[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
COMPETITION IN THE PHARMACEUTICAL SUPPLY CHAIN: THE PROPOSED MERGER OF
CVS HEALTH AND AETNA
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
REGULATORY REFORM,
COMMERCIAL AND ANTITRUST LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 27, 2018
__________
Serial No. 115-28
__________
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
----------
BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr., JERROLD NADLER, New York
Wisconsin ZOE LOFGREN, California
LAMAR SMITH, Texas SHEILA JACKSON LEE, Texas
STEVE CHABOT, Ohio STEVE COHEN, Tennessee
DARRELL E. ISSA, California HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa Georgia
LOUIE GOHMERT, Texas THEODORE E. DEUTCH, Florida
JIM JORDAN, Ohio LUIS V. GUTIRREZ, Illinois
TED POE, Texas KAREN BASS, California
TOM MARINO, Pennsylvania CEDRIC L. RICHMOND, Louisiana
TREY GOWDY, South Carolina HAKEEM S. JEFFRIES, New York
RAUL LABRADOR, Idaho DAVID CICILLINE, Rhode Island
BLAKE FARENTHOLD, Texas ERIC SWALWELL, California
DOUG COLLINS, Georgia TED LIEU, California
RON DeSANTIS, Florida JAMIE RASKIN, Maryland
KEN BUCK, Colorado PRAMILA JAYAPAL, Washington
JOHN RATCLIFFE, Texas BRAD SCHNEIDER, Illinois
MARTHA ROBY, Alabama VALDEZ VENITA ``VAL'' DEMINGS,
MATT GAETZ, Florida Florida
MIKE JOHNSON, Louisiana
ANDY BIGGS, Arizona
JOHN RUTHERFORD, Florida
KAREN HANDEL, Florida
Shelley Husband, Chief of Staff and General Counsel
Perry Apelbaum, Minority Staff Director and Chief Counsel
------
Subcommittee on Regulatory Reform, Commercial and Antitrust Law
Tom Marino, Pennsylvania, Chairman
BLAKE FARENTHOLD, Texas, Vice-Chairman
DARRELL E. ISSA, California DAVID CICILLINE, Rhode Island
DOUG COLLINS, Georgia HENRY C. ``HANK'' JOHNSON, Jr.,
KEN BUCK, Colorado Georgia
JOHN RATCLIFFE, Texas ERIC SWALWELL, California
MATT GAETZ, Florida BRAD SCHNEIDER, Illinois
KAREN HANDEL, Florida VALDEZ VENITA ``VAL'' DEMINGS,
Florida
CONTENTS
FEBRUARY 27, 2018
OPENING STATEMENTS PAGE
The Honorable Tom Marino, Pennsylvania, Chairman,
Subcommittee on Regulatory Reform, Commercial and Antitrust
Law, Committee on the Judiciary.....................................1
The Honorable David Cicilline, Rhode Island, Ranking
Member, Subcommittee on Regulatory Reform, Commercial and
Antitrust Law, Committee on the Judiciary...........................2
The Honorable Jerrold Nadler, New York, Ranking Member,
Committee on the Judiciary..........................................5
WITNESSES
Mr. Thomas M. Moriarty., Executive Vice President,
Chief Policy and External Affairs Officer, General Counsel, CVS
Health Oral Statement...............................................7
Mr. Thomas J. Sabatino, Jr., Executive Vice President,
General Counsel, Aetna, Inc.
Oral Statement..................................................8
Dr. Craig Garthwaite, PhD., Director, Health Enterprise
Management Program, Kellogg School of Management, Northwestern
University Oral Statement..........................................22
Dr. Lawrence Wu, PhD., President, NERA Economic Consulting
Oral Statement.....................................................24
Mr. George Slover, Senior Policy Counsel, Consumer Union
Oral Statement.....................................................26
Mr. Geoffrey A. Manne, Executive Director, International Center
for Law and Economics
Oral Statement.....................................................27
ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
Statements submitted by the Honorable Tom Marino,
Pennsylvania, Chairman, Subcommittee on Regulatory Reform,
Commercial and Antitrust Law, Committee on the Judiciary. These
materials are available at the Committee and can be accessed on
the Committee Repository at:
https://docs.house.gov/meetings/JU/JU05/20180227/106898/HHRG-115-
JU05-20180227-SD003.pdf
Statement submitted by the Honorable Bob Goodlatte, Virginia,
Chairman, Committee on the Judiciary. This material is
available at the Committee and can be accessed on the Committee
Repository at:
https://docs.house.gov/meetings/JU/JU05/20180227/106898/HHRG-115-
JU05-MState-G000289-20180227.pdf
OPENING STATEMENTS PAGE
The Honorable Tom Marino, Pennsylvania, Chairman,
Subcommittee on Regulatory Reform, Commercial and Antitrust
Law, Committee on the Judiciary....0
The Honorable David Cicilline, Rhode Island, Ranking
Member, Subcommittee on Regulatory Reform, Commercial and
Antitrust Law, Committee on the Judiciary......0
The Honorable Jerrold Nadler, New York, Ranking Member,
Committee on the Judiciary.........................0
THE PHARMACEUTICAL SUPPLY CHAIN: THE PROPOSED MERGER OF
CVS HEALTH AND AETNA
Tuesday, February 27, 2018
House of Representatives
Committee on the Judiciary
Subcommittee on Regulatory Reform,
Commercial and Antitrust Law
Washington, D.C.
The Subcommittee met, pursuant to call, at 1:30 p.m., in
Room 2141, Rayburn House Office Building, Hon. Tom Marino
[Chairman of the Subcommittee] presiding.
Present: Representatives Marino, Goodlatte, Farenthold,
Issa, Collins, Buck, Ratcliffe, Gaetz, Handel, Cicilline,
Nadler, Johnson of Georgia, Swalwell, Schneider, and Demings.
Staff Present: Dan Huff, Counsel; Andrea Woodard, Clerk;
and Slade Bond, Minority Counsel.
Mr. Marino. The Subcommittee on Regulatory Reform,
Commercial and Antitrust Law will come to order. Without
objection, the Chair is authorized to declare recess of the
committee at any time. We welcome everyone to todays
hearing on Competition in the Pharmaceutical Supply Chain: The
Proposed Merger of CVS Health and Aetna. And I now recognize
myself for my opening statement.
Welcome to this hearing on the proposed merger of CVS
Health and Aetna. I am interested in how this merger would help
deliver consumer value, particularly in regard to drug prices.
Prescription drug expenditures are nearly 20 percent of the
healthcare costs and they are rising. In fact, prescription
spending is growing faster than any other part of the
healthcare system. Four of the top 10 prescription drugs in the
United States have increased in price by more than 100 percent
since 2011. President Trump has made lowering drug costs a
priority.
This administrations recently released budget
includes initiatives, such as caps on copays. Here in Congress,
we have been hard at work as well. I, along with the Ranking
Member Congressman Cicilline, introduced the Creating and
Restoring Equal Access to Equivalent Samples (CREATES) Act
earlier this term. This bipartisan legislation targets abusive
delay tactics that are being used to block the market entry of
affordable generic drugs.
Specifically, the legislation ensures that pharmaceutical
companies provide generic manufacturers access to samples
needed to perform comparisons required for FDA approval. In
helping generics get to market faster, the Congressional Budget
Office estimates the bill would save government insurance
programs alone $3.8 billion. The American people should not
need to wait for this bill. I urge my colleagues to join me and
Ranking Member Cicilline in making it a priority to pass the
CREATES Act this year.
Another factor influencing healthcare costs is market
consolidation. Such concerns may be lessened in the context of
a vertical merger. As Judge Bork has explained, as a general
matter, vertical mergers [may cut sales and distribution costs,
facilitate the flow of information [and] create economies of
scale in management.] The proposed CVS Health and Aetna merger
is a vertical merger. It is my hope that it presents an
opportunity for cost savings. Uniting a provider and an insurer
to create an alignment of incentives as well as valuable data-
sharing opportunities that can pay dividends in the long run.
For example, the integrated post-merger entity could run a
pilot program offering zero copays on preventive medicines such
as cholesterol drugs. It could track the data to test the
hypothesis that the lost copay revenue is more than made up for
by reduced hospitalizations.
Proven concepts could then be rolled out across the
healthcare delivery network. Of course, we also have to be
sensitive to potential concerns. Vertical mergers can create
anticompetitive problems such as foreclosure.
Consider an integrated health insurer-pharmacy benefits
manager(PBM) pharmacy. The integrated entity must offer less
competitive terms for its PBMs and pharmacies services to
competing insurance companies. Competition should deter such
discrimination, but the healthcare industry is increasingly
consolidated.
Accordingly, I think it would be helpful for the
Subcommittee to hear what assurances the parties can give that
the proposed CVS/Aetna entity will not favor Aetna over its
insurance business competitors in CVS PBM contracts.
In short, there are important considerations on all sides.
It is the task of this Subcommittee to conduct a thorough
examination. To that end, we have assembled a distinguished
panel of witnesses. And I look forward to hearing from each of
them.
The Chair now recognizes the Ranking Member of the
Subcommittee on Regulatory Reform, Commercial and Antitrust
Law, the Congressman from Rhode Island, Mr. Cicilline for his
opening statement.
Mr. Cicilline. Thank you, Mr. Chairman, and thank you for
calling todays hearing on the impact of CVS
Healths proposed acquisition of Aetna on the
pharmaceutical supply chain. The high cost of healthcare is
squeezing the budgets of American families. We need a
competitive healthcare system that delivers lower prices, more
access to improved quality of care, and better outcomes for
patients. That starts with tackling the sky-rocketing price of
prescription drugs, one of the main drivers of high healthcare
costs.
Today, Americans pay more for prescription drugs than
people in any other country. Over the past decade, prescription
drug costs have sky-rocketed by 200 percent, resulting in
higher insurance premiums, larger hospital bills, and billions
of taxpayer dollars that are unnecessarily going into the
pockets of the largest prescription drug companies. This out of
control spending, primarily for brand-name drugs, accounts for
nearly a quarter of all healthcare costs and 19 percent of
Medicares spending.
And for many Americans, including, for example, cancer
survivors and people with multiple sclerosis, who have good
health insurance, drug prices just are not outrageous, they are
life-threatening for people are skipping doses and cutting
pills, because they cannot afford their medications. To quote
David Mitchell, [People are angry and they are hurting, and
they do not understand how this could be happening to them in
the United States of America.] Mr. Mitchell founded Patients
for Affordable Drugs, an independent, nonprofit organization
dedicated to lowering the price of prescription drugs--and I
agree very much with his statement.
We must end this moral outrage that is bankrupting American
families, particularly those that are most vulnerable. And the
first step on the path to fixing this life-threatening problem
is creating timely and effective generic drug competition.
The Federal Trade Commission reports that generic drugs can
reduce the price of branded drugs by more than 85 percent.
While the presence of just one generic competitor can decrease
subscription drug pricing by 20 to 30 percent. That is why, as
Chairman Marino mentioned, he and I proposed have H.R. 2212,
the CREATES Act, a targeted solution to reducing drug prices
through generic competition.
It is also why I am skeptical of claims that the pharmacy
benefit managers, or PBMs, that should negotiate for lower drug
costs on behalf of health insurance payers and employees, are
the cause of high-drug costs. To the contrary, there is
evidence that PBMs reduce costs and improve patient outcomes,
while retail pharmacies save consumers and health insurers
billions of dollars by automatically substituting generic drugs
for branded drugsavailable, as Professor Robin Feldman and
other leading researchers have noted. I strongly support promoting
competition in every market, including within pharmaceutical supply
chain, albeit that it is critical that consumers ultimately are seeing
benefits from lower drug prices.
But make no mistake: simply demonizing PBMs and retail
pharmacies of the drug supply chain is a distraction from the
leading cause of high drug prices. These include: the lack of
competition in the manufacturing of prescription drugs,
regulatory abuse by branded drug companies to delay generic
competitors, and barriers to generic competition--such as pay-
for-delay settlements--that keep drug prices at artificially
high, monopoly levels.
Addressing these issues head-on is a precondition for
lowering the cost of prescription drugs. CVS Healths
proposed acquisition of Aetna occurs within this backdrop and
emits ways of consolidation of fair markets. Last year, in a
very different merger proposal, the district court for the
District of Columbia blocked Aetnas attempt to acquire
Humana, a rival health insurer, concluding that the transaction
was [presumptuously unlawful, a conclusion that is strongly
supported by direct evidence of head-to-head competition, as
well.] As the Justice Department noted in response to this
decision, blocking that merger will save consumers and
taxpayers up to $500 million per year and results in more
generous benefits at lower prices.
