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Antitrust Law and the CVS and Aetna Merger

Recently a bunch of books and articles have focused on antitrust law and the decades long trend of mergers and acquisitions. As a result, many American industries are now consolidated into a handful of dominant companies. The results? Reduced competition, less innovation and entrepreneurship, increased harm to consumers, higher prices, lower quality of products and services, and rising income inequality. In order to fix this, Congress should strengthen antitrust laws, and House Democrats-and members from both parties-should make this a top priority.

The Department of Justice demonstrated this trend when it failed to challenge the merger of CVS and Aetna, despite an abundance of evidence that the deal would reduce competition. New York Times columnist Steven Pearlstein visited DOJ and asked Makan Delrahim, the Assistant Attorney General for Antitrust, why they did not oppose the acquisition. He responded that he and his office had reviewed concerns about competition and dismissed them.

But the evidence strongly suggests otherwise. At a hearing last summer, California Insurance Commissioner Dave Jones collected information about CVS's buying of Aetna and decided it was anticompetitive. Experts pointed out that the markets for health insurance and pharmacy services are already very concentrated and lack price transparency, so any savings from the merger would likely go to shareholder profits instead of consumers. A combined CVS-Aetna behemoth would have the power to steer customers away from independent pharmacies and move them to CVS, by using price incentives or excluding independent pharmacies from its networks. CVS, as a pharmacy benefit manager (PBM), would have the incentive and market power to raise costs for other insurance companies it serves, likely pushing them out of the marketplace.

Additionally, the CVS and Aetna merger, along with the Cigna and Express Scripts merger, would make it very difficult for any company to enter insurance or pharmacy markets, reducing future competition. CVS also has a long history of anticompetitive behavior: as a PBM for a a bunch of insurance companies, CVS often requires consumers to purchase drugs from its mail order pharmacies, and reduces reimbursement levels to retail pharmacies for generic drugs to levels lower than it costs the pharmacies to buy the drugs from wholesalers.

And, until Congress banned the practice last year, CVS's standard contract included a clause forbidding pharmacists from telling consumers they could save money by paying out-of-pocket for generic drugs, and that using their insurance was more expensive.

CVS and Aetna claim that their merger will result in hundreds of millions of dollars worth of savings for consumers. But they declined to spell out in detail how these savings would be achieved. Nevertheless, the government, under Mr. Delrahim, accepted CVS's arguments and endorsed the merger. However, in recent weeks Judge Richard Leon, who has to rule that the settlement is in the public interest, criticized the government and expressed concern that DOJ had not adequately protected consumers. Many consumer groups and other organizations have filed comments expressing concerns about the merger. Judge Leon has ordered the government to respond to them by February 15th.

If Congress wants to promote competition, encourage free markets, and reduce corporate power, it should improve antitrust laws and encourage strong oversight from antitrust authorities like the Department of Justice and the Federal Trade Commission. House Democrats should rise to this challenge and institute these lasting reforms-consumers, companies, and the free market will thank them.

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