's Antitrust Division.
CVS is promising something quite different.
"Our vision is to create a new health-care model that will help consumers improve their health by focusing on prevention and primary care, simplifying their health care experience and reducing costs," Michael DeAngelis, CVS' director of public relations, said in an email.
"The combination of our two companies will allow us to explore new benefit designs with $0 co-pays or reduced cost-sharing, passing on additional savings to consumers. As our costs go down, consumers will see the benefits in terms of premiums that will be lower than they would be otherwise. We also intend to invest these savings into improving the quality of services we offer to consumers. Thus, these cost savings will improve our consumers’ experience in ways beyond just the cost of their premiums."
U.S. Sen. Sherrod Brown, D-Ohio, is skeptical that the merger would be good for Ohioans. He said he's long been concerned that concentration in the health sector will drive up costs. Also, given the pro-industry bent of the Donald Trump administration, he wants the regulatory review to be more public, possibly through congressional hearings.
“This White House looks like a retreat for drug executives,” Brown said.
Sen. Rob Portman wouldn't weigh in on the matter.
Thomas Greaney also is among the skeptics of the merger plan. He's an expert in health law at the University of California-Hastings College of Law and a former assistant chief of the Justice Department's Antitrust Division.
Greaney said inadequate competition in several sectors of the health-care industry is the leading cause of medical inflation because it allows bloated players to extract inflated prices.
“It really is high prices that drive high costs, and high prices correlate very strongly with high concentration, and concentration is just another way of saying leverage — the ability to demand more for your goods and services,” he said.
Take, for example, pharmacy benefit managers.
The Ohio Department of Medicaid, CVS and OptumRx all said that the system by which $2.5 billion a year in drugs were being purchased for Medicaid recipients was saving taxpayers money. But under the "spread pricing" setup, the PBMs' pricing and rebate data are all confidential by contract, so it's impossible to tell whether that's really the case. In other words, taxpayers were being asked to just trust that they were getting a good deal.
So The Dispatch obtained confidential pharmacy data and performed an analysis as part of its "Side Effects" investigation. Those stories helped prompt the Medicaid department to seek an analysis of its own. It determined that CVS and OptumRx charged taxpayers $224 million more for drugs than it paid pharmacies in a single year, under a rate three to six times as high as the industry standard.
Last week, the Medicaid department abruptly abandoned the pricing scheme, ordering its managed-care plans to terminate contracts with CVS and OptumRx that use spread pricing and move to a pass-through system starting Jan. 1.
Greaney said the PBMs' spread-pricing setup is a classic symptom of a non-competitive marketplace — one in which three companies, CVS, OptumRx and ExpressScripts, control more than 70 percent of the nation's $400 billion drug business.
“Everybody is slack-jawed when they look at the PBM pricing model and the lack of transparency and the fact that the customer doesn't know what the prices are and all of that stuff," he said. "How can this be? One obvious answer is that there’s not vigorous competition in the PBM market.”
He and the American Medical Association worry that under a CVS/Aetna merger, things will get far worse. They fear CVS will enact a special deal to lock in Aetna and lock out other insurers, and that both will steer clients to CVS pharmacies. They also worry that if regulators approve the merger, another proposed one — between ExpressScripts and insurer Cigna — is sure to follow.
They would join OptumRX, which already is part of insurer United Healthcare.
CVS's DeAngelis said it would be counterproductive for the newly merged company to shut out competition.
"Access is a critical component of building a simpler, more responsive and more affordable health-care experience for consumers," he said. "As such, CVS Health offerings, including retail pharmacy services, specialty pharmacy and long-term care, walk-in clinical services and pharmacy benefit management (PBM) services, will continue to be fully accessible to other health plans.
"In addition, Aetna members will continue to have a broad network of pharmacies, including community-based independent pharmacies, available to fill their prescriptions. CVS Pharmacy will continue to participate within the pharmacy networks for other PBMs and health plans."
However, Yost’s office released an analysis this past week that might bear out pharmacists' claims that CVS has tried to push them out of business. It crunched confidential data showing that CVS and OptumRx are charging the state 31 percent more for generic drugs in the Ohio Medicaid program than they’re reimbursing to pharmacists.
Pharmacists in Ohio and numerous other states complain that reimbursement cuts were particularly deep last October, right around the time CVS announced that it would absorb Aetna.
That prompted many pharmacists to speculate that the cuts were tied to the merger announcement, which CVS strongly denied. However, the auditor’s report said the difference between what CVS and OptumRx together were charging the state for generic drugs and the amount they were paying pharmacists jumped by 24 percent in the fourth quarter of 2016.