There appear to be significant differences between CVS
Healths proposed acquisition of Aetna and prior
attempted mergers that would have contributed to the collapse
of competition in health insurance markets. And I want to take
a moment here to thank the CVS team who have provided really
important information data to me on this proposed transaction.
And with this in mind, I look forward to hearing from our
distinguished witnesses on this subject. It is incredibly
important that working Americans understand how the proposed
transaction will affect their access to care, their
prescription drug costs, and the health insurance premiums, and
whether we can do more to promote competition to lower prices
in the drug supply chain. With that, I thank Chairman Marino
for calling todays hearing and yield back the balance
of my time.
Mr. Marino. Thank you, Mr. Cicilline. Without objection,
other Members opening statements will be made part of
the record.
Chairman Goodlattes written statement is available
at the Committee or on the Committee Repository at:https://
docs.house.gov/meetings/JU/JU05/20180227/106898/HHRG-115-JU05-
MState-G000289-20180227.pdf
And I will begin by swearing in our witnesses before
introducing them. Would you please rise? Please raise your
right hand. Do you swear that the testimony you are about to
give to this committee is the truth, the whole truth, and
nothing but the truth so help you God?
Let the record reflect that the witnesses have
affirmatively said yes and please take your seat.
The Ranking Member, Mr. Cicilline, is going to introduce
Mr. Moriarty of CVS because he is from his home State.
Mr. Cicilline. Thank you, Mr. Chairman for the opportunity
to introduce our esteemed witness from CVS health; a
constituent company that is headquartered in my district and
employs 6,792 hard-working Rhode Islanders. As one of Rhode
Islands leading job-creators, CVS is an incredible
corporate citizen. From providing access to healthcare for
underserved populations, to pharmacy school scholarship
programs to support talented students, CVS actions
continue to make Rhode Island, and, indeed, this country a
better place.
CVS also continues to lead the way in promoting public
health and wellness in pharmacies. I was very proud to stand on
the House floor to applaud CVS Healths decision to
stop selling cigarettes and other tobacco products in its more
than 7,600 stores across the United States. And I hope other
pharmacies will soon follow their example.
Our country faces tremendous challenges in creating an
equitable and affordable healthcare system, and CVS Health has
helped countless Rhode Islanders and people across the Nation
better manage their health and improve access to affordable
prescription drugs.
It is my pleasure to introduce Mr. Thomas Moriarty, the
executive vice president, chief policy and external affairs
officer, and general counsel for CVS Health, a position he has
held since March of 2017. In this role, Tom leads the
companys external affairs programs including the
policy, government, and public affairs, corporate
communications, and legal and regulatory teams.
He received his law degree from the University of Virginia
School of Law and his undergraduate degree from Lafayette
College. We thank him for appearing before our community today.
And thank you, Mr. Chairman, for the opportunity to make that
introduction. And with that, I yield back.
Mr. Marino. Thomas J. Sabatino, Jr. is Aetnas
executive vice president and general counsel, the chief legal
officer of the company with worldwide responsibilities for
leading its legal operations. Mr. Sabatino has received
numerous rewards from his peers including inside counsels,
Transformative Leader Award in 2012, the National
BarAssociation Gertrude E. Rush Award in 2013, and the Equal Justice
Works Scales of Justice Award in 2014. In addition, the Womens
In-House Counsel Leadership Institute created the Sabatino Advocacy
Award in his honor in 2016.
Now the Ranking Member of the full Judiciary Committee, Mr.
Nadler of New York, will make his opening statement.
Mr. Nadler. Thank you, Mr. Chairman. Mr. Chairman, while I
do not prejudge the merits of the proposed merger of CVS Health
and Aetna, healthcare is an incredibly complex industry and we
must consider carefully the potential impact of this
transaction on competition and, ultimately, on consumers.
CVS Health is one of the Nations two largest
retail pharmacy chains with more than 9,700 retail pharmacy
locations and 1,100 walk-in health clinics. It is also one of
the two largest pharmacy benefit managers or PBMs. PBMs are
entities that are responsible for administering prescription
drug benefits through negotiations and contracts with drug
manufacturers, health insurers, healthcare providers, and
pharmacies and they represent a crucial part of the process by
which prescription drugs are provided to consumers.
Aetna, meanwhile, is the Nations third largest
health insurance company, which had previously pursued a merger
with Humana, the fourth largest health insurer, until the
Department of Justice filed suit to challenge that merger.
Proponents of this merger make a number of arguments in its
favor centering on the potential for efficiencies, enhanced
consumer services, and lower drug prices if the merger were to
be approved.
Additionally, some contend that a vertical merger, that is
a merger between companies that operate at different stages or
levels of a given industry supply chain such as a proposed CVS-
Aetna merger, raises few, if any, competition concerns compared
to a merger between two direct competitors. Some other noted
antitrust thinkers, however, are skeptical of this view, a
skepticism I generally share.
Moreover, I note that even the Trump
Administrations Department of Justice recently filed a
lawsuit challenging the AT&T/Time Warner transaction; another
vertical transaction, although it remains to be seen whether
that lawsuit represents any sort of longer-term philosophical
shift in antitrust enforcement. With this background in mind, I
hope that our discussion can focus on two points about the
impact on consumers of the transaction that is before us.
To begin with, the healthcare sector is already highly
concentrated, and there remains a concern that dominant firms,
including a post-merger CVS-Aetna, would have the ability and
the incentive to exclude competitors or to diminish
competition, an issue that I would like all of our witnesses to
address today.
In November 2015, this Subcommittee held a hearing on the
state of competition in the pharmacy benefit manager and
pharmacy markets. We learned then that most studies show that
just three companies, including CVS, control 80 percent of the
PBM market. Additionally, the largest PBMs also owned the
largest retail pharmacy chains and concerns were expressed at
the 2015 hearing that these firms have the incentive and the
ability to leverage their dominance in the PBM marketplace to
steer business to their pharmacies; a concern exacerbated by
fact that it is difficult for the public to know whether any
cost savings were ultimately being passed on to consumers.
Similarly, this Subcommittee previously examined the health
insurance market when it held a hearing on the proposed Aetna/
Humana and Anthem/Cigna mergers in September 2015. During that
hearing we learned that in American Medical Association study
concluded that health insurance markets in seven out of 10
metropolitan statistical areas were highly concentrated. It
found that in almost 40 percent of the metropolitan areas
studied, one health insurer controlled more than 50 percent of
the market, as was the case in 14 States, raising concerns
about excessive concentration among health insurers.
The basic concern expressed that these earlier hearings
remains today. Namely, that in such concentrated markets, the
dominant firm has the ability and the incentive to use its
dominance to exclude potential competitors or to diminish
competition, even in markets where the firm being acquired is
not a direct competitor of the acquiring firm.
Another question that I hope the witnesses will address is
why a merger is necessary at all to accomplish the goals of
greater efficiency, lower costs for consumers, and more
innovation in healthcare delivery that the merger reportedly
will offer.
Where we can avoid concentrating economic power in one
firm, particularly, when the potential harm to consumers
outweighs the potential consumer benefits, we should do so.
This merger may very well turn out to yield the benefits that
its proponents claim. Nevertheless, antitrust enforcers and our
witnesses should closely examine the overarching questions that
I pose as they review the significant transaction.
I thank the Chairman for holding this timely hearing and I
look forward, very much, to hearing from our witnesses. I thank
you, I yield back.
Mr. Marino. Thank you, Mr. Nadler. Each of the
witness written statement will be entered into the
record in its entirety, and I ask that each of you summarize
your statement in five minutes or less, and to help you do
that, stay within that timing, there are lights in front of
you. You have been here before. When a light turns yellow, that
means that you have one-minute left; when it is red, your time
has run out. And if you go over that, we have a little leeway,
but I will be polite and diplomatically pick up the gavel.
Mr. Moriarty, please.
STATEMENTS OF THOMAS MORIARTY, EXECUTIVE VICE PRESIDENT,
CHIEF POLICY AND EXTERNAL AFFAIRS OFFICER, GENERAL COUNSEL, CVS
HEALTH; AND THOMAS SABATINO, JR., EXECUTIVE VICE PRESIDENT,
GENERAL COUNSEL, AETNA, INC.
STATEMENT OF THOMAS MORIARTY
Mr. Moriarty. Chairman Marino, Ranking Member Cicilline,
Ranking Member Nadler, and Members of the Subcommittee, thank
you for having me here today to discuss CVS Healths
proposed combination with Aetna. My name is Tom Moriarty and I
am executive vice president, chief policy and external affairs
officer, and general counsel for CVS Health.
Most of you know us as a local pharmacy in your community,
but we are really more than that. We are the front door to a
path to better health. We have long been at the forefront of
putting our patients health first and improving the
public health of our communities. Over the past few years, we
have taken bold steps to define us as a company. We have
removed tobacco from our stores. We have been promoting
healthier snack options, and we have been waging a multifront
fight against the opioid epidemic.
Our proposed combination with Aetna is a natural extension
of these commitments. We will put consumers at the center of
healthcare to ensure that they can access convenient, high
quality, more affordable care where they are when they need it.
Our health system, in many ways, is a work in progress. It
was built for a different time, for a different consumer with
different needs. It is fragmented, complex, burdensome for
consumers and providers, and it is unsustainably expensive. It
faces huge demographic and chronic care challenges. And too
often, the tug of war between entities with conflicting
incentives means that the patient is not always being looked at
holistically with the goal of preventing disease and improving
his or her health.
Our vision is to create a new, open healthcare model that
will help consumers improve their health and simplify their
healthcare experience. And I would like to highlight three ways
this transaction does that.
First, we will put consumers at the center of their care.
Consumers are looking for more value, greater convenience, and
help in making healthier choices in their everyday lives. This
new model will provide consumers the information and resources
they need to better manage their own health and access care in
more convenient community settings at an affordable price.
Second, we will focus on prevention and primary care. The
combination of our companies will give us and physicians a
holistic view of a patients health. On average, your
constituents see their pharmacists much more often than they
see their doctor. In fact, many see multiple specialists, but
only see one pharmacist. We are going to build on that point of
continuity by having pharmacists engage patients early and
often to help prevent and manage illness more effectively.
And, finally, we will find ways to address the rising costs
of healthcare. Aging populations and the rise of chronic
diseases such as diabetes and heart disease are two of the
biggest trends threatening to bankrupt our system.
Unfortunately, we simply do not provide enough assistance for
physicians and their patients who are coping with a chronic
illness. We know that things like patients not taking their
medicines as prescribed, excessive administrative complexity,
and unnecessary emergency room visits cost the healthcare
system billions and billions of dollars, needlessly, each and
every year.
We believe that this transaction, through better pharmacy
care and coordination with primary care professionals, can make
a significant dent in reducing healthcare costs. Put simply, to
make real progress on behalf of consumers and the healthcare
system, we have to break the current log jam. There is not a
one-size-fits-all solution to these issues, and you should be
suspicious of those who suggest there is.
But we do know, healthcare can only improve if consumers
are connected to support from pharmacists and providers who
live in their communities and understand their personal
experiences. Healthcare, like politics, is very local.
For us, the combination with Aetna is the next step in our
companys long-running commitment to the health of all
Americans. We do not see it as more of the same, but, rather,
as a bold innovation that will reshape how healthcare is
accessed and delivered starting first by putting the patient at
the center of all that we do.
And with that, Mr. Chairman, I look forward to taking your
questions.
Mr. Moriartys written statement is available at
the Committee or on the Committee Repository at:https://
docs.house.gov/meetings/JU/JU05/20180227/106898/HHRG-115-JU05-
Wstate-MoriartyT-20180227.pdf Mr. Marino. Thank you, Mr.
Moriarty. Mr. Sabatino?
STATEMENT OF THOMAS SABATINO, JR.
Mr. Sabatino. Mr. Chairman, Chairman Marino, Ranking Member
Nadler, Ranking Member Cicilline, and the other Members of the
subcommittee, thank you for giving me the opportunity to
testify today about our efforts to improve the consumer health
experience. Aetna serves 22.2 million medical members through
our commercial Medicare and Medicaid products. And our nearly
50,000 employees are committed to helping our members achieve
their best possible health. The acquisition by CVS is the next
step in that journey to put consumers at the center of their
care. And I am pleased to be here today to describe how we are
going to do that.
Todays healthcare system is designed to fix people
when they are broken, not keep them healthy throughout their
lives. For decades, the system has focused on delivering new,
clinical capabilities. But, research now shows that 60 percent
of the factors impacting premature death have nothing to do
with the care that people receive in a doctors office
or in a hospital, or with their genetics.
The current system has taken a very narrow perspective of
health that largely ignores the social, environmental factors
that play a critical role in overall well-being. Aetna is
joining with CVS Health to fortify the healthcare system.
Together, we will work to create a value-based system that
aligns with the goals of the physician payment reform passed by
Congress 2 years ago, commonly known as MACRA.
