By Brent Kendall, Anna Wilde Mathews and Sharon Terlep
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (September 6, 2018).
WASHINGTON -- Justice Department antitrust enforcers are
preparing to give the green light to two deals in the health-care
industry, CVS Health Corp.'s planned acquisition of health insurer
Aetna Inc. and Cigna Corp.'s planned purchase of Express Scripts
Holding Co., according to people familiar with the matter.
Both deals could receive formal antitrust approval as soon as
the next few weeks, these people said.
The Justice Department has identified some competition concerns
surrounding the nearly $70 billion CVS-Aetna deal, and the
companies will be required to sell off assets related to Medicare
drug coverage to resolve those issues, some of the people familiar
with the matter said.
The department's approval of the $54 billion Cigna and Express
Scripts combination could come without the government requiring the
companies to sell off any assets, said some of the people who were
familiar with the review of that deal.
The department's conclusions come as the business community and
consumer advocates continue to look for guideposts on how Trump
administration appointees are approaching major mergers. Last year,
the Justice Department brought one of its most ambitious cases in
decades, a challenge to AT&T Inc.'s acquisition of Time Warner
Inc., a case it lost in June and is now appealing. That lawsuit
raised the stress level at other companies contemplating
industry-transforming mergers and led to speculation that the
health-care deals among others could face tough scrutiny.
Elsewhere, the Justice Department in May approved Bayer AG's
purchase of Monsanto Co., but required the companies to sell off
about $9 billion in assets to preserve competition, the largest
divestiture ever in a U.S. merger-approval settlement. The Justice
Department also has another major merger under its review, the
proposed combination of T Mobile US Inc. and Sprint Corp.
The CVS-Aetna and Cigna-Express Scripts deals underscore how the
health-care industry is changing, with the biggest players
increasingly seeking to incorporate multiple lines of business,
forming behemoths that stretch from insurance to pharmacy-benefit
management to, in some cases, drugstores, clinics and physician
practices.
The companies in both mergers will seek to prove that their
combination of assets is best equipped to win over clients and
consumers, which they have promised to do with more smoothly
integrated care and services and better cost-curbing efforts.
Officials at CVS and Aetna pointed to recent public remarks by
CVS Chief Executive Larry Merlo, who said that the companies had
"contemplated a range of possibilities" in the Medicare drug-plan
area and "determined the impact of any divestitures would not be
material to the deal model."
Officials at Cigna and Express Scripts cited previous statements
in which they said they were working cooperatively with the Justice
Department and were confident the merger would close by year's end.
A Justice Department spokesman declined to comment.
The companies that would emerge from the two deals would mirror
the industry's trend toward bulked-up firms. UnitedHealth Group
Inc. is the parent of the largest U.S. health insurer and a major
pharmacy-benefit manager; it has a growing array of physician
practices, urgent-care clinics and other assets. Humana Inc. has
also moved aggressively into the home care and hospice businesses,
as well as forging closer ties to doctors, arguing it can better
integrate and manage care for its Medicare members.
The CVS-Aetna deal, announced last December, would marry CVS's
drugstores and large pharmacy-benefit-management business with the
third-biggest U.S. health insurer. The companies have said they
would use retail outlets to offer new, more convenient and
efficient access to care.
The Cigna-Express Scripts combination, announced in March, will
join an insurer with a strong focus on employers to a
pharmacy-benefit manager that remains a leading player despite
recent business challenges. The deal faced a challenge by activist
investor Carl Icahn, but it easily won out in shareholder
votes.
Analysts have generally praised the deal, saying it would
increase Cigna's ability to manage care and costs. Cigna currently
uses UnitedHealth's OptumRx for certain functions.
Both deals have also drawn criticism, including from the
American Medical Association, which has voiced concerns that the
mergers could substantially lessen competition in health care.
Although the merging companies in both deals are health-industry
powerhouses, they don't compete directly with one another in most
of their core areas of business. Aetna, for example, already uses
CVS to handle its pharmacy benefits.
The clearest overlap between Aetna and CVS comes in the sale of
Medicare prescription drug coverage -- known as Part D plans -- and
that is where the Justice Department has focused its concerns.
CVS has the largest market share in the Medicare drug-plan
business, with around 6.1 million members, according to a recent
tally from Wells Fargo. Aetna is the fifth-biggest Part D seller
with around 2.2 million members, according to Wells Fargo.
To preserve competition where CVS and Aetna sell Part D plans
head-to-head, the Justice Department will require the companies to
sell off parts of their Part D business to one or more companies
that would compete with the newly merged firm, some of the people
familiar with the matter said.
The size of the asset sales couldn't immediately be learned, but
one potential buyer in talks for the assets is WellCare Health
Plans Inc., people familiar with the matter said. Final discussions
between CVS, Aetna and the Justice Department about asset sales are
ongoing, these people said.
Such divestitures had been expected by analysts and haven't been
viewed as serious impediments to the deal, partly because the
profits on the plans are limited.
WellCare declined to comment.
While the Justice Department's antitrust enforcers focused on
traditional issues of direct business overlap, they didn't find
issues related to the vertical integration of CVS and Aetna, which
have strong positions in different parts of the health care
industry, nor with the vertical integration of Cigna and Express
Scripts, according to the people familiar with the matter.
Vertical concerns in the pay-TV industry prompted the department
to challenge AT&T's Time Warner acquisition.
In public remarks in June, Justice Department antitrust chief
Makan Delrahim said the government continued to recognize that
vertical deals can produce efficiencies and benefits for consumers,
even though it believed the AT&T deal didn't.
Write to Brent Kendall at brent.kendall@wsj.com, Anna Wilde
Mathews at anna.mathews@wsj.com and Sharon Terlep at
sharon.terlep@wsj.com
(END) Dow Jones Newswires
September 06, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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