Moody’s: CVS-Aetna merger has ‘negative implications’ for other healthcare companies

If the merger between CVS Health and Aetna is completed, other healthcare companies, especially pharmacy benefit managers (PBMs), will see some negative effects such as pressuring the utilization and pricing of branded drugs, according to Moody’s Investor Service.

The $69 billion deal, announced on Dec. 3, was touted by the two companies as an opportunity to lower healthcare costs by combining Aetna’s analytics and Medicare Advantage growth with CVS’s drug programs, retail clinics and pharmacies. Moody’s analysis supported those promises for efficiencies, which in turn would put other PBMs at a disadvantage and hurt pharmaceutical companies.

The combined CVS-Aetna would be a “formidable competitors” for PBMs, particularly Express Scripts, which would be left as the largest independent PBM without a national insurer for a partner going against CVS and UnitedHealth Group’s Optum. Beginning in 2020, Anthem’s in-house PBM IngenioRx, created after the insurer terminated its contract with Express Scripts, will add another rival. The company will have to prove its model can compete with those vertically-aligned competitors.

“That said, there would be no immediate shift in covered lives between PBMs, because Aetna’s PBM is in-house and already collaborates with CVS,” the Moody’s report said. “In addition, the 2018 enrollment season is already complete. Further, the CVS/Aetna combination is not without execution risk and the potential loss of some clients. This is because the health insurer/managed care clients of CVS may prefer switching to a PBM that is not affiliated with a key competitor, i.e., Aetna.”

For drug companies with especially high-priced medicines, Moody’s warned the CVS-Aetna combination will drive a focus on lowering total costs rather than maximizing drug rebates.

“Pairing CVS's expertise with Aetna's would allow the combined company to design drug formulary and benefit plans to effectively manage prescription drug costs. In addition, the merger would eventually pressure the utilization and pricing of hospital-based drugs that fall outside the traditional realm of PBMs,” the report said.

The drug purchasing landscape wouldn’t immediately change, as the two companies already collaborate on buying generic drugs. Drug distributors and medical device companies (outside of diabetes products) are also unlikely to be affected in the short-term.

Hospitals and other providers could be impacted by the merger’s promise to move more services to lower cost sites of care run by CVS, but Moody’s predicted this shift wouldn’t be “sudden or substantial because the retail clinics are generally not staffed by physicians.”

“Instead, the shift would continue a trend that has already been ongoing among healthcare providers. CVS also aims to shift lab services to preferred sites, and infusion services away from outpatient hospital settings,” the report said.

The two companies said they hope to finalize the transaction in the second half of 2018. If completed, Aetna would operate as a stand-alone business unit within CVS Health to be led by current members of its management.

Aetna CEO Mark Bertolini and two others from Aetna would join the CVS Health board. Bertolini, who won’t have an operational role in the new company, would also receive a hefty golden parachute package of $500 million, according to the Wall Street Journal, thanks to the value of his Aetna shares, newly acquired CVS shares and a $60 million to $85 million “change-in-control” payment triggered by the company’s sale.

If the deal falls apart, CVS will have to pay a hefty breakup fee of $2.1 billion to Aetna, according to their merger agreement. Aetna itself had to cough up $1 billion when their merger was called off earlier this year.