We want to reward healthcare providers based on patient
outcomes instead of a greater volume of services and work with
our members to improve the social and environmental factors
impacting their health. We will develop the system by focusing
on the consumer; making healthcare simpler and easier to use.
Our new company will learn about our members
individual health goals and connect them to the tools,
information, and resources they need to achieve a lifetime of
wellbeing.
This is not something Aetna can achieve on its own. To
fulfill our shared vision for a value-based and consumer-
focused experience, we need to have a significant presence in
the communities where our members live. That is why our
combination with CVS is so compelling. We plan to combine CVS
Healths extensive retail footprint with
Aetnas health plans, analytical capabilities, and our
extensive network of medical professionals.
Together, we will create a new, consumer service modelin
the local community that enables us to learn about the health needs and
ambitions of our members. We will then connect our members to relevant
resources, including healthcare providers or community organizations,
that can improve the social and environmental factors affecting health.
We understand the important relationships that consumers
have with their physicians and other healthcare providers. Our
new company will not replace this valuable relationship.
Instead, we will work closely with local providers to help
consumers achieve their personal care plans. For example,
providers could encourage members to make regular visits to
their local CVS store to get advice on fitness, on nutrition,
on managing their medications.
We could also perform routine tests and share those results
electronically with the members primary care
physician. I want to remind the committee that this is a
vertical transaction, with no significant overlap in our
existing businesses. The vast majority of CVS Healths
revenues come from retail pharmacy and pharmacy management.
Aetna, on the other hand, is focused on health insurance
and does not have a retail footprint in any of the communities
we serve. It is also important to note that Aetna and other
insurance companies are among the most highly regulated
stakeholders within the healthcare sector. For example, in the
bulk of our business, we are required to pay rebates to our
customers if the proportion of premium revenues spent on
clinical services and quality improvement is less than 85
percent. The remaining funds go towards all of our costs of
doing business, including our investments in innovative
healthcare solutions.
So, in conclusion, the Aetna and CVS health transaction
brings together two innovative businesses in a sector that
needs to change. The new company will offer a local experience
that is simpler to use and build around consumers. Our value-
based model will help consumers receive higher quality, more
affordable care, while also addressing the social and
environmental factors that impact their health.
Thank you again for the opportunity to testify, and I look
forward to addressing any questions you have.
Mr. Sabatinos written statement is available at
the Committee or on the Committee Repository at:https://
docs.house.gov/meetings/JU/JU05/20180227/106898/HHRG-115-JU05-
Wstate-SabatinoT-20180227.pdf
Mr. Marino. Thank you, Mr. Sabatino. We will now begin with
the Members 5 minutes of questioning. And I will
recognize myself to begin the questioning. Mr. Moriarty, you
mentioned in your opening statement the opioid epidemic, could
you please tell me what you plan to do to help bring this
epidemic to its knees and what the lateral merger would do,
overall.
Mr. Moriarty. Mr. Chairman, there is no question the opioid
epidemic touches everywhere across this country. Over the last
several years, I have traveled around to all the communities
that we serve in our current operations. We have begun a very
large initiative where we are placing drug disposal units in
each of our pharmacies; 750 across the country.
Each time we go into these pharmacies I talk to the local
police chiefs as to what they are dealing with. And one, in
particular, in Wilmington, North Carolina, the night before
that we actually did the drug disposal event, there were two
overdoses just one block from our pharmacy. So, there is no
question it touches everywhere. It knows no economic, social,
or other bounds.
What we have been doing as a company, and we will continue
to do and leverage through the combination with Aetna, is we
have been able to put into a plan design that actually limits
the amount of a first fill for an opioid-naove patient to 7
days. Working with physicians directly, consistent with the
recommendations for the Centers for Disease Control to limit
the availability of those first fills as they go out the door.
We have made substantial investments in counseling with
school kids, both at middle schools and high schools, having
our pharmacists go back into the communities to educate them on
the danger of just simply one bad choice. All those efforts
will continue, and as we are better able to integrate the data
with Aetna, we can work much more directly with the prescribing
physicians to get our practices to change those practices to
educate the physicians about the dangers of over-prescribing
and really get at this.
This is a multifaceted problem. It will not go away
quickly, and it is going to take multiple-pronged solutions to
get at it.
Mr. Marino. Thank you. Mr. Sabatino, would you like to
respond?
Mr. Sabatino. Sure, I would add just a couple of things.
First of all, I will echo what Mr. Moriarty said about the 7-
day prescription that we will only pay for 7 days for the
initial prescription, as well. So, we are in concert with that.
A couple of other things I would note that Aetna has done.
We have identified the high-prescribing physicians and going
after them. And, first of all, trying to educate them as to the
fact that they are high-prescriber physicians; sometimes they
are not fully aware of it. Understanding who they are. In some
cases, for example, if you are an oncologist that may be
appropriate. But, in other situations, it is not appropriate.
And we will stop paying high-prescribing physicians when we
think there is abuse. And we will work through that.
The other thing we are doing, for example, believe it or
not, dentists have a high number of high-prescribing dentists
in that network. So, when we identify that, we are trying to
find ways to get non-opioid pain medication to patients that
need it following, say, oral surgeries or something like that.
So, we are trying to work with our enormous network of medical
professionals to get at those issues.
Mr. Marino. I am a former State and Federal prosecutor and
what you two just said, I do not think I can hear anything
better during this hearing. Thank you so much for what you have
said, and I hope you really put that into effect.
Mr. Sabatino, I represent a rural district in Northeast
Pennsylvania that has many independent pharmacies. What affect,
if any will this merger have on independent pharmacies for my
constituents?
Mr. Sabatino. Mr. Chairman, we believe that it will not
impact independent pharmacies. Aetna now contracts with 65,000
pharmacists around the country to satisfy our network. We will
have an open system that continues to provide for that. For us
to be competitive, we need to provide the breadth of coverage
for all of our members to be able to access healthcare. And so,
we do not believe that it will impact the individual
pharmacists in any significant way.
Mr. Marino. Mr. Moriarty, would you like to respond to
that?
Mr. Moriarty. I would, sir. And I think, actually, it
offers us a real opportunity to sort of change and further
evolve the role of the pharmacists, both in rural communities
and other areas. Eighty percent of the issues associated with
healthcare costs today are behavioral in nature. That contact,
that point of reference, that point of engagement that
pharmacists have is real. Pharmacists are one of the most
trusted professionals in the healthcare community.
We can, and we should, look to much more of a value-
oriented system that rewards pharmacists for that activity, as
opposed to just simply for dispensing. And, many Members of
this Committee, have supported efforts to bring provider status
into Medicare to acknowledge the significant role that
pharmacists can play in lowering total healthcare costs by
beyond just simply prescribing, but working directly with
patients. And we applaud the Members who support that. And we
need to continue to make that happen.
Mr. Marino. I think pharmacists are one of the most
important tools that we have to address this opioid epidemic.
Not the only tool, I mean, we have to talk about physicians; we
have to talk about manufacturers, distributors, education, the
whole nine yards. But, I am very pleased with what you have to
say, and my time has run out. And I yield to the Ranking Member
of the Subcommittee, Mr. Cicilline from Rhode Island.
Mr. Cicilline. Thank you, Mr. Chairman. Thank you again to
our witnesses. First, I would like to ask the witnesses, and we
will begin with Mr. Moriarty, I think everyone recognizes that
access to preventative care is really essential in terms of a
restructuring of our healthcare delivery system.
I wonder if you would just speak a little bit on what this
transaction might mean in terms of--and Mr. Sabatino, as well--
what it might mean in terms of access to preventative care; how
it may be enhanced by this proposed merger.
Mr. Moriarty. Certainly, sir. I think, you know, just high
level, statistically, 62 million Americans do not have access
to adequate primary care. We have our MinuteClinic business, we
know that 50 percent of folks who visit MinuteClinics do not
have a primary care physician. Oneof the things that we do, is
we go into the primary care community in which we are placing a
MinuteClinic and ask if they are taking referrals; doctors are taking
referrals, and if they are, we put them on a list. So, if a patient
comes into MinuteClinic says I do not have a primary care physician, we
emphasize the need to have one, and actually connect them with that
primary care physician.
The other thing we know is, primary care, a lot of times,
is being sought out when it is not available in regular
business hours; 50 percent of the visits at MinuteClinic are
nights and weekends when core primary care is not available.
The ability to extend out and have available primary care at
off-hours, at times when it may not otherwise be available,
that is clearly something we can build out even more so with
Aetna. And we, once we develop those solutions, can make them
available more broadly into the marketplace as Aetna actually
implements those with other providers outside of CVS.
Mr. Cicilline. And, I take it, Mr. Moriarty, that the model
provides some of the efficiencies and cost savings that are
worked out in that relationship to be passed on to the
consumer?
Mr. Moriarty. Absolutely, because if you look, Congressman,
roughly one-third of emergency room visits are unnecessary; the
emergency room visit for that individual, who has to pay out of
pocket for it, is huge. The average MinuteClinic visit is
roughly 75 to $80 versus 600 to $800 for the patient.
Mr. Cicilline. Thank you. Mr. Sabatino?
Mr. Sabatino. Yes, and I would agree with my colleague, and
just add a couple of additional points. From Aetnas
perspective, the exciting aspect of this combination is that we
have a small presence in the community but working with CVS we
will now have a much larger presence. The social and
environmental determents of health are impacting health in ways
that we are just beginning to understand. And so, we need to
get to the local communities and interact with the individuals.
And we can do that best through the doorway that CVS provides.
We also need to go beyond that; and we will go beyond that
by going to the home. And so, we have a pilot program with
Meals on Wheels, where we have trained Meals on Wheels
volunteers, when they go in the home, to look for other
determents of issues. Like, do they have food in the
refrigerator, is the heat on, and those sorts of things, so
they can report them back and we can then have an intervention
to make sure people stay healthy. As Mr. Moriarty mentioned,
keeping people healthy is the best way to save the healthcare
system money and to make people happier and have a longer life.
Mr. Cicilline. Thank you. And, Mr. Moriarty, some have
raised concerns that if this transaction is approved, it may
increase the incentives and ability of CVS to foreclose rivals
or steer consumers such as Aetna enrollees to CVS pharmacies,
and you and I spoke about that. Maybe you could explain how
that will be operationalized or prevented.
Mr. Moriarty. Sure, so a few points, Congressman, on that.
First off, if you look Aetna today, because we are the service
provider to Aetna, represents roughly 11 to 12 percent of
CVS revenue. The other 89/88 percent sits with other
health plans; other employer groups, et cetera. If we sought in
any way to foreclose, availability to all the services and
creations that we are going to make here as part of this to the
rest of the market, we would have so much more to lose then we
would to gain in that regard.
The other thing I can give you is one very tangible example
in Medicare Part D. CVS has their own Part D Plan SilverScript.
We have innovative, we have invested very heavily in that, and
we have provided great member satisfaction for that. But at the
same time, we are the service provider to some 43 other Part D
plans run by other health plans.
And we have made available all of the innovation and
SilverScript to those plans and 83 of the plans that we service
outside of SilverScript have a four or five star rating, which
are the highest ratings CMS will give to a health plan
associated with quality of service, adherence, member
satisfaction, and the like.
So if you look at just simply the SilverScript example as
one and then others across our business, the risk of
foreclosure, we feel really does not exist and in fact the
economic interest would argue very strongly that it simply
cannot happen.
Mr. Cicilline. Thank you. With that, I yield back Mr.
Chairman.
Mr. Marino. The Chair recognizes Congressman Issa, from
California.
Mr. Issa. Thank you, Mr. Chairman. Mr. Moriarty, beforehand
I walked up to you before this started and said, [How is this
trust going to work?] And I did so because clearly this is a
vertical integration.
But what I find interesting and I just want to go through
it quickly and then ask a couple of questions is, it is a
pretty inaccurate vertical integration. You are buying a
convenience store with a pharmacy hooked to it. Your 11 percent
relationship between CVS and Aetna is certainly not all the ore
of the northeast, or the central area being brought up for a
given group of steel mills.
So, the synergies are pretty imperfect in the sensethat
these are not, you know, 88 percent, and you are bringing it together.
And it reminds me of the United Airlines buying the Weston hotels. And
everyone was doing it for a while. It was called synergies.
Now, it is your companys decision and your
stockholders decision about whether this is a good
decision or not. But would it not be fair to say that this is
at least an experiment in whether or not you can use the
synergies in a way that not only give you efficiencies with
this 11 or 12 percent, but then can turn into novel ideas to
work with other groups?
Mr. Moriarty. It is a transaction, Congressman, that we
feel is based on some known facts in terms of our own
experience to date. So, for example, we know that transitions
in care from a hospital to home, and the lack of the proper
coordination of pharmacy associated with that is one of the
single biggest indicators of readmissions back into the
hospital.
