Effects of CVS, Aetna merger remain to be seen

American consumers aren't the only ones struggling with higher healthcare costs. CVS Health's proposed $69-billion purchase of health insurer Aetna is driven in part by the companies' efforts to get control over more of the costs they face, and to make their operations more efficient. The question for regulators, though, is whether the combination results in a company that uses its clout to help consumers or squeeze more dollars out of them.

Healthcare spending consumes a growing share of the U.S. economy, now accounting for 18 percent of GDP, or more than $1 out of every $6 spent. Federal actuaries project that every aspect of healthcare spending-on doctors, hospitals, drugs, medical devices, nursing homes-will continue to grow faster than inflation, driven by higher prices, not excessive demand.

You don't have to be an economist to know that these increases aren't sustainable for either consumers or the government, each of which picks up almost 30 percent of the healthcare tab. The healthcare industry is coming under increasing pressure to rein in costs by radically changing how providers and insurers make money, paying for the value of the services delivered by doctors and hospitals instead of the volume. That's a big, much-needed shift.

One of the challenges in controlling costs, though, is the outsize market power wielded by big players in many segments of the healthcare industry. Ever since the early 1990s, insurance companies, hospitals, physician groups, drug makers and others have been consolidating, seeking to gain leverage against each other. In hospitals, for example, one study found that large holding companies controlled 60 percent of the facilities in 2013, up from 7 percent a decade earlier. The number of consolidations across the industry doubled from 2011 to 2015.

Which brings us to CVS, which is a giant in two areas: retail drug sales and "pharmacy benefit management," in which it negotiates discounts from prescription drug companies on behalf of insurers and big employers. CVS also operates healthcare clinics in some of its stores, where physician's assistants and nurse practitioners treat patients for minor ailments. By buying Aetna, the company would stretch further, providing not merely walk-in care and medicines, but also a means to pay for one's healthcare needs.

Ultimately, competition remains an essential part of the cost-control picture. CVS and Aetna argue that joining together would work for consumers by enabling the combined company to offer lower-cost, more personalized and more efficient care. But CVS may be more interested in a tie-up with Aetna as a way to steer the 38 million people with Aetna insurance and pharmacy benefits to CVS' stores-keeping them away from Amazon, which is widely expected to begin selling pharmaceuticals online, disrupting that business the same way it has upended other retailers. With prescription drug prices rising inexorably, antitrust regulators should condition approval of CVS' purchase of Aetna on the combined company increasing competitive pressures on the rest of the industry, rather than preventing consumers from reaping the benefits of the competition to come.

 

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