Roughly 70 percent of all readmissions is associated with
essentially bad pharmacy management in that. We have a business
that has home infusion, so it is infusions and therapies are
moved from hospital, where they cost roughly $340,000 a year,
to a lower cost home settings.
We have been able to work on those transitions, make sure
the medications are correct, and we have reduced
hospitalizations by some 24 percent in that instance. So, that
gives us a value proposition that we think that we can scale
with Aetna, create an even more marketable product, and sell
more broadly beyond simply Aetna and to other health plans and
other providers.
Mr. Issa. Now, a question for you is if Aetna were to
decide that you were going to be their exclusive vendor in
every through put servicer in every possible area where CVS has
the infrastructure to do so, then what portion would you get
that you are not currently getting from Aetna? Just ballpark
number: I am sure the figure has been run.
Mr. Moriarty. You know, I do not know it off hand. But I
think it would be a very small percentage. And the risk of loss
of so much other business would greatly outweigh any smaller
benefit that comes --
Mr. Issa. Well, Mr. Sabatino? If Walmart came to you the
day after this merger and said, [You know what, we are going to
set up our little mini-urgent care centers to meet or exceed
what they are doing over there at CVS,] and Walgreens did the
same thing, Rite Aid, you know, a list of names. After the
merger what would be your position if in fact they had the same
value proposition at additional storefronts? How would that be
affected by this integration?
Mr. Sabatino. Well, I think we would have to look at any
opportunity that we have to lower the cost of healthcare. We
service people around the country, and we need to find every
opportunity. We intend to have an open system that allows all
to participate in it. Because the ultimate goal is to find the
ways to get our members to find the right healthcare. And so,
the system needs to be open. It will not work otherwise. And we
will not be able to compete effectively against the other
manage care organizations.
Mr. Issa. Now, I am going to act as though there are no
insurers here for a moment and go back to Mr. Moriarty. In a
perfect world, would CVS become the household word for the
principal alternative, to emergency room? The place the people
who do not have a primary care physician that they can just
call in a concierges type way that will see them.
Would you envision that that is your goal? Is to be the go to
so that never again does somebody run to the emergency room,
because they do not know where else to go?
Mr. Moriarty. Well, the foundational elements of not only
MinuteClinic, but what we have done with primary care
providers, as well as the health systems is that it is not
replacement. It is a compliment. We cannot address every
condition in a MinuteClinic that needs to be addressed in the
emergency room. What we can do is do it --
Mr. Issa. But tens of thousands of flu cases you could?
Mr. Moriarty. Well, those acuity issues --
Mr. Issa. Yes.
Mr. Moriarty. Yes, we certainly can.
Mr. Issa. And finally, Kaiser, decades ago, integrated much
more than most insurance companies do today. Could one of you
contrast your proposal to theirs since it obviously did not
disrupt the market?
Mr. Moriarty. I will start, and Mr. Sabatino can add to it.
But I think more than anything, what is being built out here is
going to be an open source model. It will be made available not
just to Aetna members, but other health plan members, as well
as, to other pharmacies across - there are some 70,000
pharmacies in this country. CVS has 9,700, which is a lot. But
it represents a very small percentage of all that. The coverage
that is needed to cover all of America sits with those other
pharmacies. That has to be addressed as part of this as well.
Mr. Sabatino. And I would add that I think, obviously, the
Kaiser system is a closed system. Our system is an open system
and will remain open. And I think it demonstrates the fact that
our healthcare system is complex. And we need different models,
in different places, in order to attack the issues that we are
trying to address.
So I think there is a place for a Kaiser system in
theenvironment in which Kaiser operates. And there is the place in the
other systems like ours with CVS in order to address this issue.
Mr. Issa. Thank you, Mr. Chairman.
Mr. Marino. The Chair recognizes Congressman Nadler, the
Ranking Member with the full Committee from New York.
Mr. Nadler. Thank you, Mr. Chairman. Mr. Moriarty, in your
written statement, you argue that the proposed transaction will
benefit consumers and lower healthcare costs through greater
deployment of community-based care via the CVS healths
MinuteClinic services, and you talked about that. Will these
efficiencies achieved by the transaction be passed on to
consumers in the form of lower prices for healthcare services
or prescription drugs? And how do we know that?
Mr. Moriarty. Well, the answer is yes, sir. And the way it
will be, is as we can lower the total cost of care it will be
reflected--and Mr. Sabatino can comment on this better, he is
more the expert--ultimately in lower premiums. What we can do
as well, whether it is MinuteClinic or what we do today in our
core pharmacy business, is the better use and better efficient
use of generics over branded pharmaceutical products. Lower
copays associated with that.
At CVS as an employer, in our plan design we saw the impact
of higher cost drugs on our employees. We saw utilization of in
key categories of diabetes, cardiovascular, the utilization,
use of those by our employees go down. We decided to do,
implement a plan design of zero copay associated with generics,
but also branded products in those key categories like diabetes
and otherwise, because we know that the use of pharmacy
adherence to pharmacy is critical to longer term healthcare.
And what we have seen as a result of that, is actually
better utilization on our employee base and a healthier
population as a result. And that gives us a lot of comfort and
a lot of instruction as we go forward working with Aetna as we
put this combination together.
Mr. Nadler. I am not sure I understood your answer. You
have done a lot of nice things. But how do those lead to the
conclusion that the efficiencies achieved by the transaction
would be passed on to the consumers?
Mr. Moriarty. It, ultimately, in the sense of what the
consumer will pay can be reflected either in the form of a
lower premium for the insurance that they are buying or,
ultimately, for what they are paying at the pharmacy counter.
Mr. Nadler. And how do we know that it would be?
Mr. Moriarty. I am sorry, sir?
Mr. Nadler. You said, [can be.] How do we know that it
would be?
Mr. Moriarty. Well, that is what we will deliver as part of
this. If we can lower cost, maybe Mr. Sabatino can comment on
how the model works?
Mr. Sabatino. Yes.
Mr. Nadler. I have got questions for him. So, let me travel
on to that. I will ask this of Mr. Sabatino, Mr. Moriarty may
also want to comment. Professor Lamar Daphne, a leading
healthcare economist recently argued that in the absence of
this transaction, Aetna could have been a potential entrant in
some business segments in which CVS currently operates such as
entering the market for pharmacy benefit management. How would
you respond to that?
Mr. Sabatino. Thank you for the question. We have gone
through an analysis. We went through analysis several years ago
looking at how we would have our PPM services, for example.
Should we create our own PPM company or do other things? In the
course of that we looked at all options and we came to the
conclusion that the best solution for us, given our skill sets,
was to contract with CVS for those PPM services because they
were an efficient and effective provider of those services.
In the meantime, we focused on the things we can do more
effectively around managing medical costs and driving down the
total cost of care. And, in terms of the drug issue, just to
address that very quickly, you know, we have a shared goal in
keeping drug costs down. We benefit our members by keeping our
costs down. Those are passed on in premium reductions and
increasing benefits for the members. That is how we operate our
business. When we are able to save costs, they get passed on,
and we are able to lower the cost of care.
Mr. Nadler. Okay, and Mr. Slover is going to testify on the
second panel, argues in his written testimony that there is a
horizontal dimension of the proposed transaction which is that
Aetna would essentially, [get its own in-house PBM,] and
outcome it could also achieve is a potential competitor in the
PBM market. How do you respond to concerns that the proposed
transaction harms potential competition in the PPM market?
Mr. Moriarty. I can start and then Sabatino can add to it.
Congressman, no player is leaving the field here. In the sense
of there is no PBM competition. We are the service provider
today for Aetna from a pharmacy benefit management prospective.
And so, there will be no consolidation at the PBM level. There
is a ripe competition today. We have anywhere from eight to 15
substantial players in the PBM market. We see a robust,
competitive environment in that regard. So, I do not see how
this combination impacts competition in the PBM space.
Mr. Nadler. Thank you. In the 17 seconds I have left, let
me ask for a brief answer to one final question. This is for
Mr. Sabatino. What assurances can you give this transaction is
approved that CVS will not provide favorable treatment to Aetna
over rival insurance companies? Maybe it should be Mr.
Moriarty, whoever.
Mr. Sabatino. Because we need to stay competitive. We have
a very competitive market place. We have other competitors in
this space that are also looking to manage their costs down and
we will have to do that in order to be a viable player in this
industry.
Mr. Nadler. Thank you, my time has expired. So, I yield
back.
Mr. Marino. The Chair now recognizes Congresswoman Handel
from Georgia.
Mrs. Handel. Thank you, Mr. Chairman, and thank you both
for being here today. For Mr. Moriarty, could you give us just
a more detailed example or detailed vision of what sort of the
post-merger MinuteClinics are going to look like with the
expanded services that you will offer there?
Mr. Moriarty. Certainly, Congresswoman. I think if you look
what we will be looking at doing is expanding the scope of
services, consistent and better complimenting the primary care
within the communities we serve. So, there will be gaps,
potentially in primary care, in certain communities that do not
exist elsewhere. We can actually modify the services provided
at MinuteClinic to help fill those gaps. We will have much
better coordination and further investments and coordination
with those primary care physicians.
So, for example, we have made a very significant investment
in Epic which is an electronic medical record system that will
allow each of the visits that folks seen at MinuteClinic to go
back to their primary care physician or to the health system in
which that patient is associated. So, we avoid fragmentation in
care. You will see a much more clinic approach to MinuteClinics
as we go forward as well. And I think those are probably the
highlights of how we will move forward in that area.
Mrs. Handel. If I can just follow up on that. You keep
saying, [expanding services.] And so, I am looking for
specifically --
Mr. Moriarty. Sure.
Mrs. Handel.--is it going to be more of a full scale, the
way the neighborhood sort of urgent care clinics work? Which
are not really urgent care anymore. They are, just they are
open late, and we can go there, like that? Or, something scaled
down?
Mr. Moriarty. For example, so today, Congresswoman, the
MinuteClinics address roughly 40 to 45 percent of what can be
done at primary care. We envision over the next year or so that
we can expand that to about 90 percent. It will not involve
having X-rays or the ability to fix broken bones or things
along those lines. But it will be much more the acute
conditions that you will see; the ear infections, eye
infections, skin abrasions, other things, flu.
And perhaps more importantly, chronic care management. As
diabetes becomes more and more of an issue, the ability to
interface with patients on a much more regular basis to ensure
they are compliant with their A1C testing, taking their
medications. That chronic care counseling will become a very
big part of what we do going forward.
Mrs. Handel. Okay, great. Thank you. I wanted to talk a
little bit about lower prices. There were some recent media
reports suggesting that Caremark had recently slashed
reimbursements for generic prescriptions to the independent
pharmacies. My question is less about that, and more about were
those lower prices passed on to consumers in keeping with Mr.
Sabatinos comments about passing along cost savings to
consumers? How is that going to work so that consumers really
do see a competitive lower cost outcome from this?
Mr. Moriarty. That is a great question, Congressman. Let me
start to take a step back, because I think if we look at
reimbursement at the retail pharmacy level, there is incredible
pressure there for a lot of different reasons. I think one of
the single biggest things that is happened over the last two
years is the changes in reimbursement for Medicaid.
So, changes were made roughly in 2016 and have taken some
$600 million in reimbursement from retail pharmacies out of
Medicaid. Savings to CMS, savings to the Medicaid program.
Those are significant cost impacts and headwinds that retail
pharmacy is bumping up against. That has had a natural drag on
pressure in the commercial world as folks have seen those
rates, there is been a lot of pressure from our employer,
clients, and others who are looking to save money.
I feel very strongly that we solve for this longer term, is
we have a new model for pharmacists where much more of the
professional skills they bring in terms of the ability to
counsel patients, work with patients on chronic conditions and
otherwise is acknowledged and reimbursed, not only by the
Federal Government, but also by commercial payers. And we
fundamentally believe as we put these models together, we can
see the value of that showing up in medical costs. We can
create new reimbursement models for pharmacists as we go
forward.
Mrs. Handel. And has the response or the input from the
pharmacists, what has that been? Pro? Con? Inbetween? Wait and
see?
Mr. Moriarty. Well, actually interesting, today the
National Community Pharmacy Association which represents the
independent pharmacist stated that they had no position on the
merger.
Mrs. Handel. That is interesting. Okay. Thank you so much.
I appreciate it. Mr. Chairman, I yield back.
Mr. Marino. The Chair recognizes Val Demings from Florida.
The newest Member of our Judiciary Committee and our
Subcommittee. And we look forward to your input. So, welcome.
Ms. Demings. Thank you so much, Mr. Chairman, and thank you
to both of you for being here with us today. I think you have
both said that healthcare is complicated and that is an
understatement. Certainly, we need to expand care and lower
cost. Could each of you please tell me how the proposed
transaction will benefit more underserved communities?
Mr. Moriarty. Yes. I can start. I think, Congresswoman, as
you look first and foremost it will take the form of what we
can offer within not just our pharmacies, but how we can extend
that to other pharmacies. We know in certain areas that, from a
behavioral standpoint and from just social determinants, that
where you live has as much to do with your healthcare and your
health outcomes as any other factor.
We can extend and push care, not just physically, but also
through telemedicine and other related capabilities that we
will be able to invest in as part of this transaction. Those
are things we are doing today. Those are things we will
accelerate as we go forward with Aetna.
Mr. Sabatino. Yes, and let me start by saying that I think
we all recognize that not only is healthcare complicated, but
the status quo is unacceptable. We are not able to provide
healthcare to everyone in an effective way and we are working
to do that. We believe that by getting to our communities, by
becoming much more locally focused on people and their issues,
we can get at those social determinates of health that are
affecting it.
Mr. Moriarty alluded to this. Our CEO is famous for
saying--not famous. I do not know if he is famous or not. But
he will say, [That today we now recognize that our zip code
matters more than our genetic code] in terms of whether or not
our health outcomes. So, we need to get into those communities.
This transaction allows us that opportunity to do that. It
allows us to get where the people are in every community in
which we operate. And so, we think that is the best way to get
at increasing the health of individuals and reducing the costs.
Ms. Demings. And some antitrust experts express skepticism
about the merger being necessary to expand services. Could you
tell me why this merger is necessary as opposed to a
contractual relationship?
Mr. Moriarty. Again, I can start, and Sabatino can add to
it. We start with the very proposition of we have a $3.2
trillion healthcare budget in this country. We know the data
suggests that one-third is not being spent appropriately, may
even being wasted.
So looking at solutions as to how we get at that. Whether
it is unnecessary emergency room visits, lack of compliance,
lack of people taking their medications as prescribed by the
doctors costs $300 billion each year. There is a fragmentation
in the system today where the primary care doctor will
recommend that you do X, Y, and Z and that is not being
followed through on.
Our ability to integrate the data that Aetna has in terms
of it is medical records, with our touch points at the
pharmacists can lead to a much more connected care management
system that we think will make a real difference.
It will also allow us to extend things like we are doing
today with the Veterans Administration in Phoenix. As
we have looked at what is happening at the VA, we have been
able to extend MinuteClinic services to those veterans to
triage conditions that can be seen at MinuteClinic. Reduce the
back log at the hospitals that are in the VA systems, get the
veterans the care they need for what we can take care of, and
only those who truly need to be back in the VA system actually
go there. These are all examples of things that we can extend
and accelerate when we put the combination together.
Ms. Demings. Thank you.
Mr. Sabatino. And I would just add that from
Aetnas prospective, CVS has the doorways that we need
to go to. We do not have those doorways today. We have the
analytics. We have the medical professional network that we can
link in with the system, and we cannot fully integrate those
unless we are actually one part, part of one combined company.
Our data analytics will fuel that, but it needs to be as part
of a single entity for us to really get to the true value that
is able to be captured Ms. Demings. And finally, could you talk
just a little more about, kind of, the guarantee that you will
not force your consumers to use one or the other because you
need to remain competitive. Could you just talk a little bit
more about how that makes you more competitive?
Mr. Moriarty. Sure, I can do that.
Ms. Demings. Allows you to be more competitive than the
other way.
Mr. Moriarty. That is right. And, ultimately the model is
we will want them to come. We cannot force them to come. And,
in fact, if we look at our broad customer base at CVS and the
number of companies we provide services for, if we try to
restrict these only to Aetna, we would lose so much other
business that we are just simply cannot do that as part of our
model. So, what we have built today, and we will continue doing
is offering and developing services made available across the
healthcare spectrum. Not limited to any one company or to only
one group.
Mr. Sabatino. And I would just simply add that for us to
continue to serve our customers, school, unions, corporations,
we need to be able to provide access to a retail pharmacy
wherever they may be and a large number of those. So, it is
imperative that we keep our network wide and broad in order to
continue to provide those services.
Ms. Demings. Thank you so much to both of you. Mr.
Chairman, I yield back.
Mr. Marino. Thank you. Seeing no other Members on the day
as for questions, this concludes the first panel of our
hearing. I want to thank our witnesses. Gentleman, your
testimony has been very encouraging. I think I speak on behalf
of Mr. Cicilline, particularly pursuant to some of the
legislation and issues on which we are working, thank you very
much. You are excused.
Mr. Moriarty. Thank you for the opportunity. Mr. Marino.
And it is time now we will call the second panelfor
todays hearing. I will begin by swearing in our witnesses
before we introduce them. So would you please stand and raise your
right hand? Do you swear that the testimony that you are about to give
before this Committee is the truth, the whole truth, and nothing but
the truth, so help you God?
Let the record reflect that the witnesses have confirmed in
the affirmative and may be seated.
I will now introduce all of the witnesses before we go into
your individual statements. And if I mispronounce your name,
let me know.
Dr. Craig Garthwaite is the Herman R. Smith research
professor in hospital and health services management and the
Director of the Health Enterprise Management Program at
Northwestern University, Kellogg School of Management. His
research focuses on a variety of issues related to the pricing
and development of pharmaceutical products and the effects of
the changing healthcare market on the operations of hospitals
and other healthcare providers. Dr. Garthwaite has a bachelors
and masters degree from the University of Michigan and
a Ph.D. in economics from the University of Maryland. Doctor,
welcome.
Dr. Lawrence Wu is an economist and president of NERA
Economic Consulting. A global firm of experts in economics,
finance, and statistics. Dr. Wu specializes in health economics
and antitrust. And over the past 25 years he has analyzed the
competitive impact of scores of mergers across the healthcare
industry.
From 2011 to 2015, he was a visiting scholar at the
Stanford Institute for Economic Policy Research at Stanford
University. From 1992 to 1996, before he joined NERA, he was a
staff economist in the Bureau of Economics of the Federal Trade
Commission. Doctor, welcome.
Mr. George Slover is a senior policy counsel at Consumers
Union, the advocacy division of Consumer Reports, where he
works on competition policy, regulatory policy, and other
consumer protection policy issues. He has authored numerous
comments on agency rulemakings, has testified before Congress
on several antitrust and competition policy matters, and has
assisted with the drafting of a number of bills. Before going
to Consumers Union, he worked in the legal policy section of
the Justice Departments Antitrust Division, as well as
at the House Judiciary Committee, where he was again focused on
antitrust issues. He holds a JD from the University of Texas
Law School and a Master of Public Affairs from the LBJ School.
Counselor, welcome.
Mr. Geoffrey Manne is the founder and Executive Director of
the International Center for Law and Economics. A nonprofit
research center based in Portland Oregon. He is an expert in
law and economics with two degrees from the University of
Chicago; a BA in economics and political theory and a JD. And
he is the son of Henry Manne, one of the founders of Law and
Economics and former dean of George Mason Law School.
He was a law professor at Lewis and Clark Law School in
Portland, a lecturer in law at the University of Chicago and
the University of Virginia and worked as a research assistant
for Judge Richard Posner. Jeff has written extensively on
antitrust law and economics, particularly on vertical mergers
and on merger issues in the healthcare and health insurance
industries. Welcome, Counselor.
Each of the witnesses written statements will be
entered into the record in its entirety. And again, I ask that
when you make your statements, please try to keep them within 5
minutes. And as you heard, you will see that there is a timing
light. And when the green light goes to yellow, you have 1
minute, and when it goes to red, your time has run out.
And as I say, I will be very polite and diplomatic. If you
excessively run over, I will just raise the hammer a little bit
to give you an idea that it is time to wrap up. So, with that
in mind, Dr. Garthwaite, would you like to make your opening
statement?
STATEMENTS OF CRAIG GARTHWAITE, ASSOCIATE PROFESSOR OF
STRATEGY, DIRECTOR, HEALTH ENTERPRISE MANAGEMENT PROGRAM,
KELLOGG SCHOOL OF MANAGEMENT, NORTHWESTERN UNIVERSITY; LAWRENCE
WU, PRESIDENT, NERA ECONOMIC CONSULTING; GEORGE SLOVER, SENIOR
POLICY COUNSEL, CONSUMER UNION; AND GEOFFREY MANNE, EXECUTIVE
DIRECTOR, INTERNATIONAL CENTER FOR LAW AND ECONOMICS
STATEMENT OF CRAIG GARTHWAITE
Mr. Garthwaite. Chairman Marino, Ranking Member Cicilline,
Ranking Member Nadler, and Members of the Subcommittee, thank
you for holding a hearing examining the merger between CVS
Health and Aetna and the potential implications of vertical
mergers of this nature. As you have said, I have prepared a
written statement for the record that I will briefly summarize
here today.
First, I would like to clarify for the Committee that I
have not been in contact with any representatives of either of
the organizations, nor do I have access to any propriety
documents relevant to the merger. Therefore, my testimony is
primarily intended to highlight the broad economic incentives
involved with a merger of this nature. As such, it is also
generally relevant to other similar combinations of assets we
see in the market, such as those with United Health Group with
its United Healthcare and Optum divisions.
The proposed merger, as you mentioned, is primarily a case
of vertical integration, a situation where a firm and either
its customer or supplier attempt to organize into a single
entity. Such strategies involve effectively abandoning the
broader supplier market in favor of an internal supplier, and
they are often met by with skepticism by economists and
strategy professionals, a skepticism that stems from our
knowledge that well-functioning economic markets allow firms
such as Aetna and CVS to obtain the best price quality
combination for various inputs and services.
That said, we also know that firms often do not face the
well-functioning and efficient markets that inhabit many
economic textbooks. In fact, features such as the presence of
incomplete information, uncertainty, meaningful transaction
costs, decreased market efficiency, and facing those imperfect
markets, strategic vertical integration can increase social
welfare.
And concerning the merger of CVS Health and Aetna, I can
identify three primary rationales for how vertical integration
could increase social welfare in this context. First, the
proposed merger may allow a better coordination of the various
components of the health insurance benefit. Often, medical and
pharmacy insurance benefits that we receive are provided by
different firms, each of which is naturally focused on
maximizing its own profits. For example, a PBM rarely bears
risk for medical spending, and thus primarily focuses on how
its decisions on copays and which drugs to cover affect drug
spending rather than total health spending.
The potential inefficiency is easiest to consider for
something like the treatment of diabetes, where a PBM aims to
minimize drug spending, while a firm responsible for total
health spending realizes that diabetics who were not adherent
to their medications result in future inpatient
hospitalizations that are costly for society.
A merged CVS-Aetna would have both the incentives and the
information to offer this more coordinated benefit that
considers these spillovers. That would be good for consumers,
because such a benefit both increases health and lower
healthcare spending.
A second potential source of value creation is addressing
inefficiencies in the existing PBM market. While there are many
complexities to drug pricing, at a high level, payors such as
an employer pay a publicly available list price to a
pharmaceutical firm. They then hire PBMs to do, among other
things, negotiate rebates from that list price, and then those
rebates are shared to the firm and the PBM keeps some portion
of it as well.
In a well-functioning supplier market, PBMs would compete
for a payers business until the appropriate amount of
the rebate was transferred. But the PBM market does not appear
to be as competitive as we would like, and is, in fact, quite
concentrated. As a result, PBMs and pharmaceutical firms have
an incentive to increase list prices and the size of the rebate
in an attempt to capture value for themselves.
My research suggests that in the current PBM market, both
of these firms are benefitting from higher drug prices. This
increases premiums and forces customers to pay directly higher
prices at the pharmaceutical counter. But a merged CVS-Aetna
would not have a similar incentive to raise these list prices
for its insurance customers, since this would decrease the
profitability of the merged firms insurance product.
And a final source of potential value creation stems from
the provision of medical services in new lower cost settings.
And we heard both of the general counsels talk a lot about
that. A merged CVS-Aetna could provide the appropriate
incentives for more care to be provided at low cost locations
such as CVSs chain of MinuteClinics. Currently, when
CVS picks the services they offer at those clinics, they focus
on maximizing retail revenue. They do not focus on services
such as chronic disease management for diabetes, and COPD, and
other conditions. That would benefit customers and society
through a reduced future health expenditure but would not be
directly profitable for CVS as a standalone pharmacy.
CVS does not invest in those services because it is worried
its investments will be captured by another firm such as a
health insurer, an economic concept we refer to as [hold up.]
However, a merged CVS-Aetna would make those investments,
because it would know that some portion of the merged firm,
either the insurance arm or the pharmacy arm, would benefit
from the future reduced savings and the increased rates of
revenue. It would be beneficial both for consumers and for
society.
Despite the potential for value creation, it is still
possible the value will ultimately be kept by CVS-Aetna rather
than the consumers. How the value is ultimately distributed
hinges on whether there is sufficient competition in the health
insurance market. Without competition, the merged firm has
little incentive to return the value it generates back to
consumers in the form of lower premiums.
However, if there is not sufficient competition in
insurance markets, policymakers have tools to regulate the
future profits of the firms. Note that this is not an option if
the value creating activities from the merger never occurs in
the first place.
Overall, there are many potential economic avenues whereby
this merger would increase value. At a minimum, we know the
healthcare market is evolving. Given this fact, we should not
imagine that the existing firms have the right combinations of
assets and activities to succeed for this newly emerging
market. And this merger appears to be one attempt of an example
of two firms that are undertaking to address this fundamental
reorganization of healthcare. I thank the Committee for having
me here today, and I welcome any questions you may have.
Mr. Garthwaites written statement is available at
the Committee or on the Committee Repository at:https://
docs.house.gov/meetings/JU/JU05/20180227/106898/HHRG-115-JU05-
Wstate-GarthwaiteC-20180227.pdf Mr. Marino. Thank you, Doctor.
Dr. Wu?
STATEMENT OF LAWRENCE WU
Mr. Wu. Chairman Marino, Ranking Member Cicilline and
Members of the Subcommittee, I am pleased to appear before you
today to share with you a few observations on the proposed
merger, given my experience as an economist who has specialized
in healthcare antitrust.
I am Lawrence Wu. I am president of NERA Economic
Consulting. For over 25 years, I have had the opportunity to
analyze mergers and acquisitions across the spectrum of
healthcare services. I am proud to be affiliated with NERA, but
the views and opinions I express today are entirely my own. I
have not been retained by any party to evaluate the proposed
transaction.
Before I share my thoughts with you, let me tell you how I
approach transactions like the one we are discussing today. I
always start by asking how a proposed transaction is going to
improve consumer welfare. In the context of a healthcare
merger, this means I focus on whether the transaction is likely
to result in lower prices, an improvement in the quality of
healthcare provided to consumers, increased access to care,
and/or more innovation.
Transactions that lead to such benefits would be called,
[procompetitive.] Transactions that lead to the opposite
outcome would be called, [anticompetitive.] This is the same
approach that the antitrust agencies take as well. So, with
that, here are three observations on the proposed transaction.
First, an important characteristic of this transaction is
that with the exception of Medicare Part D, prescription drug
benefits, the merger combines companies that operate at
different points along the pharmaceutical supply chain. This is
why many describe the transaction as a vertical merger as
opposed to a horizontal merger, which would be a transaction
that combines companies that compete in the same market.
This is important, because while vertical mergers can
sometimes raise competitive concerns, they also have the
potential to reduce costs and inefficiencies along the supply
chain, with the result being lower prices.
Second, the importance of MinuteClinics is in their ability
to deliver to patients the care they need in a more cost-
effective setting. Getting patients to the right place at the
right time is currently a major challenge in this country. To
give you an example, half of all U.S. hospital admissions come
through the emergency department, which is an expensive place
for doctors to figure out whether a patient needs to be
hospitalized or not.
This is a problem that insurers and providers and
healthcare systems have been trying to address for a long time.
If the proposed transaction can increase the use of low-cost
clinics for diagnostic care, or if it can facilitate the
expansion of these clinics, especially in areas where access to
outpatient care clinics or urgent care centers is limited, then
the proposed transaction is a big step forward.
Third, and my last observation, is based on my experience
seeing providers and insurers adapt and try new business models
in response to market changes in an industry that is highly
dynamic and innovative. Mergers and acquisitions have played an
important role in achieving these goals. The proposed
transaction is another example of innovation in action.
Clearly, there are many ways for insurers to get cost-
effective PBM services and ensure that their subscribers get
their medications at a low cost. And there are many ways that
providers can encourage patients to use low-cost clinics. Will
the merged entity be successful in accomplishing these goals?
Well, time will tell, and only time will tell whether the
combined firm will pass the market test.
The transaction has the potential to benefit consumers. I
am confident that the talented attorneys and economists at the
Antitrust Division are working hard to ensure that any
potential for competitive harm that they foresee is minimized.
If the Antitrust Division finds that the proposed transaction
has a low risk of competitive harm, then lets see what
innovation flows from the transaction and let the experiment
happen. Thank you for convening this hearing. I look forward to
answering any questions that you might have.
Mr. Wus written statement is available at the
Committee or on the Committee Repository at:https://
docs.house.gov/meetings/JU/JU05/20180227/106898/HHRG-115-JU05-
Wstate-WuL-20180227.pdf Mr. Marino. Thank you, Attorney Slover?
STATEMENT OF GEORGE SLOVER
Mr. Slover. Thank you. We have been working since our
founding in 1936 for a healthcare marketplace that brings
quality affordable care to all Americans. One key to making the
marketplace work for consumers is meaningful choice, from
effective competition, so consumers can shop around. That
motivates businesses to respond to consumers wants and
needs with more affordability and better quality, lest
consumers go elsewhere.
The healthcare marketplace is complex. Most costs are not
directly paid by the consumer, and the ways costs are
negotiated and shifted among various commercial actors are
often obscured. Active antitrust enforcement can help foster
competitive market forces in all parts of this marketplace,
from hospitals and medical practices to health insurers, to
drug makers, pharmacies, and pharmacy benefit managers.
The CVS-Aetna merger would combine two giants into a new
corporate structure, straddling more market sectors andcreating
new, far-reaching profit-maximizing incentives, impacting all those
parts. If CVS-Aetna finds it has new ways to bring down costs and
improve quality, what antitrust calls [efficiencies,] that can be good
for consumers and the economy. We have heard those explained today, and
that is the picture CVS and Aetna are painting. Some, or even most, of
that picture might prove to be accurate.
For example, encouraging Aetna policyholders to use a CVS
MinuteClinic for simple, routine care instead of a hospital
emergency room will cut expenses for Aetna. That might be
passed along in lower costs or improved service--might. It is
far from certain. For one thing, we would need transparency in
competition, so those on the receiving end are aware of the
savings upstream, and able to insist on a fair share or to go
elsewhere. Unlikely in our current healthcare marketplace.
What is more, efficiencies often turn out to be illusory or
exaggerated. And when they are real, they can often be achieved
without merging. Why does Aetna need a merger to encourage
policyholders to visit MinuteClinic instead of an ER? And we
could instead see reduced competition, which brings no benefit
except to CVS-Aetna.
For example, as we have heard today, CVS-Aetna might tell
Aetna policyholders they can go only to MinuteClinic, not to a
conveniently located walk-in clinic run by someone else, or
might direct them to fill prescriptions only at CVS; or to use
MinuteClinic for an expanded set of medical needs instead of
seeing their own doctor. Or CVS Caremark might negotiate
different, better prescription drug deals only for Aetna
insurance, or only for purchases at CVS. The black box
surrounding PBM back-end rebates and side agreements makes this
area particularly open to anticompetitive abuse.
CVS and Aetna said they would never do any of that. Maybe.
But this is not about what present intentions might be, or what
is happening now in the marketplace. It is about how incentives
and capabilities would be altered by the new, market-straddling
corporate structure.
Solo Aetna would encourage policyholders to use
MinuteClinics, but would also be fine with them choosing other
walk-in clinics. CVS-Aetna would see a trade-off--MinuteClinic
visit adds to profits; going elsewhere means profits forgone.
CVS-Aetna would probably still want to do business with those
other clinics, but the terms would be more restrictive.
This kind of merger is called [vertical,] because CVS and
Aetna do not compete with each other, they deal with each
other. We have heard about the differences in how you analyze
competition issues with these kinds of mergers. It has
sometimes been said, though, that vertical mergers cannot harm
competition. This is not accurate. The concerns I am describing
are squarely within established antitrust law. Forty years ago,
they were often being cavalierly dismissed in the so-called
[new thinking.] But our understanding has evolved and deepened.
The Justice Department is challenging the proposed AT&T-
Time Warner merger based on very similar kinds of concerns.
We do not prejudge the outcome of the investigation, but we
expect it to be thorough. And for the Department to take action
as needed to protect competition.
Genuine risks to competition will not be fixed by pledges
of good behavior. As Assistant AG Delrahim recently noted, that
unrealistically asks the merged company to make daily business
decisions that run counter to its profit-maximizing incentives.
Given the stakes, if the Department takes no action, we
will want to know why. Of course, if the Department takes
action, we will see a full explanation in the court filings.
Thank you.
Mr. Slovers written statement is available at the
Committee or on the Committee Repository at:https://
docs.house.gov/meetings/JU/JU05/20180227/106898/HHRG-115-JU05-
Wstate-SloverG-20180227.pdfMr. Marino. Thank you. Attorney
Manne?
STATEMENT OF GEOFFREY MANNE
Mr. Manne. Thank you, Chairman Marino, Ranking Member
Cicilline, and Ranking Member Nadler, Members of the
Subcommittee. Thank you for allowing me to testify before you
today. The overriding theme of my testimony is that the
proposed merger is a commendable effort by two industry leaders
to experiment with substantial reform of what, we can all
agree, is a beleaguered healthcare system.
I think it was interesting; one analyst talked about the
thinking behind the deal and said, [What if an entire array of
services was available at the pharmacy. Better yet, what if it
would cost less?]
The advantage is clear. Send the patients to the pharmacy
and free up the doctors for more pressing needs. Everyone
recognizes the urgent need to realign the healthcare industry.
But the extent of agreement that something should be done is
exceeded only by the extent of disagreement over what exactly
should be done. And I think it is difficult to overstate the
singular importance of private sector efforts to try new things
in the healthcare industry.
So, in that light, I look at this merger as not as a
combination tending to increase or concentrate economic power
in the existing industry structure, but as a step toward
reorganization of that structure itself in which we do not know
where the economic power will lie.
Amidst the typical antitrust concerns about industry
concentration or foreclosure, it is often missed, I think, that
changes in technology, changes in demand, experimentation with
new ways of doing business, virtually always lead to changes in
industry structure. Restructuring that may, in the abstract,
seem troublesome, is often easily understood as a response to
changing market conditions.
Absent overwhelming evidence that the merger would create
unacceptable risks of harm, this partnership and some others
that I will talk about in second, that try to break down the
old paradigms and fundamentally rethink traditional industry
models should be welcomed by consumers and lauded by
regulators.
It is important that the relevant standard here is not that
they demonstrate that they can increase efficiency and pass it
all on. The real relevant standard here is that they can
demonstrate that they are trying something. They are
experimenting. They are doing something new, but most
importantly, that they are not harming consumers. Those are
very different.
As I said, the impotence behind this merger, I think, is a
change in the industry. It is a technological evolution
particularly with respect to data and data processing abilities
and the growing movement away from fee for service care toward
value-based care. Taking advantage of these, though, requires
large investments in technology, comprehensive tracking of
preventive care activities, and health outcomes, and more
holistic supervision of patient care. And arguably, all of this
may be accomplished more efficiently and effectively by larger,
better-integrated firms.
The idea that this kind of combination of diverse aspects
of the current healthcare industry might better serve the
direction that healthcare is going also comes from the fact
that there is a veritable wave of these sort of interesting
vertical mergers going on right now. There are a lot of
examples, but I want to jus draw your attention to two of them
that I think are particularly interesting.
So Walmart recently announced a deal with Quest Diagnostics
to offer diagnostic testing services and potentially other
basic healthcare services inside of some Walmart stores. Now,
what is interesting about this arrangement that while it does
not necessarily do this right out of the gate, it does portend
the possibility of an expansion of the use of patient-initiated
as opposed to doctor-authorized tested in States that allow it.
Very much consistent with the direction, I think, of the
sort of consumer-centric, outcome-based healthcare and
potentially remarkably cost saving. It is something that I do
not think Quest would really necessarily be able to accomplish
on its own. But in partnership with Walmart, one can easily
imagine that happening.
And maybe even more interesting, is the pharmaceutical
company Roche announced this month that it would buy cancer
data company Flatiron Health, and as it said, [to speed
development of cancer medicines,] and this is the interesting
part, [and help price them based on how well they work.]
Now, not only is the deal intended to improve
Roches drug development price pipeline, but it is also
aimed at accommodating efforts by other players in the industry
to shift the pricing of drugs toward an outcome-based model. I
think that is terrific, and I also think, again, it is driven
largely by the technological ability that we have now with the
integration of data and other sorts of practices. And as I
said, as a part of this transformation in the industry, I
think.
So, I think with respect to the Aetna-CVS merger in
particular, as we heard this morning, there seem to be a lot of
interesting opportunities. And again, I want to highlight just
one, because sadly I do not even have time to do that, but I do
not even have time to highlight more.
And in particular, I think we heard about the Meals on
Wheels program that Aetna runs. Well, they run another program
that involves community care managers who typically drive to
subscribers homes. They provide them with advice. They
evaluate their needs. It acts on a very small scale, and it
requires a lot of driving, it requires special meetings; it is
probably not something that most subscribers see as something
that sort of fits into the normal course of their day.
But now, imagine that something like, say, and I am making
this up, a third of workers in every CVS retail store has
specialized training. And these care managers are located in a
dedicated space in the store. And they do not interact with
just a few patients between scheduled drives, but with hundreds
of patients as they pass through the stores. You can imagine
something like concierge medicine for the masses. And I think
this is the kind of opportunity that this merger presents and
exactly what we need in the healthcare industry today.
Mr. Mannes written statement is available at the
Committee or on the Committee Repository at:https://
docs.house.gov/meetings/JU/JU05/20180227/106898/HHRG-115-JU05-
Wstate-ManneG-20180227.pdfMr. Marino. Thank you. We now will
start with our 5 minutes of questioning, and I will recognize
myself. And if I select someone for a question and anyone else
wants to respond to it, go ahead, but just bear in mind we are
talking about 5 minutes. Dr. Garthwaite, Americans pay some of
the highest prices worldwide for prescription drugs. Do you see
this merger helping to drive drug prices down?
Mr. Garthwaite. I think it is important to think about why
we pay the highest prices for these prescription drugs. And I
do not think it is a situation in which, you know, we should
think about comparing the prices we pay here to the prices we
pay in Europe. We should think about the value we get for the
dollar in the United States.
I think that what you would see in terms of prices in the
United States is that the primary effect here would be on list
prices as opposed to the net prices being paid by just sort of
rank order. And that is sort of the pre-rebate price that we
face. A lot of times, we dismiss that as a fiction, right? No
one ever pays that price, we all get discounts.
I would note, though, that increasingly consumers find
themselves exposed to those list prices. And that is where, you
probably heard a lot from your constituents in the sense that
they are in their deductible, or they pay a percentage of the
list price for their coinsurance. I think that is where you
would see some incentives to no longer play games to
artificially inflate list prices to get high rebates. And you
would see an effect there more than you would on sort of the
aggregate spending on prescription drugs.
Mr. Marino. Okay. Dr. Wu, would you care to respond?
Mr. Wu. Well, I mean, drug pricing is a complicated topic.
And this transaction does not cover all of those issues. But I
think this transaction does represent an innovative way to
tackle some hard issues that we face. And we need innovation.
And this transaction is an example of that.
Mr. Marino. Attorney Slover?
Mr. Slover. Yes, I think the merger is likely to lead to
reduced costs within the CVS-Aetna corporate structure. The
question is at what cost to the rest of the marketplace? And
that is going to depend on other external factors, the
competition that is available throughout the marketplace and
the competition that remains after the merger and whether any
of those costs get passed along to the rest of the market and
ultimately to consumers. And that is, I think, going to require
a careful look by the Justice Department.
Mr. Marino. Thank you. Attorney Manne?
Mr. Manne. I will just say very quickly; I think there are
lots of opportunities in this merger to reduce double
marginalization at various points in the pharmaceutical supply
chain. And so, I think we can all agree that there are reasons
to expect that the cost of delivering drugs to patients will go
down.
To Mr. Slovers point, I do not see any reason to
expect that the merger would portend higher prices for either
the customers of Aetnas and CVS customers or
outside the firm elsewhere in the market. And as a result, even
if the savings are not passed on, I cannot imagine a story that
would explain why things would get worse with respect to drug
prices following this merger. And I can certainly see some
reasons why I might think they would get better.
Mr. Marino. Okay. Dr. Wu, United and Humana are both health
insurers that also have PBMs. Has there been any antitrust
problems or consumer harm based on these companies being both
insurers and PBMs that you are aware of? And, again, anyone
else can comment on this too.
Mr. Wu. I am not aware of any antitrust issues with the
integration of PBMs and insurers. Again, this is the market
experiment that is taking place. I do not think it is clear if
there is one business model that will be more successful or
less successful. The integrated model is the structure that CVS
and Aetna want to move towards. This is an experiment. Will it
work? Will it not work? You know, this is the market test.
Mr. Garthwaite. I would also note just broadly that this is
also the model that Anthem is moving towards as well as CVS-
Aetna. So, you have got all the major insurers looking to this
integrated model at this point.
Mr. Marino. Attorney Slover?
Mr. Slover. Yes. PBMs make a lot of their money by
negotiating reductions on the price they pay for pharmaceutical
drugs and not turning all of that money over to the health
insurers. And so, there is definitely a competition issue
there. The reason they turn over what they do is because there
are options for health insurance companies to go to a different
PBM or to do that service themselves. To the extent that the
new market structure and coupled with other consolidation
taking place removes those options, it could definitely have an
effect.
Mr. Marino. Thank you. Attorney Manne?
Mr. Manne. I do have thoughts, but I see the time is up.
Mr. Marino. We are fine. Go ahead.
Mr. Manne. Well in case you had another question I thought
I would leave it for you. But that is fine. Not surprisingly, I
agree with Dr. Wu. I think the most important thing here is
once again, it is difficult to see why there would be problems
arising from this. And the PBM market such as it is has been
kind of in a state of disruption for about a decade now.
And I think it seems pretty clear, as Dr. Garthwaite said,
what direction it seems to be heading. But it will not be
inexorably in that direction. We will see some other changes
happening, too. This seems like a perfect opportunity to try
out this particular combination of companies around PBM market,
see if it works, and if not, we will continue to try other
things, too. I do not see any great problems in that market as
it happens.
Mr. Marino. All right, thank you. The Chair now recognizes
the Congressman from New York, the Ranking Member of the full
Committee, Congressman Nadler.
Mr. Nadler. Thank you, Mr. Chairman. Mr. Slover, a number
of questions for you. The health insurance market is already
highly concentrated. According to studies by the AMA, there has
been a near total collapse of competition among health
insurers. The cost of health insurance has also grown
dramatically over the past 30 years. What effect does
concentration in this market have on premium growth, worse
customer service, or less choice for health insurance options?
Mr. Slover. Well, I think your question kind of contains
the answer. The more -
Mr. Nadler. Best kind of question.
Mr. Slover. The more concentration there is, the fewer
choices are available in all levels of the marketplace. And
when there are fewer choices, the ones who are offering those
choices do not have to try as hard to make those choices
attractive.
Mr. Nadler. Thank you. Would the combination of Aetna, a
dominant health insurer, with CVS Health, which is the largest
pharmacy benefit manager and second larger retail pharmacy,
create risks of anticompetitive conduct?
Mr. Slover. Yes. It certainly could in some of the ways
that I have described. If there is a silo where it is favoring
its in-house operations, the question is whether it still has
the incentive to make those same offerings available to others
and to what extent. I think they will try to have their cake
and eat it, too. And so, how that changes will affect the
quality of those choices that are still available.
Mr. Nadler. Now, I asked Mr. Moriarty and he says the
following is not a concern for reasons you probably heard, but
let me ask your opinion. Are you concerned that the proposed
transaction would increase the risk of CVS Health steering
Aetna enrollees to its own pharmacies or creating
disadvantageous conditions for rivals?
Mr. Slover. I do not envision something happening right
away that suddenly the merge company wants to lock everybody
else out, but it is a question overtime. For examples one of
the scenarios that was described is CVS taking its
MinuteClinics into markets in rural areas or undeserved areas
where there are no primary care physicians. Well, if they are
meeting a need that cannot be met some other way, I think that
is an unmitigated good.
But why would CVS stop at that point and say we are only
going to offer these profitable services in areas where there
are not primary care physicians? They are going to say, [Well,
look we have got it established, we will move into the other
areas. We can take some of the business away from the primary
care physicians.] So, it is a continuum, and the question is
where the line changes in terms of having your cake and eating
it too.
Mr. Nadler. And there are studies that indicate that health
insurance premiums and insurer profits tend to rise in the wake
of health insurance mergers. Is this also true for vertical
acquisitions effecting the availability of health insurance in
your opinion?
Mr. Slover. I think it is more complicated, as a lot of
people have discussed here, how vertical mergers affect the
marketplace. They generally do provide opportunities for cost
cutting within the new merged entity. Then there is the
question of whether those are going to get passed along to
others. And then on the other side, there is the potential for
foreclosure if it is profitable to the combined entity to
freeze out others, or to disadvantage others, or to make life
harder for others so that more business comes to it.
Mr. Nadler. And as you note the market for pharmacy benefit
managers or PBMs is highly concentrated with just three PBMs
accounting for 70 to 80 percent of the market. What effect with
the proposed transaction have on competition on the PBM market?
And do you believe that consumers would benefit from Aetna
entrance into the PBM market through organic growth and
competition rather than through this proposed transaction?
Mr. Slover. Well, we heard Aetna say that they had already
looked at that a few years ago and decided that it did not make
sense for them to go into that market themselves, and that they
would have a contractual relationship with CVS. I think, absent
the merger, they are going to take a fresh look at that.
And if they say, [You know what? It kind of makes sense for
us to give this a try, because we really have decided now that
we want our own in-house PBM,] and they did enter, then it
would provide another major competitor in the concentrated PBM
marketplace.
Mr. Nadler. Thank you. I have one last question. There is
general consensus as you note in your written testimony that
behavioral remedies are not an effective toolto address harms
to competition in merger enforcement. To the extent the Justice
Department determines that there are anticompetitive harms of the
proposed transaction, such as increasing the risk of vertical
foreclosure or steering by the merging companies, how might they
address these concerns? In other words, what mitigation or remedies
might there be?
Mr. Slover. Well, in a vertical merger, it is very
difficult to handle that with divestiture or partial structural
remedies, you are really talking about deciding whether or not
the merger should be blocked or not. The Department has decided
to challenge the AT&T-Time Warner merger for that very kind of
reason. If you do not do that, the behavioral remedies may be
the only alternative. And so, they can be considered as a last
resort but they are very time consuming, very problematic to
enforce, and like I said in my written statement, they actually
require the merged company to act against its interests --
Mr. Nadler. In other words, behavioral remedies are the
only remedies and they do not work very well? Is that your
testimony?
Mr. Slover. Well, the other remedy is to challenge the
merger and say it should not go forward. And then there may be
some others. I hope that the Justice Department will look at
the full range of opportunities, and will do whatever it can to
protect competition.
Mr. Nadler. Thank you. I yield back.
Mr. Marino. The Chair recognizes Congresswoman Handel from
Georgia.
Mrs. Handel. Thank you very much, Mr. Chairman. I
appreciate it. Dr. Wu, in your opinion, how reliable are the
economic techniques that the Department of Justice and FTC
regulators use in predicting whether or not a proposed merger
will have an anticompetitive impact?
Mr. Wu. I am confident that the antitrust attorneys and
economists at the Federal Trade Commission and Department of
Justice have the tools and talent that they need to address
these questions. They evaluate mergers before they happen, and
they are also in a great position to evaluate mergers after
they happen. And they should evaluate consummated mergers
whenever they see problems arise.
Mrs. Handel. Great, thank you very much. Mr. Manne, do you
have any specific concerns regarding anticompetitive effects
from this merger in the insurance marketplace, pharmacy market,
or PBM market?
Mr. Manne. No. I can elaborate a little bit more. I think
that some of the arguments that have been suggested, for
example, with respect to the possibility that it is more
difficult for other insurers to enter because they will not be
able to compete unless they also have a PBM or some of the
foreclosure arguments that Mr. Slover has suggested. I think
all of those actually end up being examples of what they are
actually saying this merger to the extent that it creates a
more efficient arrangement, it makes it harder for other
entities to compete. And that is not a bad thing. That is
exactly what we want.
So, there are, you know, some arguments out there, and we
do not have enough time to go into them in great detail. But I
am not persuaded that any of them are particularly problematic.
Mrs. Handel. Okay. And one last question since there has
been several references to the AT&T-Time Warner merger. Does
the DOJs challenge of AT&T-Time Warner merger suggest
anything about this particular merger?
Mr. Manne. Is that for me?
Mrs. Handel. Yes.
Mr. Manne. I do not think so, no. I think that the
challenge of that merger is absolutely a bucking the trend, and
the precedent, and the economics on vertical mergers. I am
quite confident that the DOJ will lose that as well which also
will mean that there will be no lasting precedent from that
challenge. It is a little hard to suss out exactly why they did
bring that merger. And, of course, there have been some stories
floating around. I do not really have any idea if they are
accurate or not. But I actually think that part of the story
turns on what AG Delrahim said about behavioral remedies. And
it goes to some of what Mr. Slover said.
And I do have one important comment to make on that which
is the real problem is not behavioral remedies. The problem is
behavioral remedies that have nothing to do with the merger
itself. And there are some terrible examples of the DOJ and
other agencies engaging in those. Properly applied behavioral
remedies are actually effectively just the same thing as saying
the DOJ is going to continue to enforce the antitrust laws and
make sure that no ongoing behavior causes anticompetitive
problems.
For example, if they said, [It would be anticompetitive to
engage in certain foreclosure activities, and we are going to
apply a behavioral remedy that prevents that.] That is no
different than the world in which the DOJ has to monitor a
company and make sure they do not engage in those allegedly
anticompetitive problems.
So, I actually do not think there is any problem with a
behavioral remedy here or anywhere else. And I just want to
say, of course, that in that last discussion they left off one
option which is approve the merger without any remedies at all,
of course.
Mrs. Handel. All right, thank you very much. Mr. Chairman,
I yield back.
Mr. Slover. If I could jump in really quick and --
Mrs. Handel. I am yielding my time back, sir. Thank you.
Mr. Chairman, I yield back.
Mr. Marino. Your testimony is very helpful. But I would
like to ask Mr. Slover, you testified before on behalf of our
CREATES Act.
Mr. Slover. That is correct.
Mr. Marino. I remember that. Could you please comment on
the CREATES Act? What you think about it? What benefits there
are to it? Why if you believe we need it?
Mr. Slover. Well, one of the big insights that Congress had
many years ago in enacting the Hatch-Waxman Act was that if an
easier way could be found for generic alternatives to enter the
market, they would be more affordable. Consumers would have
greater choice; they would be able to get the drugs that they
needed at a better cost. And since then, the brand name drugs
have looked for ways to try and throw obstacles in the way of
that happening.
And one of the ways that they had been doing that is to
block access to the samples, because the generic drug makers
need to have the samples to be able to test their drug
alongside the brand name drug to show the FDA that they are
bioequivalent. So, that is one of the ways that they have
impeded the entry of competition for more affordable generics.
Another way has been that there are some drugs that have
protocols. There are dangers that are significant enough in
misuse or misprescription that they need to have a protocol
established to make sure that that is taken care of properly.
And if those protocols are blocked, if the generics are denied
access to those protocols, they can also be a hamper from
entering the market.
So, the CREATES Act just takes care of those two specific
problems. There are others too. But those are two very
important ones to take care and so that is why we
enthusiastically support that bill.
Mr. Marino. The CREATES Act, I think you would agree with
me, that this all takes place after the patent has expired.
Correct?
Mr. Slover. A lot of times it is a challenge that is being
brought by the generic to the patented drug, and they found a
way to successfully challenge the patent.
Mr. Manne. The access to the sample sometimes happen--that
process can start, I believe, before the patent expires, right?
I mean all of this is taking place generally at the end of the
--
Mr. Slover. It is in anticipation of the patent expiring.
Mr. Marino. You cannot infringe upon the patent.
Mr. Manne. Right. Well, it would not be an infringement.
That is right.
Mr. Marino. Right. Yes, sir?
Mr. Garthwaite. I think you asked earlier about drug
pricing as it encourages to the Committee focusing on this
issue of generics. Because there are two sets of high drug
prices in the United States. There is one for brand name drugs
that we think provide this dynamic incentive to get better
cures in the future.
And then to your last statement, there is these generic
drugs where the patents expired. And we want to do everything
we can to push things to marginal cost. And we see an incessant
amount of gaming in that area that is causing high prices
particularly from very valuable small market drugs.
And so, your ability to influence drug pricing there is
going to have far more of an effect on consumer welfare and a
far more unambiguous effect on consumer welfare then things on
brand name medications.
Mr. Marino. Manne?
Mr. Manne. I had one quick comment which is just that as
you may know I have written in support of the CREATES Act as
well. I submitted some materials for the record. I think it is
a great idea. I want to just flag one thing which is that the
problems that it tries to solve are not necessarily endemic to
the brand patent industry.
There are plenty of actors who are acting perfectly
appropriately in that market. And in some ways, I think, it is
a relatively small number of potentially bad actors who sort of
have been consistently identified. Now, that does not mean that
the other ones could not do it, but companies like Pfizer, for
example, are not engaging in these practices.
And, so, it is important not to paint with too broad a
brush and tar the whole industry when it is not the whole
industry.
Mr. Garthwaite. These are often non-pharmaceutical
companies that are doing this. These are private equity
companies coming in. And this is a profitable trade like
anything else. This is not large pharma engaging in these
tactics.
Mr. Marino. All right. It has been referred numerous times
that this vertical merger is an experiment. And I kind of like
that concept. But I think generally speaking and I do not want
the public to think that or my constituents to think that we do
not know what is going to happen here in this experiment.
So, if you could comment on that, after I state that at any
time if we see an antitrust issue particularly on this
Committee, we can immediately address that. At any time, DOJ or
the Federal Trade Commission can do the same thing. So, we will
be watching this. I would not be supporting if this would not
be a bipartisan matter, if we did not there was merit to this.
There is no such thing as the perfect piece of legislation, but
what I think the newer Members of Congress look at, it can
always be tweaked.
Just to go along with that, before I went to college and
law school I was in manufacturing. And I am a baker by trade
actually. And we always tweaked a product to make it better. If
one of my supervisors that worked for me said to me,
[We cannot be more efficient,] I knew I did not need that
supervisor.
And hospitals, the administrators, are constantly calling
me about the cost of running an emergency room. And it should
be this way, anyone who comes in, they really have to give them
care, particularly if it is a life or death situation. But how
are the hospitals--what do you think their position is going to
be on these urgent cares or clinics, what impact is that going
to have on the hospitals? Anyone.
Mr. Garthwaite. I think one interesting thing about this is
that we have long thought that provider sponsored health plans
were coming, and Attorney Manne had spoken about the idea that
we are seeing a move away from fee-for-service medicine. What
is unique about these mergers is that it is the insurance
companies that are buying up providers both United Healthcare
buying up ambulatory surgical centers, and CVS-Aetna. But they
are not interested in purchasing the in-patient hospital, and
that is because in many ways that business is not going to be a
very good business to be in going forward. At least that
appears the debt people are making.
That if we run these urgent care centers well, if we do a
good job with the type of innovation these companies are
looking at; we can cut in-patient volumes. And you are seeing
declining in beds per capita. You are seeing utilization of the
hospital go down. And so, they are going to be upset in some
way because you are taking away their business. But that is not
necessarily bad for society. Because for society, it is better.
I do not think any of us want to be in the hospital. And so, if
you do this right and you reduce in-patient hospitalization,
that is a positive from this merger, not a negative.
Mr. Manne. I totally agree with that and I would just point
out also lest we forget the in-patient hospital is itself a
vertical and horizontally integrated entity. And there is every
reason to expect exactly what I was saying before that when the
market conditions change, those kinds of integrations change as
well because whatever drove them before may not exist anymore,
and vice versa.
And so, for example, the fact that insurers may not be
interested in buying in-patient hospitals may indeed suggest
that they think that the most efficient form of offering care
in the future may change. That does not mean that they are
against provider care. That does not mean they are against
anything that is done in the hospital. They may just think that
that particular organization is not the most efficient way to
do it. I do not know that that is true. But it may very be the
truth.
Mr. Marino. Dr. Wu and then Attorney Slover.
Mr. Wu. Chairman, you are absolutely right that the
antitrust agencies are in a good position to resolve antitrust
issues when they see it. There is innovation and tweaking on
all sides.
For the antitrust agencies, for example, the Federal Trade
Commission conducted a major hospital merger retrospective
about 10 years ago. That was after the Federal Trade Commission
and Department of Justice lost a number of merger cases at
trial. They did a fantastic study. They learned what they were
doing right. They learned what they were not doing. And it
really strengthened their premerger investigations. That is
tweaking on that side.
On the hospital side, this is called competition. I know we
focused today on the competitive effects of the proposed
transaction. But one thing we should keep in mind is the
competitive response by rivals, and that includes hospitals who
have emergency rooms. And emergency rooms are very important
places, but it is not exactly the right place for a lot of the
services that people go to. And they will have their challenges
too, and I expect them to respond.
Mr. Marino. I have two more brief questions. But if you are
ready to catch a plane, I will conclude. Is everybody all right
for now? How about explaining to the public, because I do it
all the time in meetings that I have, the difference between
the expense of running the hospital and, you know, emergent
care? Because a lot of people do not realize the differences
between that. I know it and you know it, but as far as the
expense of running a whole hospital compared to an emergency
room, an operating room, and everything else. So, could any of
you shed some light on that?
Mr. Slover. Well, not as a healthcare expert but as someone
who has had to use the emergency room services a couple of
times recently on a doctors recommendation, I might
add, the emergency room is all hands on deck. And it has
everything that you could possibly need. So, it is a very
expensive proposition because they want to be able to provide
anything in an emergency situation.
Mr. Garthwaite. I mean, I think hospitals get this wrong a
lot when they talk about this as well, right? They did not
think about the difference between their fixed and their
marginal costs. It is clearly that the hospital is a higher
fixed cost. And indeed because having all this all hands on
deck side.
The other thing that is very different about the hospital
emergency room that is important, and you referenced it
earlier, are the regulatory structures that we put on them. In
which they are required to treat and stabilize all comers,
whereas an emergent care center that does not have an ER is
not. And that changes the nature of the payer mix that you
have, and your ability to serve the public.
So a well-run ER in a fairly wealthy area is a profit
center for a hospital. Even well-run ER in downtown Chicago or
on the Southside of Chicago is just a loss. It should not be
surprising, right, when the University of Chicago built their
new hospital recently and neglected to put an adult trauma
center in because of the negative payer mix that comes with
that. So, I think that is a big issue. It is on the cost side,
but also on the expected revenue side.
Mr. Marino. Attorney Manne, you wrote about an ill-advised
return to the biggest baddie antitrust of the 1960s and 1970s.
Can you elaborate on the risk to consumer welfare from a
reflexive opposition to corporatecombinations?
Mr. Manne. At great length, in fact. You know, I think it
actually it bears on a lot of the things we have been talking
about. There are certainly circumstances in which, especially
at a very horizontal level, an absence of competition can
create problems for competitors. We all understand that
perfectly well.
But we also understand, and we have heard a lot about--
talking about this merger--how the fact that an entity may be
somewhat larger than before especially if it grows through a
vertical integration does not necessarily mean that its either
in a position to, or has any intention of taking advantage of
its consumers, or other consumers. And, in fact, those kinds of
integrations, the particular agglomerations of skills and
resources, and all sorts of other things are in most
circumstances and especially when vertical lead to benefits for
consumers.
So, of course, stopping that kind of thing simply because
it is bigger than what we had before means that the consumers
never receive the potential benefits of that. So, the harm to
consumers is deterring the creation of what otherwise would be
more efficient collections of capital, and of other resources.
Because we simply say well, that is bigger, and so we do not
like it.
Mr. Slover. I think we need to be careful not to create a
straw man that is too easy to knock down. I think simply saying
big is always bad, and we should always be opposed to any
merger because it is always going to make something bigger than
it was before the merger is different than saying that the
bigger the size that you are looking at, and the bigger a chunk
of the market that is going to be captured by that merger; the
closer look it needs, because the bigger entity is going to
have more ability to potentially cause harm to the marketplace.
If we were talking about a health insurer here that had 5
percent of the market, and PBM that was just a sliver of the
market, and a pharmacy chain that was a sliver of the market,
and they were all going to try to some new experiment; we would
be looking at that much differently than if there was one PBM,
one insurer, one pharmacy, and they were all going to unite.
So, somewhere in-between there are infinite shades of
difference. And that is why we have an antitrust division
taking a close look at this rather than just somebody making a
snap judgement.
Mr. Marino. Antitrust issues are some of the most
complicated pieces of legislation to litigate. I clerked for a
Federal judge as an intern, and when I was U.S. Attorney we had
a civil division. This is just probably some of the most
complex areas in the judicial system that there are. But we
become smarter at it because of people like you.
And I want to thank you for being here, because I learn
something every time I have a hearing. And todays
hearing was exceptional with the gentlemen in the first panel,
and you. And at the risk of boring some people, I will not
continue questioning because we could do this all night. But I
want to thank you so much.
And for the record I do want to enter in two statements.
The statement from the National Community Pharmacists
Association, NCPA, and a statement from the American Medical
Association. Is there any objection? And that is what is nice
about being here alone, there is no objection. So these will be
answered into the record.
This material is available at the Committee or on the
Committee Repository at:https://docs.house.gov/meetings/JU/
JU05/20180227/106898/HHRG-115-JU05-20180227-SD003.pdf Mr.
Marino. And this concludes our hearing. Again, thank you so
much for attending, and you are excused.[Whereupon, at 4:22
p.m., the Subcommittee was adjourned.]